================================================================================
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: October 31, 2006
ITEM 1. REPORTS TO STOCKHOLDERS.
================================================================================
MAINSTAY(R) FUNDS
Message from the President
and
Annual Report
October 31, 2006
(MAINSTAY INVESTMENTS 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 Balanced Fund
MainStay Income Manager Fund
ASSET ALLOCATION FUNDS
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
MESSAGE FROM
THE PRESIDENT
Most stock and bond markets around the world provided positive total returns
during the 12 months ended October 31, 2006. International stocks were
exceedingly strong, with all industry sectors providing positive returns. Of
course, past performance is no guarantee of future results.
On average, U.S. stocks at all capitalization levels provided double-digit total
returns. According to Russell data, value stocks outperformed growth stocks for
companies of all sizes. Strong growth in corporate profits contributed to the
stock market's advance, and positive earnings surprises continued to outnumber
negative ones. The price of oil and other commodities rose during the reporting
period but softened somewhat toward the end. This helped alleviate inflation
concerns, as did a noticeable softening in the housing market.
In February 2006, Dr. Ben Bernanke replaced Dr. Alan Greenspan as Chairman of
the Federal Reserve Board. Although the Federal Open Market Committee continued
to raise the targeted federal funds rate during the reporting period, the
monetary-tightening policy that began on June 30, 2004, finally abated after the
federal funds target reached 5.25% on June 29, 2006.
The effects of Federal Reserve tightening were not felt uniformly across the
Treasury yield curve. Although short-term rates rose substantially during the
reporting period, longer-term rates moved relatively little. At various times
the yield curve inverted, and toward the end of the reporting period, the yield
curve remained relatively flat. The shape of the yield curve was influenced by
the reintroduction of the 30-year bond, projections of a cooler economy, Federal
Reserve efforts to keep inflation in check, and an increase in buying by hedge
funds, foreign banks, and other liquidity buyers. Most bond sectors provided
positive total returns. High-yield corporate bonds and emerging-market debt were
particularly strong.
We are pleased to inform our shareholders that on June 30, 2006, New York Life
Investment Management LLC closed a definitive merger agreement with
Institutional Capital Corporation (ICAP), a premier value-equity institutional
investment firm based in Chicago, Illinois. In July 2006, ICAP also began
serving as comanager of MainStay MAP Fund. In the fall of 2006, we added three
new Funds managed by ICAP--MainStay ICAP International Fund, MainStay ICAP
Select Equity Fund, and MainStay ICAP Equity Fund.
Each MainStay Fund is managed using a time-tested investment approach that
includes investment strategies and processes appropriate to the Fund's
investment objective. The Funds' portfolio managers seek to consistently apply
this investment approach even when markets shift or company fundamentals change.
In this way, the portfolio managers seek to avoid style drift and unnecessary
risk exposure as they pursue long-term performance for the assets under their
care.
The reports that follow provide more detailed information about the market
factors and management decisions that influenced your investments in MainStay
Funds during the 12 months ended October 31, 2006. We thank you for entrusting
your assets to MainStay, and we hope that you will be encouraged by the positive
results your investments have achieved.
Sincerely,
/s/ CHRISTOPHER O. BLUNT
Christopher O. Blunt
President
Not part of the Annual Report
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MAINSTAY(R) FUNDS
Annual Report
October 31, 2006
(MAINSTAY INVESTMENTS 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 Balanced Fund
MainStay Income Manager Fund
ASSET ALLOCATION FUNDS
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
This page intentionally left blank
TABLE OF CONTENTS
<Table>
Annual Report
- --------------------------------------------------------------------------------
EQUITY FUNDS
MainStay All Cap Growth Fund 1
- --------------------------------------------------------------------------------
MainStay All Cap Value Fund 16
- --------------------------------------------------------------------------------
MainStay Mid Cap Opportunity Fund 30
- --------------------------------------------------------------------------------
MainStay S&P 500 Index Fund 44
- --------------------------------------------------------------------------------
MainStay Small Cap Opportunity Fund 62
- --------------------------------------------------------------------------------
INCOME FUNDS
MainStay Cash Reserves Fund 78
- --------------------------------------------------------------------------------
MainStay Floating Rate Fund 92
- --------------------------------------------------------------------------------
MainStay Indexed Bond Fund 114
- --------------------------------------------------------------------------------
MainStay Intermediate Term Bond Fund 140
- --------------------------------------------------------------------------------
MainStay Short Term Bond Fund 160
- --------------------------------------------------------------------------------
BLENDED FUNDS
MainStay Balanced Fund 172
- --------------------------------------------------------------------------------
MainStay Income Manager Fund
(formerly MainStay Asset Manager Fund) 192
ASSET ALLOCATION FUNDS
MainStay Conservative Allocation Fund 220
- --------------------------------------------------------------------------------
MainStay Growth Allocation Fund 234
- --------------------------------------------------------------------------------
MainStay Moderate Allocation Fund 246
- --------------------------------------------------------------------------------
MainStay Moderate Growth Allocation Fund 260
- --------------------------------------------------------------------------------
Notes to Financial Statements 274
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Report of Independent Registered Public Accounting Firm 293
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Federal Income Tax Information 294
- --------------------------------------------------------------------------------
Proxy Voting Policies and Procedures and Proxy Voting Record 294
- --------------------------------------------------------------------------------
Shareholder Reports and Quarterly Portfolio Disclosure 294
- --------------------------------------------------------------------------------
Board Members and Officers 295
</Table>
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MAINSTAY ALL CAP GROWTH FUND
INVESTMENT AND PERFORMANCE COMPARISON (UNAUDITED)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE 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 CALL 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM. PERFORMANCE DATA SHOWN EXCLUDING SALES CHARGES DOES NOT
REFLECT THE DEDUCTION OF ANY SALES LOAD, WHICH IF REFLECTED, WOULD REDUCE
PERFORMANCE QUOTED.
CLASS A SHARES--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
With sales charges 3.24% 2.97% 4.67%
Excluding sales charges 9.25 4.14 5.26
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY ALL CAP RUSSELL 1000 GROWTH RUSSELL 3000 GROWTH
GROWTH FUND S&P 500 INDEX INDEX INDEX
---------------- ------------- ------------------- -------------------
10/31/96 9450 10000 10000 10000
11743 13211 13047 12964
14104 16117 16263 15607
18630 20253 21832 20899
20889 21487 23869 22948
12882 16136 14335 13921
10336 13698 11523 11175
12009 16548 14036 13785
12115 18107 14511 14273
14443 19686 15790 15556
10/31/06 15778 22903 17501 17328
</Table>
CLASS B SHARES--MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
With sales charges 3.45% 3.01% 4.33%
Excluding sales charges 8.45 3.36 4.33
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY ALL CAP RUSSELL 1000 GROWTH RUSSELL 3000 GROWTH
GROWTH FUND S&P 500 INDEX INDEX INDEX
---------------- ------------- ------------------- -------------------
10/31/96 10000 10000 10000 10000
12309 13211 13047 12964
14625 16117 16263 15607
19122 20253 21832 20899
21229 21487 23869 22948
12951 16136 14335 13921
10315 13698 11523 11175
11891 16548 14036 13785
11911 18107 14511 14273
14089 19686 15790 15556
10/31/06 15279 22903 17501 17328
</Table>
CLASS C SHARES--MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
With sales charges 7.44% 3.38% 4.34%
Excluding sales charges 8.44 3.38 4.34
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY ALL CAP RUSSELL 1000 GROWTH RUSSELL 3000 GROWTH
GROWTH FUND S&P 500 INDEX INDEX INDEX
---------------- ------------- ------------------- -------------------
10/31/96 10000 10000 10000 10000
12309 13211 13047 12964
14625 16117 16263 15607
19122 20253 21832 20899
21229 21487 23869 22948
12951 16136 14335 13921
10315 13698 11523 11175
11891 16548 14036 13785
11917 18107 14511 14273
14102 19686 15790 15556
10/31/06 15293 22903 17501 17328
</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 as 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 1.00% 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. These fee waivers and/or expense limitations are
contractual and may be modified or terminated only with the approval of the
Board of Directors/Trustees. The Manager may recoup the amount of any management
fee waivers or expense reimbursements from the Fund pursuant to this agreement
if such action does not cause the Fund to exceed existing expense limitations
and the recoupment is made within three years after the year in which the
Manager incurred the expense. From inception (1/2/91) through 12/31/03,
performance for Class A, B, and C shares (each first offered 1/2/04) includes
the historical performance of Class I shares 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 THE TABLES
AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
www.mainstayfunds.com 1
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
9.89% 4.56% 5.54%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY ALL CAP RUSSELL 1000 GROWTH RUSSELL 3000 GROWTH
GROWTH FUND S&P 500 INDEX INDEX INDEX
---------------- ------------- ------------------- -------------------
10/31/96 10000 10000 10000 10000
12454 13211 13047 12964
14981 16117 16263 15607
19819 20253 21832 20899
22245 21487 23869 22948
13716 16136 14335 13921
11031 13698 11523 11175
12848 16548 14036 13785
13014 18107 14511 14273
15603 19686 15790 15556
10/31/06 17145 22903 17501 17328
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
- ------------------------------------------------------------
S&P 500(R) Index(1) 16.34% 7.26% 8.64%
Russell 1000(R) Growth Index(2) 10.84 4.07 5.76
Russell 3000(R) Growth Index(3) 11.39 4.48 5.65
Average Lipper multi-cap growth
fund(4) 10.39 6.15 7.27
</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 in 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 in an
index.
3. 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. Results 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 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 THE
TABLES AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
2 MainStay All Cap Growth Fund
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY ALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from May 1, 2006, to October 31, 2006,
and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, if applicable, exchange fees, and sales
charges (loads) on purchases, and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds. The example is based on an investment of $1,000 made at the
beginning of the six-month period and held for the entire period from May 1,
2006, to October 31, 2006.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested to estimate the expenses that you
paid during the six-months ended October 31, 2006. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
- - HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The fourth and fifth data columns in the table below provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balances or
expenses you paid for the six-month period shown. You may use this information
to compare the ongoing costs of investing in the Fund with the ongoing costs of
investing in other Funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
Funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees, if applicable, exchange fees, or sales charges (loads).
Therefore, the fourth and fifth data columns of the table are useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT
ENDING ACCOUNT VALUE (BASED
VALUE (BASED ON HYPOTHETICAL
BEGINNING ON ACTUAL EXPENSES 5% ANNUALIZED EXPENSES
ACCOUNT RETURNS AND PAID RETURN AND PAID
VALUE EXPENSES) DURING ACTUAL EXPENSES) DURING
SHARE CLASS 5/1/06 10/31/06 PERIOD(1) 10/31/06 PERIOD(1)
CLASS A SHARES $1,000.00 $971.20 $ 7.45 $1,017.50 $ 7.63
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $967.35 $11.16 $1,013.75 $11.42
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $967.35 $11.16 $1,013.75 $11.42
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $974.85 $ 4.63 $1,020.35 $ 4.74
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio of each class
(1.50% for Class A, 2.25% for Class B and Class C, and 0.93% for Class I)
multiplied by the average account value over the period, divided by 365 and
multiplied by 184 (to reflect the one-half year period). In the absence of
waivers and/or reimbursements, expenses would have been higher.
www.mainstayfunds.com 3
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2006
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
Common Stocks 100.1
Short-Term Investments (collateral from securities lending 7.7
is 7.7%)
Liabilities in Excess of Cash and Other Assets (7.8)
</Table>
See Portfolio of Investments on page 7 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2006 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. WellPoint, Inc.
2. Amphenol Corp. Class A
3. Fisher Scientific International, Inc.
4. Danaher Corp.
5. Praxair, Inc.
6. United Technologies Corp.
7. Apple Computer, Inc.
8. FedEx Corp.
9. Kohl's Corp.
10. Coach, Inc.
</Table>
4 MainStay All Cap Growth Fund
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio manager Edmund C. Spelman of MacKay Shields LLC
HOW DID MAINSTAY ALL CAP GROWTH FUND PERFORM RELATIVE TO ITS PEERS AND ITS
BENCHMARK DURING THE 12 MONTHS ENDED OCTOBER 31, 2006?
Excluding all sales charges, MainStay All Cap Growth Fund returned 9.25% for
Class A shares, 8.45% for Class B shares, and 8.44% for Class C shares for the
12 months ended October 31, 2006. For the same period, the Fund's Class I shares
returned 9.89%. All share classes underperformed the 11.39% return of Russell
3000(R) Growth Index,(1) the Fund's broad-based securities-market index, for the
12-month period. All share classes also underperformed the 10.39% return of the
average Lipper(2) multi-cap growth fund for the 12 months ended October 31,
2006.
DURING THE REPORTING PERIOD, WHAT DECISIONS HAD THE GREATEST INFLUENCE ON THE
FUND'S PERFORMANCE?
Adverse stock selection and overweighted positions in the health care,
financials, energy, and consumer discretionary sectors detracted from the Fund's
performance. At the end of the reporting period, the Fund had no holdings in the
telecommunication services and utilities sectors, which also detracted from the
Fund's overall performance. On the other hand, stock selection added significant
value in the industrials sector. In addition, the Fund's underweighted position
in the information technology sector and an overweighted position in the
materials sector enhanced results during the reporting period.
WHICH INDIVIDUAL SECURITIES HAD THE GREATEST POSITIVE IMPACT ON PERFORMANCE
DURING THE REPORTING PERIOD?
Terex, a maker of cranes and other heavy equipment, benefited from a sharp rise
in demand from the construction and mining industries. Electrical-products
distributor Wesco advanced on expanding gross margins, continued cost controls,
and excellent execution of its business plan. Connector and cable manufacturer
Amphenol benefited from higher materials and freight costs, driven by higher
commodity and energy prices.
Peabody Energy advanced on rising coal prices, strong demand, higher shipments,
and improved earnings. Fisher Scientific--known for its instruments, lab
equipment, and reagents--also had strong results. Specialty retailer Kohl's
enjoyed considerable sales growth and sold the company's credit card portfolio.
The sale reduced Kohl's receivables and improved operating cash flow.
WHICH STOCKS DETRACTED FROM PERFORMANCE?
UnitedHealth Group shares declined on a cautious earnings outlook and heightened
competition in the health care providers & services industry. Shares of
Omnicare, a leading provider of pharmaceutical care for the elderly, saw its
stock price decline because of litigation with United-Health Group. The company
also faced a mislabeling mishap and recall, and it lowered guidance. Cooper
Companies, a health care products manufacturer, was also weak.
Another detractor was specialty retailer Chico's FAS, which suffered from
weaker-than-expected same-store sales. National Financial Partners, a buyer of
insurance companies and other financial-services firms, plummeted after missing
analysts' second-quarter expectations, despite a 10% increase in earnings. Arch
Coal suffered when unusually mild weather reduced electricity demand and coal
consumption by power generators.
DID THE FUND SELL ANY OF THESE WEAK PERFORMERS?
Yes, we eliminated the Fund's positions in Chico's FAS, Omnicare, Cooper
Companies, and National Financial Partners during the reporting period. We sold
Advance Auto Parts on declining net income and disappointing second-quarter
sales. We also eliminated Internet-auction giant eBay because of slow earnings
growth and the company's inability to expand its core business.
WERE THERE ANY SIGNIFICANT PURCHASES DURING THE REPORTING PERIOD?
The Fund added Intercontinental Exchange, an electronic global futures and
over-the-counter marketplace for trading energy commodity contracts. In the
information technology sector, we purchased shares of Akamai Technologies and
Anixter International.
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. The
principal risk of growth stocks is that investors expect growth companies to
increase their earnings at a certain rate that is generally higher than the rate
expected for nongrowth companies. If these expectations are not met, the market
price for the stock may decline significantly, even if earnings showed an
absolute increase.
1. See footnote on page 2 for more information on the Russell 3000(R) Growth
Index.
2. See footnote on page 2 for more information about Lipper Inc.
www.mainstayfunds.com 5
We also added a position in Morgan Stanley, a leading firm in the
financial-services industry. New consumer discretionary holdings included
Phillips Van Heusen and Comcast.
HOW DID THE FUND'S SECTOR WEIGHTINGS CHANGE DURING THE REPORTING PERIOD?
During the 12 months ended October 31, 2006, the Fund's weightings in the
financials, information technology, industrials, and consumer staples sectors
were increased. Over the same period, the Fund's weightings in the consumer
discretionary, energy, and health care sectors were reduced.
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 GROWTH FUND ON THIS PAGE AND THE PRECEDING
PAGES HAS NOT BEEN AUDITED.
6 MainStay All Cap Growth Fund
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (100.1%)+
- -----------------------------------------------------------------------------
AEROSPACE & DEFENSE (3.3%)
L-3 Communications Holdings, Inc. 48,500 $ 3,905,220
V United Technologies Corp. 92,700 6,092,244
------------
9,997,464
------------
AIR FREIGHT & LOGISTICS (2.0%)
V FedEx Corp. 52,800 6,047,712
------------
AUTOMOBILES (1.8%)
Harley-Davidson, Inc. 80,600 5,531,578
------------
BEVERAGES (1.5%)
PepsiCo, Inc. 73,800 4,681,872
------------
BIOTECHNOLOGY (4.3%)
Amgen, Inc. (a) 45,300 3,438,723
Genentech, Inc. (a) 41,700 3,473,610
Gilead Sciences, Inc. (a) 70,300 4,843,670
United Therapeutics Corp. (a)(b) 26,300 1,574,055
------------
13,330,058
------------
CAPITAL MARKETS (3.7%)
Affiliated Managers Group, Inc. (a)(b) 30,900 3,094,326
Ameriprise Financial, Inc. 45,400 2,338,100
Lehman Brothers Holdings, Inc. 20,100 1,564,584
Morgan Stanley 57,700 4,410,011
------------
11,407,021
------------
CHEMICALS (2.0%)
V Praxair, Inc. 101,800 6,133,450
------------
COMMUNICATIONS EQUIPMENT (5.1%)
Avocent Corp. (a) 59,000 2,165,890
Cisco Systems, Inc. (a) 167,900 4,051,427
Corning, Inc. (a) 214,200 4,376,106
Motorola, Inc. 223,600 5,156,216
------------
15,749,639
------------
COMPUTERS & PERIPHERALS (3.3%)
V Apple Computer, Inc. (a) 75,000 6,081,000
EMC Corp. (a) 325,000 3,981,250
------------
10,062,250
------------
CONSUMER FINANCE (3.7%)
American Express Co. 76,100 4,399,341
AmeriCredit Corp. (a)(b) 84,800 2,168,336
Capital One Financial Corp. 59,900 4,751,867
------------
11,319,544
------------
DIVERSIFIED FINANCIAL SERVICES (3.7%)
Bank of America Corp. 74,300 4,002,541
IntercontinentalExchange, Inc. (a) 29,500 2,490,390
</Table>
<Table>
<Caption>
SHARES VALUE
DIVERSIFIED FINANCIAL SERVICES (CONTINUED)
JPMorgan Chase & Co. 60,900 $ 2,889,096
Nasdaq Stock Market, Inc. (The) (a) 51,000 1,822,230
------------
11,204,257
------------
ELECTRICAL EQUIPMENT (1.4%)
Roper Industries, Inc. 88,800 4,249,080
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS (3.9%)
V Amphenol Corp. Class A 92,700 6,294,330
Anixter International, Inc. (a) 52,700 3,149,352
Avnet, Inc. (a) 107,300 2,540,864
------------
11,984,546
------------
ENERGY EQUIPMENT & SERVICES (5.6%)
Baker Hughes, Inc. (b) 71,000 4,902,550
BJ Services Co. 87,000 2,623,920
National-Oilwell Varco, Inc. (a) 12,900 779,160
Transocean, Inc. (a) 57,200 4,149,288
Weatherford International, Ltd. (a) 114,700 4,711,876
------------
17,166,794
------------
FOOD & STAPLES RETAILING (0.5%)
Walgreen Co. 37,400 1,633,632
------------
HEALTH CARE EQUIPMENT & SUPPLIES (2.2%)
Cytyc Corp. (a) 161,900 4,277,398
Varian Medical Systems, Inc. (a) 44,300 2,430,298
------------
6,707,696
------------
HEALTH CARE PROVIDERS & SERVICES (8.0%)
Aetna, Inc. 78,600 3,239,892
Caremark Rx, Inc. 110,600 5,444,838
DaVita, Inc. (a) 45,800 2,547,854
Health Net, Inc. (a) 49,200 2,042,292
UnitedHealth Group, Inc. 97,614 4,761,611
V WellPoint, Inc. (a) 86,564 6,606,564
------------
24,643,051
------------
HOUSEHOLD DURABLES (0.7%)
Harman International Industries, Inc. 22,400 2,292,640
------------
INDUSTRIAL CONGLOMERATES (1.1%)
General Electric Co. 91,800 3,223,098
------------
INSURANCE (2.3%)
Hanover Insurance Group, Inc. (The) 46,000 2,086,100
Prudential Financial, Inc. 44,000 3,384,920
Zenith National Insurance Corp. 32,600 1,516,552
------------
6,987,572
------------
</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 7
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES (1.5%)
Akamai Technologies, Inc. (a) 44,400 $ 2,080,584
j2 Global Communications, Inc. (a)(b) 92,500 2,538,200
------------
4,618,784
------------
LIFE SCIENCES TOOLS & SERVICES (2.8%)
Covance, Inc. (a) 39,900 2,334,150
V Fisher Scientific International, Inc. (a) 73,500 6,293,070
------------
8,627,220
------------
MACHINERY (5.2%)
Caterpillar, Inc. 18,000 1,092,780
V Danaher Corp. 87,000 6,243,990
Illinois Tool Works, Inc. 65,500 3,139,415
Terex Corp. (a) 105,100 5,439,976
------------
15,916,161
------------
MEDIA (3.8%)
Comcast Corp. Class A (a) 87,200 3,546,424
McGraw-Hill Cos., Inc. (The) 35,900 2,303,703
News Corp. Class A 120,400 2,510,340
Omnicom Group, Inc. (b) 31,600 3,205,820
------------
11,566,287
------------
MULTILINE RETAIL (3.2%)
V Kohl's Corp. (a) 85,500 6,036,300
Target Corp. 65,900 3,899,962
------------
9,936,262
------------
OIL, GAS & CONSUMABLE FUELS (2.6%)
Arch Coal, Inc. 32,600 1,128,938
CONSOL Energy, Inc. (b) 48,200 1,705,798
Newfield Exploration Co. (a) 38,200 1,558,178
Peabody Energy Corp. 47,900 2,010,363
Tesoro Corp. 25,900 1,656,046
------------
8,059,323
------------
PHARMACEUTICALS (1.1%)
Johnson & Johnson 51,600 3,477,840
------------
REAL ESTATE INVESTMENT TRUSTS (0.6%)
CapitalSource, Inc. (b) 61,700 1,711,558
------------
ROAD & RAIL (1.3%)
Norfolk Southern Corp. 77,400 4,068,918
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (4.0%)
Intel Corp. 168,000 3,585,120
Linear Technology Corp. 24,300 756,216
MEMC Electronic Materials, Inc. (a)(b) 43,100 1,530,050
National Semiconductor Corp. (b) 160,200 3,891,258
Texas Instruments, Inc. (b) 82,600 2,492,868
------------
12,255,512
------------
</Table>
<Table>
<Caption>
SHARES VALUE
SOFTWARE (4.2%)
Autodesk, Inc. (a) 51,200 $ 1,881,600
Citrix Systems, Inc. (a) 61,700 1,822,001
FactSet Research Systems, Inc. 92,550 4,710,795
Microsoft Corp. 151,500 4,349,565
------------
12,763,961
------------
SPECIALTY RETAIL (4.4%)
Abercrombie & Fitch Co. Class A 39,300 3,012,345
Bed Bath & Beyond, Inc. (a) 80,600 3,247,374
Best Buy Co., Inc. 86,850 4,798,463
Lowe's Cos., Inc. (b) 85,500 2,576,970
------------
13,635,152
------------
TEXTILES, APPAREL & LUXURY GOODS (3.9%)
V Coach, Inc. (a) 145,300 5,759,692
NIKE, Inc. Class B 23,400 2,149,992
Phillips-Van Heusen Corp. (b) 89,800 4,109,248
------------
12,018,932
------------
TRADING COMPANIES & DISTRIBUTORS (1.4%)
WESCO International, Inc. (a) 65,000 4,242,550
------------
Total Common Stocks
(Cost $232,505,817) 307,251,414
------------
<Caption>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS (7.7%)
- -----------------------------------------------------------------------------
COMMERCIAL PAPER (0.8%)
Fairway Finance Corp.
5.289%, due 11/20/06 (c) $1,251,659 1,251,659
Greyhawk Funding
5.286%, due 11/13/06 (c) 521,525 521,525
Jupiter Securitization Corp.
5.303%, due 11/14/06 (c) 521,525 521,525
------------
Total Commercial Paper
(Cost $2,294,709) 2,294,709
------------
<Caption>
SHARES
INVESTMENT COMPANY (2.0%)
BGI Institutional Money Market Fund (c) 6,228,224 6,228,224
------------
Total Investment Company
(Cost $6,228,224) 6,228,224
------------
</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 AGREEMENT (0.4%)
Morgan Stanley & Co.
5.42%, dated 10/31/06
due 11/1/06
Proceeds at Maturity $1,362,219
(Collateralized by various Corporate Bonds,
with rates between 0% - 8.40% and
maturity dates between 1/30/07 - 6/15/34,
with a Principal Amount of $1,377,633
and a Market Value of $1,416,161) (c) $1,362,014 $ 1,362,014
------------
Total Repurchase Agreement
(Cost $1,362,014) 1,362,014
------------
TIME DEPOSITS (4.5%)
Banco Bilbao Vizcaya Argentaria S.A.
5.30%, due 1/9/07 (c) 1,043,049 1,043,049
Bank of America
5.27%, due 11/21/06 (c)(d) 1,043,049 1,043,049
Bank of Montreal
5.28%, due 11/27/06 (c) 1,043,049 1,043,049
Bank of Nova Scotia
5.30%, due 11/10/06 (c) 1,043,049 1,043,049
Barclays
5.32%, due 1/18/07 (c) 1,043,049 1,043,049
Deutsche Bank AG
5.27%, due 11/9/06 (c) 730,135 730,135
Fortis Bank
5.27%, due 11/6/06 (c) 2,086,099 2,086,099
Halifax Bank of Scotland
5.30%, due 1/10/07 (c) 1,043,050 1,043,050
Lloyds TSB Bank PLC
5.30%, due 12/21/06 (c) 1,043,049 1,043,049
Royal Bank of Canada
5.30%, due 12/22/06 (c) 1,043,049 1,043,049
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
TIME DEPOSITS (CONTINUED)
Royal Bank of Scotland
5.29%, due 12/12/06 (c) $1,043,050 $ 1,043,050
Skandinaviska Enskilda Banken AB
5.31%, due 11/3/06 (c) 1,043,050 1,043,050
UBS AG
5.28%, due 12/5/06 (c) 521,525 521,525
------------
Total Time Deposits
(Cost $13,768,252) 13,768,252
------------
Total Short-Term Investments
(Cost $23,653,199) 23,653,199
------------
Total Investments
(Cost $256,159,016) (e) 107.8% 330,904,613(f)
Liabilities in Excess of Cash and Other Assets (7.8) (24,043,356)
---------- ------------
Net Assets 100.0% $306,861,257
========== ============
</Table>
<Table>
(a) Non-income producing security.
(b) Represents a security, or a portion thereof, which is out on
loan.
(c) Represents a security, or a portion thereof, purchased with
cash collateral received for securities on loan.
(d) Floating rate. Rate shown is the rate in effect at October
31, 2006.
(e) The cost for federal income tax purposes is $256,316,114.
(f) At October 31, 2006 net unrealized appreciation was
$74,588,499, 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 $78,178,287 and aggregate gross
unrealized depreciation for all investments on which there
was an excess of cost over market value of $3,589,788.
</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, 2006
<Table>
ASSETS:
Investment in securities, at value
(identified cost $256,159,016)
including $22,875,969 market
value of securities loaned $330,904,613
Receivables:
Investment securities sold 5,739,608
Dividends and interest 38,553
Fund shares sold 18,690
Other assets 17,732
-------------
Total assets 336,719,196
-------------
LIABILITIES:
Securities lending collateral 23,653,199
Bank overdraft 215,600
Payables:
Investment securities purchased 5,385,555
Fund shares redeemed 269,945
Manager (See Note 3) 193,770
Transfer agent (See Note 3) 38,582
Professional fees 37,862
Shareholder communication 29,107
NYLIFE Distributors (See Note 3) 19,960
Custodian 5,490
Directors 4,345
Accrued expenses 4,524
-------------
Total liabilities 29,857,939
-------------
Net assets $306,861,257
=============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1
billion shares authorized:
Class A $ 1,181
Class B 461
Class C 206
Class I 10,568
Additional paid-in capital 236,290,959
Accumulated net realized loss on investments (4,187,715)
Net unrealized appreciation on investments 74,745,597
-------------
Net assets $306,861,257
=============
CLASS A
Net assets applicable to outstanding shares $ 28,169,569
=============
Shares of capital stock outstanding 1,180,531
=============
Net asset value per share outstanding $ 23.86
Maximum sales charge (5.50% of offering price) 1.39
-------------
Maximum offering price per share outstanding $ 25.25
=============
CLASS B
Net assets applicable to outstanding shares $ 10,770,315
=============
Shares of capital stock outstanding 461,006
=============
Net asset value and offering price per share
outstanding $ 23.36
=============
CLASS C
Net assets applicable to outstanding shares $ 4,819,531
=============
Shares of capital stock outstanding 206,137
=============
Net asset value and offering price per share
outstanding $ 23.38
=============
CLASS I
Net assets applicable to outstanding shares $263,101,842
=============
Shares of capital stock outstanding 10,567,597
=============
Net asset value and offering price per share
outstanding $ 24.90
=============
</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, 2006
<Table>
INVESTMENT INCOME:
INCOME:
Dividends (a) $ 1,834,373
Interest 217,327
Income from securities loaned--net 34,311
------------
Total income 2,086,011
------------
EXPENSES:
Manager (See Note 3) 2,866,523
Transfer agent--Classes A, B and C (See Note
3) 141,809
Transfer agent--Class I (See Note 3) 77,720
Distribution--Class B (See Note 3) 80,364
Distribution--Class C (See Note 3) 33,294
Professional fees 103,677
Distribution/Service--Class A (See Note 3) 64,709
Service--Class B (See Note 3) 26,788
Service--Class C (See Note 3) 11,098
Registration 59,852
Shareholder communication 58,906
Directors 24,296
Custodian 23,911
Miscellaneous 37,061
------------
Total expenses before waiver 3,610,008
Expense waiver from Manager (See Note 3) (126,077)
------------
Net expenses 3,483,931
------------
Net investment loss (1,397,920)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 38,971,087
Net change in unrealized appreciation on
investments (8,298,497)
------------
Net realized and unrealized gain on investments 30,672,590
------------
Net increase in net assets resulting from
operations $29,274,670
============
</Table>
(a) Dividends recorded net of foreign withholding taxes in the amount of $795.
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, 2006 AND OCTOBER 31, 2005
<Table>
<Caption>
2006 2005
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment loss $ (1,397,920) $ (1,147,966)
Net realized gain on investments 38,971,087 10,366,034
Net change in unrealized
appreciation on investments (8,298,497) 42,365,342
----------------------------
Net increase in net assets
resulting from operations 29,274,670 51,583,410
----------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 17,132,969 8,592,648
Class B 6,494,229 6,221,885
Class C 4,149,470 1,877,856
Class I 49,369,946 39,266,620
----------------------------
77,146,614 55,959,009
Cost of shares redeemed:
Class A (7,557,845) (9,402,569)
Class B (3,035,094) (1,003,591)
Class C (1,787,770) (249,258)
Class I (102,361,499) (52,373,137)
----------------------------
(114,742,208) (63,028,555)
Net asset value of shares converted (See Note 1):
Class A 2,940,593 --
Class B (2,940,593) --
Decrease in net assets derived
from capital share transactions (37,595,594) (7,069,546)
----------------------------
Net increase (decrease) in net
assets (8,320,924) 44,513,864
NET ASSETS:
Beginning of year 315,182,181 270,668,317
----------------------------
End of year $ 306,861,257 $315,182,181
============================
</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
www.mainstayfunds.com 13
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A
---------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
Net asset value at beginning of period $ 21.84 $ 18.32 $ 18.99
-------- -------- -----------
Net investment loss (a) (0.21) (0.19)(b) (0.10)
Net realized and unrealized gain (loss) on investments 2.23 3.71 (0.57)
-------- -------- -----------
Total from investment operations 2.02 3.52 (0.67)
-------- -------- -----------
Net asset value at end of period $ 23.86 $ 21.84 $ 18.32
======== ======== ===========
Total investment return (c) 9.25% 19.21% (3.53%)(d)
Ratios (to average net assets)/Supplemental Data:
Net investment loss (0.89%) (0.95%)(b) (0.61%)+
Net expenses 1.50% 1.55% 1.31% +
Expenses (before waiver) 1.54% 1.59% 1.37% +
Portfolio turnover rate 46% 31% 44%
Net assets at end of period (in 000's) $28,170 $14,333 $12,716
</Table>
<Table>
<Caption>
CLASS C
---------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
Net asset value at beginning of period $21.56 $18.22 $18.99
-------- -------- -----------
Net investment loss (a) (0.37) (0.36)(b) (0.23)
Net realized and unrealized gain (loss) on investments 2.19 3.70 (0.54)
-------- -------- -----------
Total from investment operations 1.82 3.34 (0.77)
-------- -------- -----------
Net asset value at end of period $23.38 $21.56 $18.22
======== ======== ===========
Total investment return (c) 8.44% 18.33% (4.05%)(d)
Ratios (to average net assets)/Supplemental Data:
Net investment loss (1.64%) (1.70%)(b) (1.36%)+
Net expenses 2.25% 2.30% 2.06% +
Expenses (before waiver) 2.29% 2.34% 2.12% +
Portfolio turnover rate 46% 31% 44%
Net assets at end of period (in 000's) $4,820 $2,292 $ 532
</Table>
<Table>
* Commencement of operations.
+ Annualized.
(a) Per share data based on average shares outstanding during the period.
(b) Net investment loss and the ratio of net investment loss include $0.01 per share and
0.06%, respectively, as a result of a special one time dividend from Microsoft Corp.
(c) Total return is calculated exclusive of sales charge. Class I is not subject to sales
charges.
(d) 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 B
- ------------------------------------------------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
$ 21.54 $18.21 $18.99
------- ------ -----------
(0.37) (0.36)(b) (0.22)
2.19 3.69 (0.56)
------- ------ -----------
1.82 3.33 (0.78)
------- ------ -----------
$ 23.36 $21.54 $18.21
======= ====== ===========
8.45% 18.29% (4.11%)(d)
(1.63%) (1.70%)(b) (1.36%)+
2.25% 2.30% 2.06% +
2.29% 2.34% 2.12% +
46% 31% 44%
$10,770 $9,499 $3,453
</Table>
<Table>
<Caption>
CLASS I
- ---------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2006 2005 2004
$ 22.66 $ 18.90 $ 18.66
-------- -------- --------
(0.08) (0.07)(b) (0.04)
2.32 3.83 0.28
-------- -------- --------
2.24 3.76 0.24
-------- -------- --------
$ 24.90 $ 22.66 $ 18.90
======== ======== ========
9.89% 19.89% 1.29%
(0.31%) (0.33%)(b) (0.23%)
0.93% 0.93% 0.93%
0.97% 0.97% 0.99%
46% 31% 44%
$263,102 $289,058 $253,968
<Caption>
CLASS I
- --- -----------------------------------------
YEAR ENDED OCTOBER 31,
2003 2002
$ 16.02 $ 19.92
-------- --------
(0.01) (0.04)
2.65 (3.86)
-------- --------
2.64 (3.90)
-------- --------
$ 18.66 $ 16.02
======== ========
16.48% (19.58%)
(0.04%) (0.22%)
0.93% 0.93%
1.02% 1.02%
35% 63%
$342,761 $320,059
</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 (UNAUDITED)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE 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 CALL 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM. PERFORMANCE DATA SHOWN EXCLUDING SALES CHARGES DOES NOT
REFLECT THE DEDUCTION OF ANY SALES LOAD, WHICH IF REFLECTED, WOULD REDUCE
PERFORMANCE QUOTED.
CLASS A SHARES--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 9.82% 6.10% 5.95%
Excluding sales charges 16.21 7.30 6.55
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY ALL CAP RUSSELL 1000 VALUE RUSSELL 3000 VALUE
VALUE FUND S&P 500 INDEX INDEX INDEX
---------------- ------------- ------------------ ------------------
10/31/96 9450 10000 10000 10000
11646 13211 13319 13358
11495 16117 15293 15041
12207 20253 17821 17338
13551 21487 18804 18433
12532 16136 16574 16481
10446 13698 14913 14924
12652 16548 18324 18515
14116 18107 21156 21411
15340 19686 23666 23972
10/31/06 17827 22903 28744 29145
</Table>
CLASS B SHARES--MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 10.41% 6.23% 5.81%
Excluding sales charges 15.41 6.55 5.81
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY ALL CAP RUSSELL 1000 VALUE RUSSELL 3000 VALUE
VALUE FUND S&P 500 INDEX INDEX INDEX
---------------- ------------- ------------------ ------------------
10/31/96 10000 10000 10000 10000
12247 13211 13319 13358
12006 16117 15293 15041
12666 20253 17821 17338
13961 21487 18804 18433
12816 16136 16574 16481
10611 13698 14913 14924
12756 16548 18324 18515
14138 18107 21156 21411
15248 19686 23666 23972
10/31/06 17597 22903 28744 29145
</Table>
CLASS C SHARES--MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 14.33% 6.53% 5.81%
Excluding sales charges 15.33 6.53 5.81
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY ALL CAP RUSSELL 1000 VALUE RUSSELL 3000 VALUE
VALUE FUND S&P 500 INDEX INDEX INDEX
---------------- ------------- ------------------ ------------------
10/31/96 10000 10000 10000 10000
12247 13211 13319 13358
12006 16117 15293 15041
12666 20253 17821 17338
13961 21487 18804 18433
12816 16136 16574 16481
10611 13698 14913 14924
12756 16548 18324 18515
14138 18107 21156 21411
15248 19686 23666 23972
10/31/06 17586 22903 28744 29145
</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 as 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 1.00% 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. These fee waivers and/or expense limitations are
contractual and may be modified or terminated only with the approval of the
Board of Directors/Trustees. The Manager may recoup the amount of
THE DISCLOSURE AND FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THE TABLES
AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
16 MainStay All Cap Value Fund
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
16.81% 7.75% 6.90%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY ALL CAP RUSSELL 1000 VALUE RUSSELL 3000 VALUE
VALUE FUND S&P 500 INDEX INDEX INDEX
---------------- ------------- ------------------ ------------------
10/31/96 10000 10000 10000 10000
12356 13211 13319 13358
12222 16117 15293 15041
13003 20253 17821 17338
14473 21487 18804 18433
13418 16136 16574 16481
11209 13698 14913 14924
13611 16548 18324 18515
15240 18107 21156 21411
16684 19686 23666 23972
10/31/06 19488 22903 28744 29145
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
- -------------------------------------------------------------------------------
S&P 500(R) Index(1) 16.34% 7.26% 8.64%
Russell 1000(R) Value Index(2) 21.46 11.64 11.14
Russell 3000(R) Value Index(3) 21.58 12.08 11.29
Average Lipper multi-cap value fund(4) 17.77 10.16 9.59
</Table>
any management fee waivers or expense reimbursements from the Fund pursuant to
this agreement if such action does not cause the Fund to exceed existing expense
limitations and the recoupment is made within three years after the year in
which the Manager incurred the expense. From inception (1/2/91) through
12/31/03, performance for Class A, B, and C shares (each first offered 1/2/04)
includes the historical performance of Class I shares adjusted to reflect the
applicable sales charge (or CDSC) and fees and expenses for Class A, B, and C
shares.
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 in 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 in an
index.
3. 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. Results 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 THE
TABLES AND 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
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from May 1, 2006, to October 31, 2006,
and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, if applicable, exchange fees, and sales
charges (loads) on purchases, and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds. The example is based on an investment of $1,000 made at the
beginning of the six-month period and held for the entire period from May 1,
2006, to October 31, 2006.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested to estimate the expenses that you
paid during the six-months ended October 31, 2006. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
- - HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The fourth and fifth data columns in the table below provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balances or
expenses you paid for the six-month period shown. You may use this information
to compare the ongoing costs of investing in the Fund with the ongoing costs of
investing in other Funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
Funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees, if applicable, exchange fees, or sales charges (loads).
Therefore, the fourth and fifth data columns of the table are useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT
ENDING ACCOUNT VALUE (BASED
VALUE (BASED ON HYPOTHETICAL
BEGINNING ON ACTUAL EXPENSES 5% ANNUALIZED EXPENSES
ACCOUNT RETURNS AND PAID RETURN AND PAID
VALUE EXPENSES) DURING ACTUAL EXPENSES) DURING
SHARE CLASS 5/1/06 10/31/06 PERIOD(1) 10/31/06 PERIOD(1)
CLASS A SHARES $1,000.00 $1,040.20 $ 7.20 $1,018.00 $ 7.12
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $1,036.75 $11.04 $1,014.25 $10.92
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $1,036.05 $11.03 $1,014.25 $10.92
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,039.60 $ 4.83 $1,020.30 $ 4.79
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio of each class
(1.40% for Class A, 2.15% for Class B and Class C, and 0.94% for Class I)
multiplied by the average account value over the period, divided by 365 and
multiplied by 184 (to reflect the one-half year period). In the absence of
waivers and/or reimbursements, expenses would have been higher.
18 MainStay All Cap Value Fund
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2006
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
Common Stocks 94.1
Short-Term Investments (collateral from securities lending 11.8
is 6.2%)
Purchased Put Options 0.1
Liabilities in Excess of Cash and Other Assets (6.0)
</Table>
See Portfolio of Investments on page 21 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2006 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. Citigroup, Inc.
2. Pfizer, Inc.
3. Bank of America Corp.
4. Verizon Communications, Inc.
5. JPMorgan Chase & Co.
6. E.I. du Pont de Nemours & Co.
7. PMI Group, Inc. (The)
8. Chevron Corp.
9. Home Depot, Inc. (The)
10. Intel Corp.
</Table>
www.mainstayfunds.com 19
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio managers Richard A. Rosen, CFA, and Mark T.
Spellman of MacKay Shields LLC
HOW DID MAINSTAY ALL CAP VALUE FUND PERFORM RELATIVE TO ITS PEERS AND ITS
BENCHMARK DURING THE 12-MONTH REPORTING PERIOD?
Excluding all sales charges, MainStay All Cap Value Fund returned 16.21% for
Class A shares, 15.41% for Class B shares, and 15.33% for Class C shares for the
12 months ended October 31, 2006. Over the same period, the Fund's Class I
shares returned 16.81%. All share classes underperformed the 21.58% return of
the Russell 3000(R) Value Index,(1) the Fund's broad-based securities-market
index, for the 12-month period. All share classes also underperformed the 17.77%
return of the average Lipper(2) multi-cap value fund for the 12 months ended
October 31, 2006.
WHICH FUND HOLDINGS WERE PARTICULARLY STRONG DURING THE REPORTING PERIOD?
Despite volatile prices in the energy sector, integrated oil producers
ExxonMobil and Chevron were strong performers for the Fund. Offshore driller
Transocean advanced on improvements in pricing and demand. We added to the
Fund's position in Chevron when the stock price weakened, and we reduced the
Fund's position in Transocean as the stock neared our price target.
In the consumer discretionary sector, Comcast was a strong performer, and we
sold a portion of the Fund's position in the stock as it neared our price
target.
Strong stocks in the financials sector included Goldman Sachs, Morgan Stanley,
Merrill Lynch, and JPMorgan Chase. We trimmed the Fund's positions in Goldman
Sachs and Merrill Lynch as the stocks approached our price targets. Bank of
America was also a positive contributor to the Fund's performance.
Retailer Christopher & Banks saw improving sales trends and generated strong
returns from the beginning of the reporting period until we sold the entire
position when the stock reached our price target.
Among pharmaceuticals, Pfizer was up on positive product news. Drug retailer CVS
also did well, despite a pullback late in the reporting period. We reduced the
Fund's position in CVS as the stock neared our price target.
Among industrials, defense company Northrop Grumman advanced on solid order
rates and continued defense spending. We reduced the Fund's position in the
stock as it reached our price target.
WHICH STOCKS DETRACTED FROM THE FUND'S PERFORMANCE DURING THE REPORTING PERIOD?
Several holdings in the materials sector detracted from results. Specialty
chemicals maker Chemtura declined on disappointing end-user demand. Owens-
Illinois felt the impact of rising costs and its shares were weak from the
beginning of the reporting period until we eliminated the position.
Information technology holdings were mixed. Nokia and BMC Software advanced, but
overall the sector was a negative contributor to the Fund's performance.
Microprocessor manufacturers Intel and Advanced Micro Devices both declined on
increasing competition.
Although Verizon and AT&T advanced, telecommunication services generally
detracted from relative results, largely because of weakness at wireless carrier
Sprint Nextel. The company's acquisition integration was disappointing, and we
reduced the Fund's position in the stock.
Other detractors included Learning Tree International, Home Depot, and TRW
Automotive. Learning Tree International's stock price declined substantially
before we sold the Fund's entire position.
HOW WAS THE FUND POSITIONED AT THE END OF THE REPORTING PERIOD?
As of October 31, 2006, the Fund was overweighted relative to the Russell
3000(R) Value Index in the health care, information technology,
telecommunications services, materials, and consumer discretionary sectors. On
the same date, the Fund was underweighted in energy, financials, industrials,
and utilities and roughly aligned with the Index in consumer staples.
Mid-capitalization companies are generally less established and their stocks may
be more volatile and less liquid than the securities of large 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. The
principal risk of investing in value stocks is that they may never reach what
the portfolio manager believes is their full value or they may even go down in
value.
1. See footnote on page 17 for more information on the Russell 3000(R) Value
Index.
2. See footnote on page 17 for more information on Lipper Inc.
The opinions expressed are those of the portfolio managers as of the date of
this report and are subject to change. There is no guarantee that any forecasts
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, 2006
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (94.1%)+
- ----------------------------------------------------------------------------
AEROSPACE & DEFENSE (2.5%)
Honeywell International, Inc. 58,900 $ 2,480,868
Northrop Grumman Corp. 20,900 1,387,551
------------
3,868,419
------------
AUTO COMPONENTS (1.3%)
TRW Automotive Holdings Corp. (a) 76,800 1,969,920
------------
BUILDING PRODUCTS (1.4%)
American Standard Cos., Inc. 47,400 2,099,346
------------
CAPITAL MARKETS (5.1%)
Bank of New York Co., Inc. (The) 42,600 1,464,162
Goldman Sachs Group, Inc. (The) 9,400 1,784,026
Merrill Lynch & Co., Inc. (b) 28,700 2,508,954
Morgan Stanley 27,200 2,078,896
------------
7,836,038
------------
CHEMICALS (3.1%)
Chemtura Corp. 170,100 1,459,458
V E.I. du Pont de Nemours & Co. 69,800 3,196,840
------------
4,656,298
------------
COMMERCIAL BANKS (4.4%)
PNC Financial Services Group, Inc. 12,900 903,387
U.S. Bancorp 79,500 2,690,280
Wachovia Corp. 26,700 1,481,850
Wells Fargo & Co. (b) 44,600 1,618,534
------------
6,694,051
------------
COMMUNICATIONS EQUIPMENT (3.1%)
Motorola, Inc. 97,400 2,246,044
Nokia Oyj, Sponsored ADR (c) 124,900 2,483,012
------------
4,729,056
------------
COMPUTERS & PERIPHERALS (0.5%)
Emulex Corp. (a) 41,800 785,840
------------
CONTAINERS & PACKAGING (0.8%)
Ball Corp. 29,800 1,239,382
------------
DIVERSIFIED FINANCIAL SERVICES (9.4%)
V Bank of America Corp. 83,433 4,494,536
V Citigroup, Inc. 127,933 6,417,119
V JPMorgan Chase & Co. 73,356 3,480,009
------------
14,391,664
------------
DIVERSIFIED TELECOMMUNICATION SERVICES (5.6%)
AT&T, Inc. 77,300 2,647,525
Iowa Telecommunications Services, Inc. 53,800 1,072,772
Premiere Global Services, Inc. (a) 159,900 1,330,368
V Verizon Communications, Inc. 94,400 3,492,800
------------
8,543,465
------------
</Table>
<Table>
<Caption>
SHARES VALUE
ELECTRIC UTILITIES (0.9%)
FirstEnergy Corp. 23,500 $ 1,382,975
------------
ENERGY EQUIPMENT & SERVICES (4.0%)
ENSCO International, Inc. 52,900 2,590,513
Rowan Cos., Inc. (b) 51,200 1,709,056
Transocean, Inc. (a) 25,200 1,828,008
------------
6,127,577
------------
FOOD & STAPLES RETAILING (3.3%)
CVS Corp. 46,300 1,452,894
Kroger Co. (The) 93,900 2,111,811
Wal-Mart Stores, Inc. 29,500 1,453,760
------------
5,018,465
------------
FOOD PRODUCTS (2.0%)
Cadbury Schweppes PLC, Sponsored ADR (c) 21,200 860,508
General Mills, Inc. 35,100 1,994,382
J.M. Smucker Co. (The) 5,100 249,900
------------
3,104,790
------------
HEALTH CARE PROVIDERS & SERVICES (0.4%)
Quest Diagnostics, Inc. 10,800 537,192
------------
HOUSEHOLD PRODUCTS (1.4%)
Kimberly-Clark Corp. 31,900 2,121,988
------------
INSURANCE (4.7%)
Allstate Corp. (The) 15,300 938,808
Genworth Financial, Inc. Class A 65,900 2,203,696
Hartford Financial Services
Group, Inc. (The) 24,400 2,126,948
Prudential Financial, Inc. 25,000 1,923,250
------------
7,192,702
------------
IT SERVICES (0.9%)
Computer Sciences Corp. (a) 26,400 1,395,240
------------
LIFE SCIENCES TOOLS & SERVICES (0.8%)
Cambrex Corp. 48,900 1,144,260
------------
MACHINERY (1.0%)
Kadant, Inc. (a) 34,300 936,390
Pentair, Inc. 19,400 639,036
------------
1,575,426
------------
</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, 2006 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- ----------------------------------------------------------------------------
MEDIA (4.6%)
Comcast Corp. Class A (a) 50,000 $ 2,033,500
Gannett Co., Inc. (b) 24,700 1,460,758
Time Warner, Inc. 81,500 1,630,815
Tribune Co. (b) 56,900 1,896,477
------------
7,021,550
------------
METALS & MINING (1.1%)
Alcoa, Inc. 59,872 1,730,900
------------
MULTI-UTILITIES (1.1%)
Duke Energy Corp. 51,100 1,616,804
------------
OIL, GAS & CONSUMABLE FUELS (5.0%)
V Chevron Corp. 45,542 3,060,422
ConocoPhillips 42,800 2,578,272
ExxonMobil Corp. 16,600 1,185,572
Valero Energy Corp. 14,400 753,552
------------
7,577,818
------------
PHARMACEUTICALS (11.7%)
Abbott Laboratories 55,400 2,632,054
Barr Pharmaceuticals, Inc. (a) 28,600 1,497,782
Forest Laboratories, Inc. (a) 18,300 895,602
Johnson & Johnson 41,800 2,817,320
KOS Pharmaceuticals, Inc. (a)(b) 36,100 1,795,975
V Pfizer, Inc. 206,200 5,495,230
Wyeth 51,200 2,612,736
------------
17,746,699
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (4.6%)
Advanced Micro Devices, Inc. (a) 82,600 1,756,902
V Intel Corp. 132,400 2,825,416
Texas Instruments, Inc. (b) 81,800 2,468,724
------------
7,051,042
------------
SPECIALTY RETAIL (3.9%)
Cost Plus, Inc. (a)(b) 20,600 246,170
Gap, Inc. (The) 84,800 1,782,496
V Home Depot, Inc. (The) 79,500 2,967,735
Lowe's Cos., Inc. 29,800 898,172
------------
5,894,573
------------
THRIFTS & MORTGAGE FINANCE (2.5%)
V PMI Group, Inc. (The) 73,600 3,139,040
Washington Mutual, Inc. 16,900 714,870
------------
3,853,910
------------
TRADING COMPANIES & DISTRIBUTORS (1.1%)
W.W. Grainger, Inc. 23,000 1,673,940
------------
</Table>
<Table>
<Caption>
SHARES VALUE
WIRELESS TELECOMMUNICATION SERVICES (1.9%)
ALLTEL Corp. 13,200 $ 703,692
Sprint Nextel Corp. 113,400 2,119,446
------------
2,823,138
------------
Total Common Stocks
(Cost $119,712,165) 143,404,468
------------
<Caption>
NUMBER OF
CONTRACTS
PURCHASED PUT OPTIONS (0.1%)
- ----------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES (0.0%)++
Rowan Cos., Inc.
Strike Price $32.50
Expire 11/18/06 (a) 29,400 36,750
------------
PHARMACEUTICALS (0.1%)
KOS Pharmaceuticals, Inc.
Strike Price $50.00
Expire 5/19/07 (a) 9,100 60,060
------------
SPECIALTY RETAIL (0.0%)++
Gap, Inc. (The)
Strike Price $17.50
Expire 11/18/06 (a) 50,000 3,750
------------
Total Purchased Put Options
(Premium $120,855) 100,560
------------
<Caption>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS (11.8%)
- ----------------------------------------------------------------------------
COMMERCIAL PAPER (6.3%)
American Express Credit Corp.
5.23%, due 11/3/06 $2,500,000 2,499,273
Fairway Finance Corp.
5.289%, due 11/20/06 (d) 497,299 497,299
Goldman Sachs Group, Inc.
5.25%, due 11/2/06 3,190,000 3,189,535
Greyhawk Funding
5.286%, due 11/13/06 (d) 207,208 207,208
Jupiter Securitization Corp.
5.303%, due 11/14/06 (d) 207,208 207,208
Societe Generale North America, Inc.
5.29%, due 11/1/06 2,985,000 2,985,000
------------
Total Commercial Paper
(Cost $9,585,523) 9,585,523
------------
</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>
SHARES VALUE
SHORT-TERM INVESTMENTS (CONTINUED)
- ----------------------------------------------------------------------------
INVESTMENT COMPANY (1.6%)
BGI Institutional Money Market Fund (d) 2,474,547 $ 2,474,547
------------
Total Investment Company
(Cost $2,474,547) 2,474,547
------------
<Caption>
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT (0.3%)
Morgan Stanley & Co.
5.42%, dated 10/31/06
due 11/1/06
Proceeds at Maturity $541,225
(Collateralized by various Corporate Bonds,
with rates between 0% - 8.40% and
maturity dates between 1/30/07 - 6/15/34,
with a Principal Amount of
$547,350 and a Market Value
of $562,658) (d) $ 541,144 541,144
------------
Total Repurchase Agreement
(Cost $541,144) 541,144
------------
TIME DEPOSITS (3.6%)
Banco Bilbao Vizcaya Argentaria S.A.
5.30%, due 1/9/07 (d) 414,416 414,416
Bank of America
5.27%, due 11/21/06 (d)(e) 414,416 414,416
Bank of Montreal
5.28%, due 11/27/06 (d) 414,416 414,416
Bank of Nova Scotia
5.30%, due 11/10/06 (d) 414,416 414,416
Barclays
5.32%, due 1/18/07 (d) 414,416 414,416
Deutsche Bank AG
5.27%, due 11/9/06 (d) 290,091 290,091
Fortis Bank
5.27%, due 11/6/06 (d) 828,832 828,832
Halifax Bank of Scotland
5.30%, due 1/10/07 (d) 414,416 414,416
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
TIME DEPOSITS (CONTINUED)
Lloyds TSB Bank PLC
5.30%, due 12/21/06 (d) $ 414,416 $ 414,416
Royal Bank of Canada
5.30%, due 12/22/06 (d) 414,416 414,416
Royal Bank of Scotland
5.29%, due 12/12/06 (d) 414,416 414,416
Skandinaviska Enskilda Banken AB
5.31%, due 11/3/06 (d) 414,416 414,416
UBS AG
5.28%, due 12/5/06 (d) 207,208 207,208
------------
Total Time Deposits
(Cost $5,470,291) 5,470,291
------------
Total Short-Term Investments
(Cost $18,071,505) 18,071,505
------------
Total Investments
(Cost $137,904,525) (f) 106.0% 161,576,533(g)
Liabilities in Excess of
Cash and Other Assets (6.0) (9,185,630)
--------- ------------
Net Assets 100.0% $152,390,903
========= ============
</Table>
<Table>
++ Less than one tenth of a percent.
(a) Non-income producing security.
(b) Represents a security, or a portion thereof, which is out on loan.
(c) ADR--American Depositary Receipt.
(d) Represents a security, or a portion thereof, purchased with cash collateral
received for securities on loan.
(e) Floating rate. Rate shown is the rate in effect at October 31, 2006.
(f) The cost for federal income tax purposes is $138,087,299.
(g) At October 31, 2006 net unrealized appreciation was $23,489,234, 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 $24,958,989 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $1,469,755.
</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, 2006
<Table>
ASSETS:
Investment in securities, at value (identified
cost
$137,904,525) including $9,076,708 market
value of securities loaned $161,576,533
Cash 1,379
Receivables:
Investment securities sold 1,180,736
Dividends and interest 140,064
Fund shares sold 73,447
Other assets 13,132
-------------
Total assets 162,985,291
-------------
LIABILITIES:
Securities lending collateral 9,397,697
Payables:
Investment securities purchased 896,211
Fund shares redeemed 126,455
Manager (See Note 3) 80,743
Transfer agent (See Note 3) 30,465
Professional fees 26,904
NYLIFE Distributors (See Note 3) 13,680
Shareholder communication 13,247
Custodian 2,943
Directors 1,987
Accrued expenses 4,056
-------------
Total liabilities 10,594,388
-------------
Net assets $152,390,903
=============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
1 billion shares authorized:
Class A $ 1,301
Class B 525
Class C 195
Class I 7,779
Additional paid-in capital 121,638,608
Accumulated undistributed net investment
income 1,462,000
Accumulated undistributed net realized gain on
investments, foreign currency transactions
and written option transactions 5,608,487
Net unrealized appreciation on investments 23,672,008
-------------
Net assets $152,390,903
=============
CLASS A
Net assets applicable to outstanding shares $ 20,145,437
=============
Shares of capital stock outstanding 1,301,428
=============
Net asset value per share outstanding $ 15.48
Maximum sales charge (5.50% of offering price) 0.90
-------------
Maximum offering price per share outstanding $ 16.38
=============
CLASS B
Net assets applicable to outstanding shares $ 8,019,558
=============
Shares of capital stock outstanding 524,918
=============
Net asset value and offering price per share
outstanding $ 15.28
=============
CLASS C
Net assets applicable to outstanding shares $ 2,980,890
=============
Shares of capital stock outstanding 195,195
=============
Net asset value and offering price per share
outstanding $ 15.27
=============
CLASS I
Net assets applicable to outstanding shares $121,245,018
=============
Shares of capital stock outstanding 7,778,659
=============
Net asset value and offering price per share
outstanding $ 15.59
=============
</Table>
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, 2006
<Table>
INVESTMENT INCOME:
INCOME:
Dividends (a) $ 2,810,752
Interest 230,329
Income from securities loaned--net 18,220
------------
Total income 3,059,301
------------
EXPENSES:
Manager (See Note 3) 1,224,227
Transfer agent--Classes A, B and C
(See Note 3) 77,142
Transfer agent--Class I (See Note 3) 105,626
Distribution--Class B (See Note 3) 52,315
Distribution--Class C (See Note 3) 14,776
Distribution/Service--Class A (See Note 3) 42,111
Service--Class B (See Note 3) 17,438
Service--Class C (See Note 3) 4,925
Professional fees 60,651
Registration 52,980
Shareholder communication 26,156
Custodian 10,373
Directors 10,325
Miscellaneous 21,690
------------
Total expenses before waiver 1,720,735
Expense waiver from Manager (See Note 3) (181,402)
------------
Net expenses 1,539,333
------------
Net investment income 1,519,968
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS, FOREIGN CURRENCY
TRANSACTIONS AND WRITTEN OPTION TRANSACTIONS:
Net realized gain on:
Security transactions 13,965,255
Written option transactions 36,585
Foreign currency transactions 28
------------
Net realized gain on investments, foreign
currency transactions and written option
transactions 14,001,868
------------
Net change in unrealized appreciation on
investments 6,775,797
------------
Net realized and unrealized gain on
investments, foreign currency transactions
and written option transactions 20,777,665
------------
Net increase in net assets resulting from
operations $22,297,633
============
</Table>
(a) Dividends recorded net of foreign withholding taxes in the amount of $868.
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, 2006 AND OCTOBER 31, 2005
<Table>
<Caption>
2006 2005
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 1,519,968 $ 1,169,942
Net realized gain on investments,
foreign currency transactions and
written option transactions 14,001,868 11,326,646
Net change in unrealized
appreciation on investments 6,775,797 (207,866)
---------------------------
Net increase in net assets
resulting from operations 22,297,633 12,288,722
---------------------------
Dividends to shareholders:
From net investment income:
Class A (49,050) (78,908)
Class B -- (21,359)
Class C -- (4,742)
Class I (1,132,744) (1,286,172)
---------------------------
Total dividends to shareholders (1,181,794) (1,391,181)
---------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 6,427,849 5,058,982
Class B 2,867,023 4,516,376
Class C 1,701,397 952,904
Class I 19,649,770 17,479,448
Net asset value of shares issued to
shareholders in reinvestment of dividends:
Class A 46,111 75,411
Class B -- 19,671
Class C -- 4,117
Class I 1,132,524 1,285,964
---------------------------
31,824,674 29,392,873
Cost of shares redeemed:
Class A (3,621,129) (2,458,086)
Class B (1,310,952) (961,401)
Class C (645,667) (264,386)
Class I (35,625,938) (27,968,359)
---------------------------
(41,203,686) (31,652,232)
Net asset value of shares converted
(see Note 1):
Class A 2,231,279 --
Class B (2,231,279) --
Decrease in net assets derived
from capital share transactions (9,379,012) (2,259,359)
---------------------------
Net increase in net assets 11,736,827 8,638,182
</Table>
<Table>
<Caption>
2006 2005
NET ASSETS:
Beginning of year $140,654,076 $132,015,894
---------------------------
End of year $152,390,903 $140,654,076
===========================
Accumulated undistributed net
investment income at end of year $ 1,462,000 $ 1,123,798
===========================
</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
www.mainstayfunds.com 27
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A
-------------------------------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
Net asset value at beginning of period $ 13.37 $ 12.40 $12.08
------- ------- -----------
Net investment income (loss) (a) 0.10 0.03 0.06
Net realized and unrealized gain on investments 2.06 1.04 0.26
------- ------- -----------
Total from investment operations 2.16 1.07 0.32
------- ------- -----------
Less dividends:
From net investment income (0.05) (0.10) --
------- ------- -----------
Net asset value at end of period $ 15.48 $ 13.37 $12.40
======= ======= ===========
Total investment return (b) 16.21% 8.67% 2.65%(c)
Ratios (to average net assets)/Supplemental Data:
Net investment income (loss) 0.72% 0.24% 0.65%+
Net expenses 1.40% 1.65% 1.33%+
Expenses (before waiver) 1.53% 1.76% 1.45%+
Portfolio turnover rate 43% 39% 48%
Net assets at end of period (in 000's) $20,145 $12,641 $9,206
</Table>
<Table>
<Caption>
CLASS C
-------------------------------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
Net asset value at beginning of period $13.24 $12.33 $12.08
------ ------ -----------
Net investment income (loss) (a) (0.01) (0.07) (0.01)
Net realized and unrealized gain (loss) on investments 2.04 1.04 0.26
------ ------ -----------
Total from investment operations 2.03 0.97 0.25
------ ------ -----------
Less dividends and distributions:
From net investment income -- (0.06) --
From net realized gain on investments -- -- --
------ ------ -----------
Total dividends and distributions -- (0.06) --
------ ------ -----------
Net asset value at end of period $15.27 $13.24 $12.33
====== ====== ===========
Total investment return (b) 15.33% 7.85% 2.07%(c)
Ratios (to average net assets)/Supplemental Data:
Net investment income (loss) (0.05%) (0.51%) (0.10%)+
Net expenses 2.15% 2.40% 2.08% +
Expenses (before waiver) 2.28% 2.51% 2.20% +
Portfolio turnover rate 43% 39% 48%
Net assets at end of period (in 000's) $2,981 $1,643 $ 884
</Table>
<Table>
* Commencement of operations.
+ Annualized.
(a) Per share data based on average shares outstanding during the period.
(b) Total return is calculated exclusive of sales charge. Class I is not subject to sales
charges.
(c) Total return is not annualized.
</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 B
- -----------------------------------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
$13.24 $12.33 $12.08
------ ------ -----------
(0.01) (0.07) (0.01)
2.05 1.04 0.26
------ ------ -----------
2.04 0.97 0.25
------ ------ -----------
-- (0.06) --
------ ------ -----------
$15.28 $13.24 $12.33
====== ====== ===========
15.41% 7.85% 2.07%(c)
(0.04%) (0.51%) (0.10%)+
2.15% 2.40% 2.08% +
2.28% 2.51% 2.20% +
43% 39% 48%
$8,020 $7,670 $3,776
</Table>
<Table>
<Caption>
CLASS I
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2006 2005 2004 2003 2002
$ 13.48 $ 12.44 $ 11.26 $ 9.38 $ 12.55
-------- -------- -------- -------- --------
0.17 0.13 0.11 0.14 0.13
2.08 1.05 1.23 1.85 (1.86)
-------- -------- -------- -------- --------
2.25 1.18 1.34 1.99 (1.73)
-------- -------- -------- -------- --------
(0.14) (0.14) (0.16) (0.11) (0.31)
-- -- -- -- (1.13)
-------- -------- -------- -------- --------
(0.14) (0.14) (0.16) (0.11) (1.44)
-------- -------- -------- -------- --------
$ 15.59 $ 13.48 $ 12.44 $ 11.26 $ 9.38
======== ======== ======== ======== ========
16.81% 9.48% 11.97% 21.43% (16.46%)
1.19% 0.95% 1.04% 1.37% 1.12%
0.94% 0.94% 0.94% 0.94% 0.94%
1.07% 1.05% 1.06% 1.11% 1.12%
43% 39% 48% 64% 65%
$121,245 $118,701 $118,150 $163,551 $137,069
</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 (UNAUDITED)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE 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 CALL 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM. PERFORMANCE DATA SHOWN EXCLUDING SALES CHARGES DOES NOT
REFLECT THE DEDUCTION OF ANY SALES LOAD, WHICH IF REFLECTED, WOULD REDUCE
PERFORMANCE QUOTED.
CLASS A SHARES--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 6.68% 12.26% 11.03%
Excluding sales charges 12.89 13.54 11.66
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY MID CAP RUSSELL MIDCAP RUSSELL MIDCAP
OPPORTUNITY FUND VALUE INDEX INDEX S&P 500 INDEX
---------------- -------------- -------------- -------------
10/31/96 9450 10000 10000 10000
12924 13250 12877 13211
14101 14011 13452 16117
14094 14809 15755 20253
15489 16564 19493 21487
15087 16336 15980 16136
14995 15850 14698 13698
19531 21157 19972 16548
22005 25333 22985 18107
25216 30273 27143 19686
10/31/06 28467 36483 31868 22903
</Table>
CLASS B SHARES--MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 7.09% 12.45% 10.77%
Excluding sales charges 12.09 12.70 10.77
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY MID CAP RUSSELL MIDCAP RUSSELL MIDCAP
OPPORTUNITY FUND VALUE INDEX INDEX S&P 500 INDEX
---------------- -------------- -------------- -------------
10/31/96 10000 10000 10000 10000
13537 13250 12877 13211
14657 14011 13452 16117
14517 14809 15755 20253
15823 16564 19493 21487
15297 16336 15980 16136
15091 15850 14698 13698
19507 21157 19972 16548
21803 25333 22985 18107
24813 30273 27143 19686
10/31/06 27812 36483 31868 22903
</Table>
CLASS C SHARES--MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 11.09% 12.71% 10.78%
Excluding sales charges 12.09 12.71 10.78
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY MID CAP RUSSELL MIDCAP RUSSELL MIDCAP
OPPORTUNITY FUND VALUE INDEX INDEX S&P 500 INDEX
---------------- -------------- -------------- -------------
10/31/96 10000 10000 10000 10000
13533 13250 12877 13211
14662 14011 13452 16117
14514 14809 15755 20253
15819 16564 19493 21487
15302 16336 15980 16136
15087 15850 14698 13698
19535 21157 19972 16548
21823 25333 22985 18107
24827 30273 27143 19686
10/31/06 27828 36483 31868 22903
</Table>
Performance tables and graphs do not reflect any 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 as 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 1.00% 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. Class R3 shares are
sold with no initial sales charge or CDSC, have an annual 12b-1 fee of .50%, and
are available in certain individual retirement accounts or in certain retirement
plans. Performance figures reflect certain fee waivers and/or expense
limitations, without which total returns may have been lower. These fee waivers
and/or expense limitations are contractual and may be modified or terminated
only with the approval of the Board of Directors/Trustees. The Manager may
recoup the amount of any management fee waivers or expense
THE DISCLOSURE AND FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THE TABLES
AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
30 MainStay Mid Cap Opportunity Fund
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
13.24% 13.89% 11.96%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY MID CAP RUSSELL MIDCAP RUSSELL MIDCAP
OPPORTUNITY FUND VALUE INDEX INDEX S&P 500 INDEX
---------------- -------------- -------------- -------------
10/31/96 10000 10000 10000 10000
13701 13250 12877 13211
14989 14011 13452 16117
15014 14809 15755 20253
16541 16564 19493 21487
16151 16336 15980 16136
16090 15850 14698 13698
21012 21157 19972 16548
23737 25333 22985 18107
27324 30273 27143 19686
10/31/06 30943 36483 31868 22903
</Table>
CLASS R3 SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
12.55% 13.20% 11.29%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY MID CAP RUSSELL MIDCAP RUSSELL MIDCAP
OPPORTUNITY FUND VALUE INDEX INDEX S&P 500 INDEX
---------------- -------------- -------------- -------------
10/31/96 10000 10000 10000 10000
13619 13250 12877 13211
14811 14011 13452 16117
14746 14809 15755 20253
16149 16564 19493 21487
15673 16336 15980 16136
15521 15850 14698 13698
20147 21157 19972 16548
22624 25333 22985 18107
25887 30273 27143 19686
10/31/06 29136 36483 31868 22903
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
- -------------------------------------------------------------------------------
Russell Midcap(R) Value Index(1) 20.51% 17.43% 13.82%
Russell Midcap(R) Index(2) 17.41 14.80 12.29
S&P 500(R) Index(3) 16.34 7.26 8.64
Average Lipper mid-cap value fund(4) 16.81 14.71 11.87
</Table>
reimbursements from the Fund pursuant to this agreement if such action does not
cause the Fund to exceed existing expense limitations and the recoupment is made
within three years after the year in which the Manager incurred the expense.
From inception (12/27/94) through 12/31/03, performance for Class A and B shares
(each first offered 1/2/04) includes the historical performance of Class I
shares 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 1.00% sales charge and a 1.00% CDSC on
redemptions within one year of purchase. From inception through 12/29/02,
performance for Class L shares (first offered 12/30/02) includes the historical
performance of Class I shares 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 Class C shares,
redesignated Class C shares, or both. Prior to 4/28/06, performance for Class R3
shares includes the historical performance of Class I shares adjusted to reflect
the fees and expenses for Class R3 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 in 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 in 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 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 THE
TABLES AND 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
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from May 1, 2006, to October 31, 2006,
and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, if applicable, exchange fees, and sales
charges (loads) on purchases, and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds. The example is based on an investment of $1,000 made at the
beginning of the six-month period and held for the entire period from May 1,
2006, to October 31, 2006.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested to estimate the expenses that you
paid during the six-months ended October 31, 2006. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
- - HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The fourth and fifth data columns in the table below provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balances or
expenses you paid for the six-month period shown. You may use this information
to compare the ongoing costs of investing in the Fund with the ongoing costs of
investing in other Funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
Funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees, if applicable, exchange fees, or sales charges (loads).
Therefore, the fourth and fifth data columns of the table are useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT
ENDING ACCOUNT VALUE (BASED
VALUE (BASED ON HYPOTHETICAL
BEGINNING ON ACTUAL EXPENSES 5% ANNUALIZED EXPENSES
ACCOUNT RETURNS AND PAID RETURN AND PAID
VALUE EXPENSES) DURING ACTUAL EXPENSES) DURING
SHARE CLASS 5/1/06 10/31/06 PERIOD(1) 10/31/06 PERIOD(1)
CLASS A SHARES $1,000.00 $1,003.65 $ 6.82 $1,018.25 $ 6.87
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $1,000.10 $10.59 $1,014.50 $10.66
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $1,000.10 $10.59 $1,014.50 $10.66
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,005.40 $ 5.26 $1,019.80 $ 5.29
- ---------------------------------------------------------------------------------------------------------------------------
CLASS R3 SHARES $1,000.00 $1,002.30 $ 8.28 $1,016.80 $ 8.34
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio of each class
(1.35% for Class A, 2.10% for Class B and Class C, 1.04% for Class I, and
1.64% for Class R3) multiplied by the average account value over the period,
divided by 365 and multiplied by 184 (to reflect the one-half year period).
In the absence of waivers and/or reimbursements, expenses would have been
higher.
32 MainStay Mid Cap Opportunity Fund
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2006
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
Common Stocks 99.9
Short-Term Investments (collateral from securities lending 16.7
is 16.7%)
Liabilities in Excess of Cash and Other Assets (16.6)
</Table>
See Portfolio of Investments on page 35 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2006 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. Entergy Corp.
2. Edison International
3. Equity Office Properties Trust
4. PG&E Corp.
5. American Electric Power Co., Inc.
6. Mattel, Inc
7. United States Steel Corp.
8. Clorox Co. (The)
9. AmerisourceBergen Corp.
10. CIGNA Corp.
</Table>
www.mainstayfunds.com 33
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio managers Daniel Glickman and Victor Samoilovich
of New York Life Investment Management LLC
HOW DID MAINSTAY MID CAP OPPORTUNITY FUND PERFORM RELATIVE TO ITS PEERS AND
BENCHMARK FOR THE 12 MONTHS ENDED OCTOBER 31, 2006?
Excluding all sales charges, MainStay Mid Cap Opportunity Fund returned 12.89%
for Class A shares, 12.09% for Class B shares, and 12.09% for Class C shares for
the 12 months ended October 31, 2006. Over the same period, Class I shares
returned 13.24% and Class R3 shares returned 12.55%.(1) All share classes
underperformed the 20.51% return of the Russell Midcap(R) Value Index,(2) the
Fund's broad-based securities-market index, for the 12-month reporting period.
All share classes also underperformed the 16.81% return of the average Lipper(3)
mid-cap value fund for the 12 months ended October 31, 2006.
WHAT FACTORS ACCOUNTED FOR THE FUND'S RELATIVE PERFORMANCE DURING THE REPORTING
PERIOD?
The Fund's disappointing performance resulted primarily from stock selection
among financials, consumer staples, and energy stocks. Performance was also
affected by an underweighted position in materials and an overweighted position
in health care.
DURING THE REPORTING PERIOD, WHICH SECTORS WERE THE STRONGEST CONTRIBUTORS TO
THE FUND'S PERFORMANCE AND WHICH ONES WERE THE WEAKEST?
During the 12 months ended October 31, 2006, the sector that made the greatest
positive contribution to the Fund's absolute performance was industrials.
Consumer discretionary and telecommunication services were also strong. The
sectors that detracted the most from absolute performance were energy, consumer
staples, and health care.
DURING THE REPORTING PERIOD, WHICH STOCKS WERE THE STRONGEST CONTRIBUTORS TO THE
FUND'S PERFORMANCE AND WHICH STOCKS WERE THE WEAKEST?
The strongest individual contributors to absolute performance were CSX, Mattel,
and Circuit City Stores. Major detractors from absolute performance included
Louisiana-Pacific, Reliant Energy, and Goodyear Tire & Rubber. Since the Fund
currently holds approximately 100 securities, no single stock will normally have
a significant positive or negative impact on relative performance.
WHAT WERE SOME OF THE STOCKS THAT THE FUND PURCHASED OR SOLD DURING THE
REPORTING PERIOD?
The Fund selects securities using a proprietary quantitative model to identify
stocks that have attractive relative valuations, strong operating results, and
positive price trends. Among the stocks that fit the Fund's purchase criteria
during the reporting period were Entergy and IAC/Interactive. Among the stocks
the Fund sold because of unattractive relative valuations, weakening operating
results, and deteriorating price trends were Swift Transportation and Lafarge
North America.
WERE THERE ANY CHANGES IN THE FUND'S WEIGHTINGS RELATIVE TO ITS BENCHMARK?
Weighting changes in the Fund are due to the Fund's proprietary quantitative
security selection process. During the reporting period, the Fund increased its
exposure to the financials and materials sectors. Over the same period, the Fund
substantially decreased its relative weighting in the consumer discretionary
sector.
As of October 31, 2006, the Fund was overweighted relative to the Russell
Midcap(R) Value Index in financials and industrials. On the same date, the Fund
was underweighted relative to the Index in information technology and consumer
staples.
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. The Fund
may experience a portfolio turnover of more than 100% and may generate taxable
short- term gains. The principal risk of investing in value stocks is that they
may never reach what the portfolio manager believes is their full value or they
may even go down in value. The Fund's use of securities lending presents the
risk of default by the borrower, which may also result in a loss to the Fund.
See additional securities-lending disclosure in the Notes to Financial
Statements (Note 2).
1. Class R3 shares were first offered April 28, 2006.
2. See footnote on page 31 for more information on the Russell Midcap(R) Value
Index.
3. See footnote on page 31 for more information on Lipper Inc.
The opinions expressed are those of the portfolio managers as of the date of
this report and are subject to change. There is no guarantee that any forecasts
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, 2006
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (99.9%)+
- ----------------------------------------------------------------------------
AUTO COMPONENTS (1.5%)
Autoliv, Inc. 37,323 $ 2,122,559
------------
BEVERAGES (0.9%)
PepsiAmericas, Inc. 64,652 1,322,133
------------
BUILDING PRODUCTS (1.0%)
USG Corp. (a)(b) 27,620 1,350,342
------------
CAPITAL MARKETS (2.7%)
A.G. Edwards, Inc. 37,616 2,145,993
Northern Trust Corp. 29,277 1,719,145
------------
3,865,138
------------
COMMERCIAL BANKS (5.5%)
Commerce Bancshares, Inc. 38,224 1,892,470
First Citizens BancShares, Inc. Class A 3,121 586,124
Huntington Bancshares, Inc. 91,175 2,225,582
M&T Bank Corp. 18,620 2,268,102
TCF Financial Corp. 33,051 860,318
------------
7,832,596
------------
COMMERCIAL SERVICES & SUPPLIES (1.9%)
Allied Waste Industries, Inc. (a) 40,206 488,503
Equifax, Inc. 12,935 491,918
Republic Services, Inc. 40,752 1,671,239
------------
2,651,660
------------
CONSUMER FINANCE (0.9%)
AmeriCredit Corp. (a)(b) 48,177 1,231,886
------------
DIVERSIFIED FINANCIAL SERVICES (2.0%)
CIT Group, Inc. 25,144 1,308,745
Leucadia National Corp. 59,707 1,574,474
------------
2,883,219
------------
DIVERSIFIED TELECOMMUNICATION SERVICES (1.5%)
CenturyTel, Inc. 52,620 2,117,429
------------
ELECTRIC UTILITIES (6.2%)
V American Electric Power Co., Inc. (b) 63,482 2,630,059
V Edison International 66,226 2,943,083
V Entergy Corp. 36,805 3,158,973
------------
8,732,115
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS (1.9%)
Avnet, Inc. (a) 70,697 1,674,105
Tech Data Corp. (a) 27,425 1,079,174
------------
2,753,279
------------
</Table>
<Table>
<Caption>
SHARES VALUE
FOOD PRODUCTS (0.9%)
Hershey Co. (The) (b) 23,429 $ 1,239,628
------------
GAS UTILITIES (1.4%)
Equitable Resources, Inc. 49,111 1,989,978
------------
HEALTH CARE PROVIDERS & SERVICES (3.4%)
V AmerisourceBergen Corp. 50,735 2,394,692
V CIGNA Corp. 20,205 2,363,581
------------
4,758,273
------------
HOUSEHOLD PRODUCTS (1.9%)
V Clorox Co. (The) 38,026 2,454,959
Energizer Holdings, Inc. (a) 2,773 216,710
------------
2,671,669
------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (1.5%)
NRG Energy, Inc. (a)(b) 42,970 2,069,005
------------
INSURANCE (13.7%)
Ambac Financial Group, Inc. 28,059 2,342,646
AmerUs Group Co. 28,272 1,936,067
Assurant, Inc. (b) 41,444 2,182,441
Cincinnati Financial Corp. 46,956 2,143,541
Lincoln National Corp. 20,335 1,287,409
Nationwide Financial Services, Inc. Class A 39,574 2,015,108
Old Republic International Corp. 92,153 2,076,207
Principal Financial Group, Inc. 7,985 451,073
SAFECO Corp. 15,399 896,068
StanCorp Financial Group, Inc. 41,562 1,898,968
Torchmark Corp. 34,622 2,135,485
------------
19,365,013
------------
INTERNET & CATALOG RETAIL (2.9%)
Expedia, Inc. (a) 124,801 2,028,016
IAC/InterActiveCorp (a)(b) 67,939 2,104,750
------------
4,132,766
------------
IT SERVICES (1.0%)
Sabre Holdings Corp. Class A 55,813 1,418,766
------------
LEISURE EQUIPMENT & PRODUCTS (1.8%)
V Mattel, Inc. 114,597 2,593,330
------------
</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 35
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- ----------------------------------------------------------------------------
MACHINERY (2.8%)
Flowserve Corp. (a) 35,936 $ 1,904,608
SPX Corp. 36,690 2,110,409
------------
4,015,017
------------
METALS & MINING (3.1%)
Steel Dynamics, Inc. 31,129 1,871,164
V United States Steel Corp. 38,232 2,584,483
------------
4,455,647
------------
MULTILINE RETAIL (1.2%)
Dillard's, Inc. Class A (b) 55,943 1,687,800
------------
MULTI-UTILITIES (4.7%)
KeySpan Corp. 38,894 1,578,319
V PG&E Corp. 66,826 2,882,874
Wisconsin Energy Corp. 48,044 2,207,141
------------
6,668,334
------------
OIL, GAS & CONSUMABLE FUELS (2.3%)
Hess Corp. 40,956 1,736,534
Sunoco, Inc. 22,800 1,507,764
------------
3,244,298
------------
PAPER & FOREST PRODUCTS (2.4%)
Louisiana-Pacific Corp. 80,539 1,593,061
MeadWestvaco Corp. 67,278 1,851,491
------------
3,444,552
------------
PHARMACEUTICALS (2.8%)
King Pharmaceuticals, Inc. (a)(b) 116,873 1,955,285
Watson Pharmaceuticals, Inc. (a) 72,783 1,958,591
------------
3,913,876
------------
REAL ESTATE INVESTMENT TRUSTS (7.3%)
Annaly Capital Management, Inc. (b) 140,604 1,844,724
Duke Realty Corp. 53,431 2,140,446
V Equity Office Properties Trust (b) 69,004 2,932,670
Essex Property Trust, Inc. (b) 5,213 694,789
New Century Financial Corp. (b) 45,002 1,772,179
New Plan Excel Realty Trust (b) 34,568 995,558
------------
10,380,366
------------
ROAD & RAIL (4.2%)
CSX Corp. 66,170 2,360,284
Laidlaw International, Inc. 61,980 1,798,040
Ryder System, Inc. (b) 35,085 1,847,225
------------
6,005,549
------------
SOFTWARE (1.3%)
Fair Isaac Corp. 48,229 1,766,628
------------
</Table>
<Table>
<Caption>
SHARES VALUE
SPECIALTY RETAIL (3.8%)
AutoNation, Inc. (a) 72,677 $ 1,457,174
Circuit City Stores, Inc. 62,022 1,673,354
OfficeMax, Inc. 45,794 2,178,879
------------
5,309,407
------------
TEXTILES, APPAREL & LUXURY GOODS (1.0%)
Jones Apparel Group, Inc. 44,159 1,474,911
------------
THRIFTS & MORTGAGE FINANCE (5.0%)
Astoria Financial Corp. 62,551 1,814,604
MGIC Investment Corp. 25,975 1,526,291
PMI Group, Inc. (The) 46,146 1,968,127
Radian Group, Inc. 33,518 1,786,509
------------
7,095,531
------------
TOBACCO (1.0%)
UST, Inc. 26,778 1,434,230
------------
TRADING COMPANIES & DISTRIBUTORS (1.3%)
GATX Corp. 40,540 1,766,328
------------
WIRELESS TELECOMMUNICATION SERVICES (1.2%)
Crown Castle International Corp. (a)(b) 50,709 1,706,358
------------
Total Common Stocks
(Cost $127,351,898) 141,469,616
------------
<Caption>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS (16.7%)
- ----------------------------------------------------------------------------
COMMERCIAL PAPER (3.3%)
Fairway Finance Corp.
5.289%, due 11/20/06 (c) $ 554,377 554,377
Greyhawk Funding
5.286%, due 11/13/06 (c) 554,377 554,377
Jupiter Securitization Corp.
5.303%, due 11/14/06 (c) 554,377 554,377
Lexington Parker Capital Co.
5.282%, due 11/8/06 (c) 554,377 554,377
Liberty Street Funding Co.
5.286%, due 11/27/06 (c) 554,377 554,377
Old Line Funding LLC
5.287%, due 11/15/06 (c) 554,377 554,377
Sheffiled Receivables Corp.
5.272%, due 11/8/06 (c) 554,377 554,377
Yorktown Capital LLC
5.282%, due 11/16/06 (c) 831,565 831,565
------------
Total Commercial Paper
(Cost $4,712,204) 4,712,204
------------
</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
SHORT-TERM INVESTMENTS (CONTINUED)
- ----------------------------------------------------------------------------
INVESTMENT COMPANY (4.7%)
BGI Institutional Money Market Fund (c) 6,611,644 $ 6,611,644
------------
Total Investment Company
(Cost $6,611,644) 6,611,644
------------
<Caption>
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT (1.7%)
Morgan Stanley & Co.
5.42%, dated 10/31/06
due 11/1/06
Proceeds at Maturity $2,365,179
(Collateralized by various Corporate Bonds,
with rates between 0% - 8.40% and
maturity dates between 1/30/07 - 6/15/34,
with a Principal Amount
of $2,391,941 and a Market Value
of $2,458,836) (c) $2,364,823 2,364,823
------------
Total Repurchase Agreement
(Cost $2,364,823) 2,364,823
------------
TIME DEPOSITS (7.0%)
Banco Bilbao Vizcaya Argentaria S.A.
5.30%, due 1/9/07 (c) 554,377 554,377
Bank of America
5.27%, due 11/21/06 (c)(d) 1,108,754 1,108,754
Bank of Montreal
5.28%, due 11/27/06 (c) 554,377 554,377
Bank of Nova Scotia
5.30%, due 11/10/06 (c) 554,377 554,377
Barclays
5.32%, due 1/18/07 (c) 831,565 831,565
Deutsche Bank AG
5.27%, due 11/9/06 (c) 554,377 554,377
Fortis Bank
5.27%, due 11/6/06 (c) 1,108,754 1,108,754
Halifax Bank of Scotland
5.30%, due 1/10/07 (c) 554,377 554,377
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
TIME DEPOSITS (CONTINUED)
Lloyds TSB Bank PLC
5.30%, due 12/21/06 (c) $ 554,377 $ 554,377
Royal Bank of Canada
5.30%, due 12/22/06 (c) 554,377 554,377
Royal Bank of Scotland
5.29%, due 12/12/06 (c) 554,377 554,377
Skandinaviska Enskilda Banken AB
5.31%, due 11/3/06 (c) 554,377 554,377
Societe Generale North America, Inc.
5.28%, due 12/6/06 (c) 1,108,754 1,108,754
UBS AG
5.28%, due 12/5/06 (c) 831,565 831,565
------------
Total Time Deposits
(Cost $9,978,785) 9,978,785
------------
Total Short-Term Investments
(Cost $23,667,456) 23,667,456
------------
Total Investments
(Cost $151,019,354) (e) 116.6% 165,137,072(f)
Liabilities in Excess of
Cash and Other Assets (16.6) (23,497,839)
--------- ------------
Net Assets 100.0% $141,639,233
========= ============
</Table>
<Table>
(a) Non-income producing security.
(b) Represents a security, or a portion thereof, which is out on loan.
(c) Represents a security, or a portion thereof, purchased with cash collateral
received for securities on loan.
(d) Floating rate. Rate shown is the rate in effect at October 31, 2006.
(e) The cost for federal income tax purposes is $151,278,271.
(f) At October 31, 2006 net unrealized appreciation was $13,858,801, 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 $15,707,283 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $1,848,482.
</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, 2006
<Table>
ASSETS:
Investment in securities, at value (identified
cost $151,019,354) including $22,784,343
market value of securities loaned $165,137,072
Cash 251,037
Receivables:
Fund shares sold 419,147
Dividends and interest 60,676
Other assets 29,284
-------------
Total assets 165,897,216
-------------
LIABILITIES:
Securities lending collateral 23,667,456
Payables:
Fund shares redeemed 383,185
NYLIFE Distributors (See Note 3) 60,385
Manager (See Note 3) 54,418
Transfer agent (See Note 3) 35,664
Professional fees 27,283
Shareholder communication 18,224
Custodian 6,054
Trustees 1,942
Accrued expenses 3,372
-------------
Total liabilities 24,257,983
-------------
Net assets $141,639,233
=============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share) 1
billion shares authorized:
Class A $ 23,231
Class B 7,730
Class C 11,555
Class I 8,628
Class R3 4
Additional paid-in capital 122,947,668
Accumulated undistributed net investment
income 80,209
Accumulated undistributed net realized gain on
investments and futures transactions 4,442,490
Net unrealized appreciation on investments 14,117,718
-------------
Net assets $141,639,233
=============
CLASS A
Net assets applicable to outstanding shares $ 64,828,680
=============
Shares of capital stock outstanding 2,323,104
=============
Net asset value per share outstanding $ 27.91
Maximum sales charge (5.50% of offering price) 1.62
-------------
Maximum offering price per share outstanding $ 29.53
=============
CLASS B
Net assets applicable to outstanding shares $ 21,046,694
=============
Shares of capital stock outstanding 773,041
=============
Net asset value and offering price per share
outstanding $ 27.23
=============
CLASS C
Net assets applicable to outstanding shares $ 31,444,583
=============
Shares of capital stock outstanding 1,155,461
=============
Net asset value and offering price per share
outstanding $ 27.21
=============
CLASS I
Net assets applicable to outstanding shares $ 24,309,256
=============
Shares of capital stock outstanding 862,769
=============
Net asset value and offering price per share
outstanding $ 28.18
=============
CLASS R3
Net assets applicable to outstanding shares $ 10,020
=============
Shares of capital stock outstanding 360
=============
Net asset value and offering price per share
outstanding $ 27.87*
=============
</Table>
* Difference in the NAV recalculation and NAV stated is caused by rounding
differences.
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, 2006
<Table>
INVESTMENT INCOME:
INCOME:
Dividends $ 2,444,885
Income from securities loaned--net 50,516
Interest 28,759
------------
Total income 2,524,160
------------
EXPENSES:
Manager (See Note 3) 1,229,468
Transfer agent--Classes A, B and C
(See Note 3) 379,509
Transfer agent--Class I and R3 (See Note 3) 20,016
Distribution--Class B (See Note 3) 160,687
Distribution--Class C (See Note 3) 227,065
Distribution--Class R3 (See Note 3) 12
Distribution/Service--Class A (See Note 3) 145,539
Service--Class B (See Note 3) 53,562
Service--Class C (See Note 3) 75,688
Service--Class R3 (See Note 3) 12
Registration 85,327
Professional fees 79,813
Shareholder communication 44,400
Custodian 21,739
Trustees 10,001
Shareholder service--Class R3 (See Note 3) 5
Miscellaneous 15,119
------------
Total expenses before waiver/reimbursement 2,547,962
Expense waiver/reimbursement from Manager
(See Note 3) (398,710)
------------
Net expenses 2,149,252
------------
Net investment income 374,908
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on:
Security transactions 4,479,511
Futures transactions 21,728
------------
Net realized gain on investments and futures
transactions 4,501,239
------------
Net change in unrealized appreciation on
investments 10,036,285
------------
Net realized and unrealized gain on investments
and futures transactions 14,537,524
------------
Net increase in net assets resulting from
operations $14,912,432
============
</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 39
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2006 AND OCTOBER 31, 2005
<Table>
<Caption>
2006 2005
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 374,908 $ 120,808
Net realized gain on investments
and futures transactions 4,501,239 5,994,612
Net change in unrealized
appreciation on investments 10,036,285 227,190
---------------------------
Net increase in net assets
resulting from operations 14,912,432 6,342,610
---------------------------
Dividends and distributions to shareholders:
From net investment income:
Class A (138,208) (62,192)
Class B -- (34,360)
Class C -- (26,620)
Class I (150,367) (112,421)
From net realized gain on
investments:
Class A (2,305,129) (295,736)
Class B (1,353,450) (216,488)
Class C (1,261,301) (168,408)
Class I (1,196,592) (475,783)
---------------------------
Total dividends and distributions
to shareholders (6,405,047) (1,392,008)
---------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 25,832,564 37,697,250
Class B 7,227,435 20,610,724
Class C 13,714,172 18,560,407
Class I 13,242,684 10,490,303
Class R3 10,000 --
</Table>
<Table>
<Caption>
2006 2005
Net asset value of shares issued
to shareholders in reinvestment
of dividends and distributions:
Class A $ 2,099,312 $ 259,475
Class B 1,323,778 246,626
Class C 1,053,846 180,288
Class I 1,288,269 569,097
---------------------------
65,792,060 88,614,170
Cost of shares redeemed:
Class A (17,551,051) (3,594,035)
Class B (5,606,067) (2,519,349)
Class C (7,810,307) (1,692,031)
Class I (15,065,315) (8,156,299)
---------------------------
(46,032,740) (15,961,714)
Net asset value of shares converted
(See Note 1):
Class A 8,166,742 --
Class B (8,166,742) --
Increase in net assets derived
from capital share transactions 19,759,320 72,652,456
---------------------------
Net increase in net assets 28,266,705 77,603,058
NET ASSETS:
Beginning of year 113,372,528 35,769,470
---------------------------
End of year $141,639,233 $113,372,528
===========================
Accumulated undistributed net
investment income at end of year $ 80,209 $ 45,644
===========================
</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
www.mainstayfunds.com 41
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A
---------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
Net asset value at beginning of period $ 26.10 $ 23.45 $21.93
-------- -------- -----------
Net investment income (loss) 0.12 0.06 (0.01)
Net realized and unrealized gain on investments 3.12 3.34 1.53
-------- -------- -----------
Total from investment operations 3.24 3.40 1.52
-------- -------- -----------
Less dividends and distributions:
From net investment income (0.08) (0.04) --
From net realized gain on investments (1.35) (0.71) --
-------- -------- -----------
Total dividends and distributions (1.43) (0.75) --
-------- -------- -----------
Net asset value at end of period $ 27.91 $ 26.10 $23.45
======== ======== ===========
Total investment return (c) 12.89% 14.59% 6.93%(d)
Ratios (to average net assets)/Supplemental Data:
Net investment income (loss) 0.47% 0.32% (0.21%)+
Net expenses 1.35% 1.50% 1.53% +#
Expenses (before waiver/reimbursement) 1.68% 1.78% 2.13% +#
Portfolio turnover rate 94% 153% 43%
Net assets at end of period (in 000's) $64,829 $42,239 $6,554
</Table>
<Table>
<Caption>
CLASS C
--------------------------------------------------
DECEMBER 30,
2002*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004 2003
Net asset value at beginning of period $ 25.59 $ 23.14 $20.86 $15.87
------- ------- ------ ------------
Net investment income (loss) (0.05) (0.08) (0.07) (0.06)(a)
Net realized and unrealized gain (loss) on investments 3.02 3.25 2.50 5.05
------- ------- ------ ------------
Total from investment operations 2.97 3.17 2.43 4.99
------- ------- ------ ------------
Less dividends and distributions:
From net investment income -- (0.01) -- --
From net realized gain on investments (1.35) (0.71) (0.15) --
------- ------- ------ ------------
Total dividends and distributions (1.35) (0.72) (0.15) --
------- ------- ------ ------------
Net asset value at end of period $ 27.21 $ 25.59 $23.14 $20.86
======= ======= ====== ============
Total investment return (c) 12.09% 13.76% 11.71% 31.44%(d)
Ratios (to average net assets)/Supplemental Data:
Net investment income (loss) (0.26%) (0.43%) (0.96%) (0.53%)+
Net expenses 2.10% 2.25% 2.28%# 2.13% +#
Expenses (before waiver/reimbursement) 2.43% 2.53% 2.88%# 2.37% +#
Portfolio turnover rate 94% 153% 43% 90%
Net assets at end of period (in 000's) $31,445 $22,687 $4,951 $ 1
</Table>
<Table>
* Commencement of operations.
+ Annualized.
# 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 October 31, 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. Class I and Class R3 are not
subject to sales charges.
(d) Total return is not annualized.
</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 B
-----------------------------------------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
$ 25.60 $ 23.14 $21.79
------- ------- -----------
(0.08) (0.10) (0.07)
3.06 3.28 1.42
------- ------- -----------
2.98 3.18 1.35
------- ------- -----------
-- (0.01) --
(1.35) (0.71) --
------- ------- -----------
(1.35) (0.72) --
------- ------- -----------
$ 27.23 $ 25.60 $23.14
======= ======= ===========
12.09% 13.81% 6.20%(d)
(0.18%) (0.43%) (0.96%)+
2.10% 2.25% 2.28% +#
2.43% 2.53% 2.88% +#
94% 153% 43%
$21,047 $25,068 $5,756
</Table>
<Table>
<Caption>
CLASS I CLASS R3
- ----------------------------------------------------------------------------------------------- -----------
APRIL 28,
2006*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004 2003 2002 2006
$ 26.34 $ 23.57 $ 21.01 $ 16.16 $ 16.30 $27.81
------- ------- ------- ------- ------- -----------
0.24 0.12 0.05 0.08(a) 0.09 (0.00)(b)
3.11 3.42 2.66 4.84 (0.14) 0.06
------- ------- ------- ------- ------- -----------
3.35 3.54 2.71 4.92 (0.05) 0.06
------- ------- ------- ------- ------- -----------
(0.16) (0.06) -- (0.07) (0.09) --
(1.35) (0.71) (0.15) -- -- --
------- ------- ------- ------- ------- -----------
(1.51) (0.77) (0.15) (0.07) (0.09) --
------- ------- ------- ------- ------- -----------
$ 28.18 $ 26.34 $ 23.57 $ 21.01 $ 16.16 $27.87
======= ======= ======= ======= ======= ===========
13.24% 15.11% 12.97% 30.59% (0.38%) 0.22%(d)
0.81% 0.78% 0.26% 0.47% 0.46% (0.02%)+
1.04% 1.04% 1.06%# 1.13%# 1.17%# 1.64% +
1.16% 1.27% 1.66%# 1.37%# 1.29%# 1.77% +
94% 153% 43% 90% 75% 94%
$24,309 $23,379 $18,508 $13,617 $51,231 $ 10
</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
MAINSTAY S&P 500 INDEX FUND
INVESTMENT AND PERFORMANCE COMPARISON (UNAUDITED)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE 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 CALL 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM. PERFORMANCE DATA SHOWN EXCLUDING SALES CHARGES DOES NOT
REFLECT THE DEDUCTION OF ANY SALES LOAD, WHICH IF REFLECTED, WOULD REDUCE
PERFORMANCE QUOTED.
CLASS A SHARES--MAXIMUM 3% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 12.14% 6.03% 7.84%
Excluding sales charges 15.61 6.68 8.16
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY S&P 500 INDEX FUND S&P 500 INDEX
--------------------------- -------------
10/31/96 9700 10000
12753 13211
15481 16117
19409 20253
20526 21487
15391 16136
13022 13698
15661 16548
17034 18107
18392 19686
10/31/06 21263 22903
</Table>
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
16.06% 7.01% 8.45%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY S&P 500 INDEX FUND S&P 500 INDEX
--------------------------- -------------
10/31/96 10000 10000
13175 13211
16032 16117
20141 20253
21347 21487
16032 16136
13590 13698
16388 16548
17879 18107
19384 19686
10/31/06 22497 22903
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
- -------------------------------------------------------------------------------
S&P 500(R) Index(1) 16.34% 7.26% 8.64%
Average Lipper S&P 500 Index objective fund(2) 15.74 6.65 8.16
</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 as 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 3.00%
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. These fee waivers
and/or expense limitations are contractual and may be modified or terminated
only with the approval of the Board of Directors/ Trustees. The Manager may
recoup the amount of any management fee waivers or expense reimbursements from
the Fund pursuant to this agreement if such action does not cause the Fund to
exceed existing expense limitations and the recoupment is made within three
years after the year in which the Manager incurred the expense. From inception
(1/2/91) through 12/31/03, performance for Class A shares (first offered 1/2/04)
includes the historical performance of Class I shares 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 in 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.
44 MainStay S&P 500 Index Fund
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from May 1, 2006, to October 31, 2006,
and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, if applicable, exchange fees, and sales
charges (loads) on purchases, and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds. The example is based on an investment of $1,000 made at the
beginning of the six-month period and held for the entire period from May 1,
2006, to October 31, 2006.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested to estimate the expenses that you
paid during the six-months ended October 31, 2006. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
- - HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The fourth and fifth data columns in the table below provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balances or
expenses you paid for the six-month period shown. You may use this information
to compare the ongoing costs of investing in the Fund with the ongoing costs of
investing in other Funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
Funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees, if applicable, exchange fees, or sales charges (loads).
Therefore, the fourth and fifth data columns of the table are useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT
ENDING ACCOUNT VALUE (BASED
VALUE (BASED ON HYPOTHETICAL
BEGINNING ON ACTUAL EXPENSES 5% ANNUALIZED EXPENSES
ACCOUNT RETURNS AND PAID RETURN AND PAID
VALUE EXPENSES) DURING ACTUAL EXPENSES) DURING
SHARE CLASS 5/1/06 10/31/06 PERIOD(1) 10/31/06 PERIOD(1)
CLASS A SHARES $1,000.00 $1,058.10 $3.53 $1,021.60 $3.46
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,060.10 $1.56 $1,023.50 $1.53
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio of each class
(0.68% for Class A and 0.30% for Class I) multiplied by the average account
value over the period, divided by 365 and multiplied by 184 (to reflect the
one-half year period). In the absence of waivers and/or reimbursements,
expenses would have been higher.
www.mainstayfunds.com 45
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2006
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
Common Stocks 98.0
Short-Term Investments (collateral from securities lending 7.6
is 5.6%)
Futures Contracts 0.1
Liabilities in Excess of Cash and Other Assets (5.7)
</Table>
See Portfolio of Investments on page 48 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2006 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. ExxonMobil Corp.
2. General Electric Co.
3. Microsoft Corp.
4. Citigroup, Inc.
5. Bank of America Corp.
6. Procter & Gamble Co. (The)
7. Johnson & Johnson
8. Pfizer, Inc.
9. American International Group, Inc.
10. Altria Group, Inc.
</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
HOW DID MAINSTAY S&P 500 INDEX FUND PERFORM RELATIVE TO ITS PEERS AND ITS
BENCHMARK DURING THE 12 MONTHS ENDED OCTOBER 31, 2006?
Excluding all sales charges, MainStay S&P 500 Index Fund returned 15.61% for
Class A shares for the 12 months ended October 31, 2006. Over the same period,
Class I shares returned 16.06%. Both share classes underperformed the 16.34%
return of the S&P 500(R) Index,(1) the Fund's broad-based securities-market
index, for the 12-month reporting period. Because the Fund faces real-world
expenses that a hypothetical index does not, there will be times when the Fund
lags the Index. Class I shares outperformed--and Class A shares
underperformed--the 15.74% return of the average Lipper(2) S&P 500(R) Index
objective fund for the six months ended October 31, 2006.
DURING THE REPORTING PERIOD, WHICH INDUSTRIES WERE THE STRONGEST CONTRIBUTORS TO
THE FUND'S PERFORMANCE AND WHICH WERE THE WEAKEST?
On the basis of impact, which takes weightings and total returns into account,
the industry that made the strongest positive contribution to the Fund's
performance was oil, gas & consumable fuels. Pharmaceuticals was the
second-strongest contributor, and diversified financial services was third. The
worst contribution came from Internet software & services, followed by wireless
telecommunication services, and diversified consumer services.
DURING THE REPORTING PERIOD, WHICH INDUSTRIES HAD THE STRONGEST AND WHICH HAD
THE WEAKEST TOTAL RETURNS?
The best-performing S&P 500(R) industry in terms of total return was metals &
mining, followed by diversified telecommunication services and real estate
investment trusts. Diversified consumer services recorded the lowest total
return of any industry in the Index. Internet & catalog retail had the second-
lowest total return, followed by wireless telecommunication services.
DURING THE REPORTING PERIOD, WHICH INDIVIDUAL STOCKS HAD THE STRONGEST AND WHICH
HAD THE WEAKEST TOTAL RETURNS?
The S&P 500(R) Index stock with the highest total return for the 12-month
reporting period was Allegheny Technologies. NVIDIA was second, followed by
NuCor. The Index stock with the lowest total return for the reporting period was
Calpine, followed by Dana and Apollo Group.
WHICH STOCKS WERE THE GREATEST POSITIVE CONTRIBUTORS TO THE FUND'S PERFORMANCE
AND WHICH WERE THE GREATEST DETRACTORS?
On the basis of impact, which takes weightings and total returns into
consideration, the stocks that made the greatest positive contributions to the
Fund's per-formance were ExxonMobil, Bank of America, and AT&T. The weakest
contributor in terms of impact was Dell, followed by Yahoo! and UnitedHealth
Group.
WERE THERE ANY CHANGES IN THE MAKEUP OF THE S&P(R) 500 INDEX DURING THE
REPORTING 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. In addition, Standard & Poor's may occasionally adjust
the Index to better reflect the companies that Standard & Poor's believes are
most representative of the makeup of the U.S. economy. During the 12-month
reporting period, there were 27 additions to the S&P 500(R) Index and 27
deletions from it. Notable addi-tions included Amazon.com, GenWorth Financial,
Google, Legg Mason, and Chicago Mercantile Exchange. Notable deletions included
Calpine, Dana, Cooper Tire & Rubber, and Gateway.
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 44 for more information on the S&P 500(R) Index.
2. See footnote on page 44 for more information on Lipper Inc.
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.
www.mainstayfunds.com 47
PORTFOLIO OF INVESTMENTS+++ October 31, 2006
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (98.0%)+
- -------------------------------------------------------------------------------------
AEROSPACE & DEFENSE (2.3%)
Boeing Co. (The) 101,554 $ 8,110,102
General Dynamics Corp. 51,477 3,660,015
Goodrich Corp. 15,925 702,133
Honeywell International, Inc. 104,689 4,409,501
L-3 Communications Holdings, Inc. 15,748 1,268,029
Lockheed Martin Corp. 45,551 3,959,748
Northrop Grumman Corp. 44,057 2,924,944
Raytheon Co. 57,408 2,867,530
Rockwell Collins, Inc. 21,905 1,272,242
United Technologies Corp. 129,308 8,498,122
-------------------
37,672,366
-------------------
AIR FREIGHT & LOGISTICS (0.9%)
FedEx Corp. 39,191 4,488,937
United Parcel Service, Inc. Class B 138,140 10,408,849
-------------------
14,897,786
-------------------
AIRLINES (0.1%)
Southwest Airlines Co. 100,836 1,515,565
-------------------
AUTO COMPONENTS (0.1%)
Goodyear Tire & Rubber Co. (The) (a)(b) 22,631 346,933
Johnson Controls, Inc. (b) 24,975 2,036,461
-------------------
2,383,394
-------------------
AUTOMOBILES (0.4%)
Ford Motor Co. (b) 240,510 1,991,423
General Motors Corp. (b) 72,350 2,526,462
Harley-Davidson, Inc. (b) 33,540 2,301,850
-------------------
6,819,735
-------------------
BEVERAGES (2.1%)
Anheuser-Busch Cos., Inc. 98,296 4,661,196
Brown-Forman Corp. Class B 10,015 722,983
Coca-Cola Co. (The) 260,566 12,173,644
Coca-Cola Enterprises, Inc. 35,260 706,258
Constellation Brands, Inc. (a)(b) 26,971 741,433
Molson Coors Brewing Co. Class B 5,823 414,481
Pepsi Bottling Group, Inc. (The) 17,327 547,880
PepsiCo, Inc. 210,814 13,374,040
-------------------
33,341,915
-------------------
BIOTECHNOLOGY (1.4%)
Amgen, Inc. (a) 149,635 11,358,793
Biogen Idec, Inc. (a) 43,796 2,084,690
Celgene Corp. (a) 23,800 1,271,872
Genzyme Corp. (a) 33,439 2,257,467
Gilead Sciences, Inc. (a) 58,412 4,024,587
MedImmune, Inc. (a)(b) 30,632 981,449
-------------------
21,978,858
-------------------
</Table>
<Table>
<Caption>
SHARES VALUE
BUILDING PRODUCTS (0.2%)
American Standard Cos., Inc. 22,302 $ 987,756
Masco Corp. 50,895 1,407,247
-------------------
2,395,003
-------------------
CAPITAL MARKETS (3.7%)
Ameriprise Financial, Inc. 31,144 1,603,916
Bank of New York Co., Inc. (The) 97,548 3,352,725
Bear Stearns Cos., Inc. (The) 15,351 2,323,374
Charles Schwab Corp. (The) 132,261 2,409,795
E*TRADE Financial Corp. (a) 54,577 1,270,553
Federated Investors, Inc. Class B 11,607 398,004
Franklin Resources, Inc. 21,340 2,431,906
Goldman Sachs Group, Inc. (The) 55,234 10,482,861
Janus Capital Group, Inc. 26,439 530,895
Legg Mason, Inc. (b) 16,771 1,509,725
Lehman Brothers Holdings, Inc. 68,712 5,348,542
Mellon Financial Corp. 52,730 2,045,924
Merrill Lynch & Co., Inc. 113,308 9,905,385
Morgan Stanley 137,042 10,474,120
Northern Trust Corp. 23,947 1,406,168
State Street Corp. 42,234 2,712,690
T. Rowe Price Group, Inc. 33,502 1,584,980
-------------------
59,791,563
-------------------
CHEMICALS (1.5%)
Air Products & Chemicals, Inc. 28,254 1,968,456
Ashland, Inc. 8,113 479,478
Dow Chemical Co. (The) 122,711 5,005,382
E.I. du Pont de Nemours & Co. 117,824 5,396,339
Eastman Chemical Co. 10,497 639,477
Ecolab, Inc. (b) 22,835 1,035,567
Hercules, Inc. (a) 14,442 262,844
International Flavors & Fragrances, Inc. 9,997 424,673
Monsanto Co. 69,397 3,068,735
PPG Industries, Inc. 21,156 1,447,070
Praxair, Inc. 41,227 2,483,927
Rohm & Haas Co. (b) 18,407 953,851
Sigma-Aldrich Corp. (b) 8,439 633,853
-------------------
23,799,652
-------------------
COMMERCIAL BANKS (4.2%)
AmSouth Bancorp. 43,781 1,323,062
BB&T Corp. 68,627 2,986,647
Comerica, Inc. 20,597 1,198,539
Commerce Bancorp, Inc. (b) 23,825 831,969
Compass Bancshares, Inc. 16,675 938,135
Fifth Third Bancorp (b) 71,360 2,843,696
First Horizon National Corp. 15,860 623,615
</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.
48 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)
- -------------------------------------------------------------------------------------
COMMERCIAL BANKS (CONTINUED)
Huntington Bancshares, Inc. (b) 30,503 $ 744,578
KeyCorp 51,532 1,913,898
M&T Bank Corp. 9,975 1,215,055
Marshall & Ilsley Corp. 32,540 1,559,968
National City Corp. (b) 77,346 2,881,138
North Fork Bancorp., Inc. 59,675 1,705,511
PNC Financial Services Group, Inc. 37,780 2,645,733
Regions Financial Corp. (b) 58,057 2,203,263
SunTrust Banks, Inc. 46,599 3,680,855
Synovus Financial Corp. 41,462 1,218,154
U.S. Bancorp 227,195 7,688,279
Wachovia Corp. 244,672 13,579,296
Wells Fargo & Co. 430,575 15,625,567
Zions Bancorp. 13,660 1,098,264
-------------------
68,505,222
-------------------
COMMERCIAL SERVICES & SUPPLIES (0.5%)
Allied Waste Industries, Inc. (a) 32,418 393,879
Avery Dennison Corp. 12,082 762,857
Cintas Corp. 17,504 724,666
Equifax, Inc. 16,170 614,945
Monster Worldwide, Inc. (a) 16,364 662,906
Pitney Bowes, Inc. 28,181 1,316,335
R.R. Donnelley & Sons Co. 27,536 932,369
Robert Half International, Inc. 21,856 798,837
Waste Management, Inc. 69,083 2,589,231
-------------------
8,796,025
-------------------
COMMUNICATIONS EQUIPMENT (2.7%)
ADC Telecommunications, Inc. (a) 15,010 214,793
Avaya, Inc. (a) 57,791 740,303
Ciena Corp. (a) 10,792 253,720
Cisco Systems, Inc. (a) 780,542 18,834,478
Comverse Technology, Inc. (a) 25,627 557,900
Corning, Inc. (a) 199,408 4,073,905
JDS Uniphase Corp. (a) 26,929 391,278
Juniper Networks, Inc. (a) 72,365 1,246,125
Lucent Technologies, Inc. (a) 573,074 1,392,570
Motorola, Inc. 313,253 7,223,614
QUALCOMM, Inc. 211,262 7,687,824
Tellabs, Inc. (a) 57,451 605,534
-------------------
43,222,044
-------------------
COMPUTERS & PERIPHERALS (3.6%)
Apple Computer, Inc. (a) 108,778 8,819,720
Dell, Inc. (a) 290,431 7,066,186
EMC Corp. (a) 293,922 3,600,545
Hewlett-Packard Co. 350,255 13,568,879
International Business Machines Corp. 194,634 17,970,557
Lexmark International, Inc. Class A (a) 12,794 813,570
NCR Corp. (a) 23,261 965,797
</Table>
<Table>
<Caption>
SHARES VALUE
COMPUTERS & PERIPHERALS (CONTINUED)
Network Appliance, Inc. (a) 47,595 $ 1,737,217
QLogic Corp. (a) 20,354 418,885
SanDisk Corp. (a) 25,031 1,203,991
Sun Microsystems, Inc. (a) 448,736 2,436,636
-------------------
58,601,983
-------------------
CONSTRUCTION & ENGINEERING (0.1%)
Fluor Corp. 11,205 878,808
-------------------
CONSTRUCTION MATERIALS (0.1%)
Vulcan Materials Co. 12,304 1,002,530
-------------------
CONSUMER FINANCE (0.9%)
American Express Co. 155,309 8,978,413
Capital One Financial Corp. 39,178 3,107,991
SLM Corp. 52,473 2,554,386
-------------------
14,640,790
-------------------
CONTAINERS & PACKAGING (0.2%)
Ball Corp. 13,331 554,436
Bemis Co., Inc. 13,321 447,852
Pactiv Corp. (a) 17,692 545,621
Sealed Air Corp. (b) 10,379 617,758
Temple-Inland, Inc. 13,866 546,875
-------------------
2,712,542
-------------------
DISTRIBUTORS (0.1%)
Genuine Parts Co. 21,930 998,254
-------------------
DIVERSIFIED CONSUMER SERVICES (0.1%)
Apollo Group, Inc. Class A (a) 17,782 657,223
H&R Block, Inc. 41,106 898,577
-------------------
1,555,800
-------------------
DIVERSIFIED FINANCIAL SERVICES (5.5%)
V Bank of America Corp. 578,685 31,173,761
Chicago Mercantile Exchange Holdings, Inc. 4,554 2,281,554
CIT Group, Inc. 25,415 1,322,851
V Citigroup, Inc. 632,114 31,706,838
JPMorgan Chase & Co. 443,827 21,055,153
Moody's Corp. 30,279 2,007,498
-------------------
89,547,655
-------------------
DIVERSIFIED TELECOMMUNICATION SERVICES (2.8%)
AT&T, Inc. 496,676 17,011,153
BellSouth Corp. 232,191 10,471,814
CenturyTel, Inc. 14,855 597,765
Citizens Communications Co. 41,013 601,251
Embarq Corp. 19,055 921,309
Qwest Communications International, Inc. (a) 204,612 1,765,802
</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 49
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES (CONTINUED)
Verizon Communications, Inc. 370,626 $ 13,713,162
Windstream Corp. 60,384 828,468
-------------------
45,910,724
-------------------
ELECTRIC UTILITIES (1.5%)
Allegheny Energy, Inc. (a) 21,017 904,362
American Electric Power Co., Inc. 50,345 2,085,793
Edison International 41,700 1,853,148
Entergy Corp. 26,621 2,284,880
Exelon Corp. 85,630 5,307,347
FirstEnergy Corp. 42,127 2,479,174
FPL Group, Inc. (b) 51,691 2,636,241
Pinnacle West Capital Corp. 12,637 604,175
PPL Corp. 48,678 1,680,365
Progress Energy, Inc. (b) 32,424 1,491,504
Southern Co. (The) 94,927 3,455,343
-------------------
24,782,332
-------------------
ELECTRICAL EQUIPMENT (0.5%)
American Power Conversion Corp. (b) 21,724 656,717
Cooper Industries, Ltd. Class A 11,663 1,043,255
Emerson Electric Co. 52,105 4,397,662
Rockwell Automation, Inc. 22,454 1,392,148
-------------------
7,489,782
-------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.3%)
Agilent Technologies, Inc. (a) 52,282 1,861,239
Jabil Circuit, Inc. 23,603 677,642
Molex, Inc. 18,059 630,259
Sanmina-SCI Corp. (a) 68,126 269,098
Solectron Corp. (a) 116,961 390,650
Symbol Technologies, Inc. 32,455 484,553
Tektronix, Inc. 10,702 325,020
-------------------
4,638,461
-------------------
ENERGY EQUIPMENT & SERVICES (1.7%)
Baker Hughes, Inc. 42,104 2,907,281
BJ Services Co. 38,085 1,148,644
Halliburton Co. (b) 131,838 4,264,959
Nabors Industries, Ltd. (a)(b) 40,449 1,249,065
National-Oilwell Varco, Inc. (a) 22,388 1,352,235
Noble Corp. 17,487 1,225,839
Rowan Cos., Inc. 14,161 472,694
Schlumberger, Ltd. 151,351 9,547,221
Smith International, Inc. 25,600 1,010,688
Transocean, Inc. (a) 40,242 2,919,155
Weatherford International, Ltd. (a) 44,098 1,811,546
-------------------
27,909,327
-------------------
FOOD & STAPLES RETAILING (2.2%)
Costco Wholesale Corp. 59,962 3,200,772
CVS Corp. 105,018 3,295,465
</Table>
<Table>
<Caption>
SHARES VALUE
FOOD & STAPLES RETAILING (CONTINUED)
Kroger Co. (The) 92,390 $ 2,077,851
Safeway, Inc. 56,827 1,668,441
SUPERVALU, Inc. 27,057 903,704
Sysco Corp. 79,069 2,765,834
Walgreen Co. 128,921 5,631,269
Wal-Mart Stores, Inc. 314,463 15,496,737
Whole Foods Market, Inc. 18,003 1,149,312
-------------------
36,189,385
-------------------
FOOD PRODUCTS (1.1%)
Archer-Daniels-Midland Co. 83,851 3,228,264
Campbell Soup Co. 29,478 1,101,888
ConAgra Foods, Inc. 65,283 1,707,150
Dean Foods Co. (a) 17,137 717,869
General Mills, Inc. 45,147 2,565,253
H.J. Heinz Co. 42,436 1,789,102
Hershey Co. (The) (b) 22,431 1,186,824
Kellogg Co. 32,013 1,610,574
McCormick & Co., Inc. 16,971 634,715
Sara Lee Corp. 97,243 1,662,855
Tyson Foods, Inc. Class A (b) 32,204 465,348
Wm. Wrigley Jr. Co. (b) 28,108 1,460,211
-------------------
18,130,053
-------------------
GAS UTILITIES (0.0%)++
Nicor, Inc. 5,688 261,420
Peoples Energy Corp. 4,912 214,605
-------------------
476,025
-------------------
HEALTH CARE EQUIPMENT & SUPPLIES (1.5%)
Bausch & Lomb, Inc. 6,889 368,837
Baxter International, Inc. 83,389 3,833,392
Becton, Dickinson & Co. 31,379 2,197,471
Biomet, Inc. 31,307 1,184,657
Boston Scientific Corp. (a) 150,603 2,396,094
C.R. Bard, Inc. 13,236 1,084,823
Hospira, Inc. (a) 20,112 731,071
Medtronic, Inc. (b) 146,960 7,154,013
St. Jude Medical, Inc. (a) 45,060 1,547,811
Stryker Corp. (b) 37,967 1,985,294
Zimmer Holdings, Inc. (a) 31,007 2,232,814
-------------------
24,716,277
-------------------
HEALTH CARE PROVIDERS & SERVICES (2.5%)
Aetna, Inc. 69,992 2,885,070
AmerisourceBergen Corp. 25,726 1,214,267
Cardinal Health, Inc. 51,769 3,388,281
Caremark Rx, Inc. 54,572 2,686,580
CIGNA Corp. 14,168 1,657,373
Coventry Health Care, Inc. (a) 20,332 954,587
Express Scripts, Inc. (a) 18,136 1,155,626
HCA, Inc. (b) 54,177 2,737,022
</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)
- -------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES (CONTINUED)
Health Management Associates, Inc. Class A (b) 30,745 $ 605,676
Humana, Inc. (a) 21,107 1,266,420
Laboratory Corp. of America Holdings (a)(b) 16,026 1,097,621
Manor Care, Inc. (b) 9,407 451,442
McKesson Corp. 38,238 1,915,341
Medco Health Solutions, Inc. (a) 37,596 2,011,386
Patterson Cos., Inc. (a)(b) 17,752 583,153
Quest Diagnostics, Inc. 20,695 1,029,369
Tenet Healthcare Corp. (a)(b) 60,310 425,789
UnitedHealth Group, Inc. 172,271 8,403,379
WellPoint, Inc. (a) 79,206 6,045,002
-------------------
40,513,384
-------------------
HEALTH CARE TECHNOLOGY (0.0%)++
IMS Health, Inc. 25,718 716,246
-------------------
HOTELS, RESTAURANTS & LEISURE (1.6%)
Carnival Corp. 56,928 2,779,225
Darden Restaurants, Inc. 18,707 783,823
Harrah's Entertainment, Inc. 23,753 1,765,560
Hilton Hotels Corp. 49,365 1,427,636
International Game Technology 43,350 1,842,808
Marriott International, Inc. Class A 43,977 1,836,919
McDonald's Corp. 156,802 6,573,140
Starbucks Corp. (a) 96,672 3,649,368
Starwood Hotels & Resorts Worldwide, Inc. 27,874 1,665,193
Wendy's International, Inc. 15,043 520,488
Wyndham Worldwide Corp. (a) 25,671 757,294
Yum! Brands, Inc. 34,617 2,058,327
-------------------
25,659,781
-------------------
HOUSEHOLD DURABLES (0.6%)
Black & Decker Corp. (The) 9,469 794,260
Centex Corp. (b) 15,198 794,855
D.R. Horton, Inc. (b) 34,549 809,483
Fortune Brands, Inc. (b) 19,344 1,488,521
Harman International Industries, Inc. 8,328 852,371
KB HOME (b) 10,054 451,827
Leggett & Platt, Inc. 23,090 539,151
Lennar Corp. Class A 17,657 838,354
Newell Rubbermaid, Inc. 35,428 1,019,618
Pulte Homes, Inc. (b) 27,254 844,601
Snap-on, Inc. 7,378 346,987
Stanley Works (The) 10,369 494,083
Whirlpool Corp. 9,968 866,518
-------------------
10,140,629
-------------------
</Table>
<Table>
<Caption>
SHARES VALUE
HOUSEHOLD PRODUCTS (2.2%)
Clorox Co. (The) 19,346 $ 1,248,978
Colgate-Palmolive Co. 66,029 4,223,875
Kimberly-Clark Corp. 58,649 3,901,331
V Procter & Gamble Co. (The) 405,995 25,736,023
-------------------
35,110,207
-------------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.5%)
AES Corp. (The) (a) 84,531 1,858,837
Constellation Energy Group, Inc. 22,926 1,430,582
Dynegy, Inc. Class A (a) 48,408 294,321
TXU Corp. 58,936 3,720,630
-------------------
7,304,370
-------------------
INDUSTRIAL CONGLOMERATES (3.9%)
3M Co. 96,332 7,594,815
V General Electric Co. 1,319,943 46,343,199
Textron, Inc. 16,125 1,466,246
Tyco International, Ltd. 257,605 7,581,315
-------------------
62,985,575
-------------------
INSURANCE (4.6%)
ACE, Ltd. 41,616 2,382,516
AFLAC, Inc. 63,576 2,855,834
Allstate Corp. (The) 80,462 4,937,148
Ambac Financial Group, Inc. 13,521 1,128,868
V American International Group, Inc. 332,245 22,316,897
Aon Corp. 40,196 1,398,419
Chubb Corp. (The) 52,498 2,790,269
Cincinnati Financial Corp. 22,116 1,009,595
Genworth Financial, Inc. Class A 58,190 1,945,874
Hartford Financial Services Group, Inc. (The) 38,929 3,393,441
Lincoln National Corp. 36,691 2,322,907
Loews Corp. 58,477 2,275,925
Marsh & McLennan Cos., Inc. 70,338 2,070,751
MBIA, Inc. (b) 17,196 1,066,496
MetLife, Inc. (b) 97,132 5,549,151
Principal Financial Group, Inc. 34,500 1,948,905
Progressive Corp. (The) 98,744 2,386,642
Prudential Financial, Inc. 62,016 4,770,891
SAFECO Corp. 14,907 867,438
St. Paul Travelers Cos., Inc. (The) 88,346 4,517,131
Torchmark Corp. 12,725 784,878
UnumProvident Corp. 43,597 862,349
XL Capital, Ltd. Class A 23,047 1,625,966
-------------------
75,208,291
-------------------
INTERNET & CATALOG RETAIL (0.1%)
Amazon.com, Inc. (a)(b) 40,149 1,529,275
-------------------
</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, 2006 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES (1.4%)
eBay, Inc. (a) 150,246 $ 4,827,404
Google, Inc. Class A (a) 27,238 12,975,911
VeriSign, Inc. (a) 31,005 641,183
Yahoo!, Inc. (a) 158,940 4,186,480
-------------------
22,630,978
-------------------
IT SERVICES (1.0%)
Affiliated Computer Services, Inc. Class A (a)(b) 15,139 809,634
Automatic Data Processing, Inc. 71,068 3,513,602
Computer Sciences Corp. (a) 21,826 1,153,504
Convergys Corp. (a) 17,738 376,223
Electronic Data Systems Corp. 66,183 1,676,415
First Data Corp. 97,794 2,371,505
Fiserv, Inc. (a) 22,373 1,105,226
Paychex, Inc. 43,235 1,706,918
Sabre Holdings Corp. Class A 16,893 429,420
Unisys Corp. (a) 43,977 287,610
Western Union Co. (The) (a) 97,794 2,156,358
-------------------
15,586,415
-------------------
LEISURE EQUIPMENT & PRODUCTS (0.2%)
Brunswick Corp. 12,077 380,425
Eastman Kodak Co. (b) 36,589 892,772
Hasbro, Inc. 20,885 541,339
Mattel, Inc. 48,363 1,094,455
-------------------
2,908,991
-------------------
LIFE SCIENCES TOOLS & SERVICES (0.3%)
Applera Corp.-Applied BioSystems Group 23,267 867,859
Fisher Scientific International, Inc. (a) 15,940 1,364,783
Millipore Corp. (a)(b) 6,793 438,352
PerkinElmer, Inc. 16,081 343,490
Thermo Electron Corp. (a) 20,119 862,502
Waters Corp. (a) 13,098 652,280
-------------------
4,529,266
-------------------
MACHINERY (1.4%)
Caterpillar, Inc. 83,894 5,093,205
Cummins, Inc. (b) 6,743 856,226
Danaher Corp. 30,297 2,174,416
Deere & Co. 29,568 2,517,124
Dover Corp. 26,037 1,236,758
Eaton Corp. 19,214 1,391,670
Illinois Tool Works, Inc. 53,704 2,574,033
Ingersoll-Rand Co. Class A 41,157 1,510,873
ITT Corp. 23,655 1,286,595
Navistar International Corp. (a) 7,889 218,762
PACCAR, Inc. (b) 31,770 1,881,102
</Table>
<Table>
<Caption>
SHARES VALUE
MACHINERY (CONTINUED)
Pall Corp. 15,996 $ 510,272
Parker Hannifin Corp. 15,399 1,287,818
-------------------
22,538,854
-------------------
MEDIA (3.4%)
CBS Corp. Class B 99,775 2,887,489
Clear Channel Communications, Inc. 63,449 2,211,198
Comcast Corp. Class A (a) 267,559 10,881,625
Dow Jones & Co., Inc. (b) 8,312 291,668
E.W. Scripps Co. (The) Class A 10,773 532,833
Gannett Co., Inc. 30,256 1,789,340
Interpublic Group of Cos., Inc. (The) (a)(b) 56,375 615,051
McGraw-Hill Cos., Inc. (The) 45,011 2,888,356
Meredith Corp. 4,849 254,573
New York Times Co. (The) Class A (b) 18,165 439,048
News Corp. Class A 298,785 6,229,667
Omnicom Group, Inc. 21,953 2,227,132
Time Warner, Inc. 519,997 10,405,140
Tribune Co. (b) 24,356 811,785
Univision Communications, Inc. Class A (a)(b) 32,036 1,123,182
Viacom, Inc. Class B (a) 90,715 3,530,628
Walt Disney Co. (The) 267,290 8,408,943
-------------------
55,527,658
-------------------
METALS & MINING (0.9%)
Alcoa, Inc. 110,854 3,204,789
Allegheny Technologies, Inc. (b) 12,845 1,011,287
Freeport-McMoRan Copper & Gold, Inc. Class B (b) 25,086 1,517,201
Newmont Mining Corp. 57,471 2,601,712
Nucor Corp. 39,455 2,304,567
Phelps Dodge Corp. 26,094 2,619,316
United States Steel Corp. 15,729 1,063,280
-------------------
14,322,152
-------------------
MULTILINE RETAIL (1.2%)
Big Lots, Inc. (a) 14,060 296,385
Dillard's, Inc. Class A (b) 7,835 236,382
Dollar General Corp. 39,909 559,923
Family Dollar Stores, Inc. 19,408 571,566
Federated Department Stores, Inc. 69,480 3,050,867
J.C. Penney Co., Inc. 28,686 2,158,048
Kohl's Corp. (a) 41,870 2,956,022
Nordstrom, Inc. 29,216 1,383,378
Sears Holdings Corp. (a) 10,631 1,854,791
Target Corp. 109,832 6,499,858
-------------------
19,567,220
-------------------
MULTI-UTILITIES (1.4%)
Ameren Corp. (b) 26,275 1,421,478
CenterPoint Energy, Inc. (b) 39,819 616,398
</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)
- -------------------------------------------------------------------------------------
MULTI-UTILITIES (CONTINUED)
CMS Energy Corp. (a)(b) 28,366 $ 422,370
Consolidated Edison, Inc. 31,505 1,523,267
Dominion Resources, Inc. 45,094 3,652,163
DTE Energy Co. (b) 22,722 1,032,260
Duke Energy Corp. 160,172 5,067,842
KeySpan Corp. 22,370 907,775
NiSource, Inc. 34,875 811,541
PG&E Corp. 44,500 1,919,730
Public Service Enterprise Group, Inc. 32,160 1,963,368
Sempra Energy 33,410 1,772,066
TECO Energy, Inc. 26,695 440,201
Xcel Energy, Inc. (b) 51,907 1,145,588
-------------------
22,696,047
-------------------
OFFICE ELECTRONICS (0.1%)
Xerox Corp. (a) 125,110 2,126,870
-------------------
OIL, GAS & CONSUMABLE FUELS (7.6%)
Anadarko Petroleum Corp. 58,751 2,727,221
Apache Corp. 42,028 2,745,269
Chesapeake Energy Corp. (b) 48,376 1,569,317
Chevron Corp. 280,997 18,882,998
ConocoPhillips 210,711 12,693,231
CONSOL Energy, Inc. (b) 23,335 825,826
Devon Energy Corp. 56,312 3,763,894
El Paso Corp. (b) 88,977 1,218,985
EOG Resources, Inc. 31,063 2,066,621
V ExxonMobil Corp. 760,128 54,288,342
Hess Corp. (b) 30,808 1,306,259
Kinder Morgan, Inc. 13,711 1,441,026
Marathon Oil Corp. 45,843 3,960,835
Murphy Oil Corp. (b) 23,918 1,127,973
Occidental Petroleum Corp. 110,124 5,169,221
Sunoco, Inc. 16,667 1,102,189
Valero Energy Corp. 78,444 4,104,975
Williams Cos., Inc. (The) 76,180 1,861,077
XTO Energy, Inc. 46,741 2,180,935
-------------------
123,036,194
-------------------
PAPER & FOREST PRODUCTS (0.3%)
International Paper Co. 58,167 1,939,869
Louisiana-Pacific Corp. 13,801 272,984
MeadWestvaco Corp. 23,170 637,638
Weyerhaeuser Co. 31,439 1,999,206
-------------------
4,849,697
-------------------
</Table>
<Table>
<Caption>
SHARES VALUE
PERSONAL PRODUCTS (0.2%)
Alberto-Culver Co. 9,934 $ 504,747
Avon Products, Inc. 57,336 1,743,588
Estee Lauder Cos., Inc. (The) Class A 16,485 665,829
-------------------
2,914,164
-------------------
PHARMACEUTICALS (6.5%)
Abbott Laboratories 195,337 9,280,461
Allergan, Inc. 19,321 2,231,576
Barr Pharmaceuticals, Inc. (a) 13,593 711,865
Bristol-Myers Squibb Co. 251,465 6,223,759
Eli Lilly & Co. 125,729 7,042,081
Forest Laboratories, Inc. (a) 40,622 1,988,041
V Johnson & Johnson 374,036 25,210,026
King Pharmaceuticals, Inc. (a) 31,042 519,333
Merck & Co., Inc. 278,251 12,638,160
Mylan Laboratories, Inc. 27,100 555,550
V Pfizer, Inc. 932,364 24,847,501
Schering-Plough Corp. 189,364 4,192,519
Watson Pharmaceuticals, Inc. (a) 13,090 352,252
Wyeth 172,110 8,782,773
-------------------
104,575,897
-------------------
REAL ESTATE INVESTMENT TRUSTS (1.1%)
Apartment Investment & Management Co. Class A (b) 12,442 713,175
Archstone-Smith Trust (b) 27,407 1,650,175
Boston Properties, Inc. 14,619 1,561,748
Equity Office Properties Trust (b) 44,644 1,897,370
Equity Residential 37,206 2,031,820
Kimco Realty Corp. (b) 27,691 1,230,311
Plum Creek Timber Co., Inc. 22,911 823,421
ProLogis 31,306 1,980,731
Public Storage, Inc. 15,484 1,389,070
Simon Property Group, Inc. (b) 28,323 2,750,163
Vornado Realty Trust (b) 15,614 1,861,970
-------------------
17,889,954
-------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT (0.1%)
CB Richard Ellis Group, Inc. Class A (a) 12,600 378,378
Realogy Corp. (a) 27,288 703,485
-------------------
1,081,863
-------------------
ROAD & RAIL (0.7%)
Burlington Northern Santa Fe Corp. 46,323 3,591,422
CSX Corp. 56,734 2,023,702
Norfolk Southern Corp. 52,934 2,782,740
Ryder System, Inc. 7,992 420,779
Union Pacific Corp. 34,442 3,121,478
-------------------
11,940,121
-------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (2.6%)
Advanced Micro Devices, Inc. (a) 62,155 1,322,037
Altera Corp. (a) 45,968 847,650
</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, 2006 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (CONTINUED)
Analog Devices, Inc. 45,084 $ 1,434,573
Applied Materials, Inc. (b) 177,478 3,086,342
Broadcom Corp. Class A (a) 59,927 1,813,990
Freescale Semiconductor, Inc. Class B (a) 51,863 2,039,772
Intel Corp. (b) 737,497 15,738,186
KLA-Tencor Corp. 25,478 1,252,753
Linear Technology Corp. 38,608 1,201,481
LSI Logic Corp. (a)(b) 51,082 513,374
Maxim Integrated Products, Inc. 41,031 1,231,340
Micron Technology, Inc. (a) 93,290 1,348,041
National Semiconductor Corp. 38,056 924,380
Novellus Systems, Inc. (a) 15,788 436,538
NVIDIA Corp. (a) 44,899 1,565,628
PMC-Sierra, Inc. (a)(b) 26,788 177,604
Teradyne, Inc. (a)(b) 25,233 353,767
Texas Instruments, Inc. 195,982 5,914,737
Xilinx, Inc. 43,457 1,108,588
-------------------
42,310,781
-------------------
SOFTWARE (3.4%)
Adobe Systems, Inc. (a) 74,091 2,833,981
Autodesk, Inc. (a) 29,608 1,088,094
BMC Software, Inc. (a) 26,214 794,546
CA, Inc. 52,466 1,299,058
Citrix Systems, Inc. (a) 23,547 695,343
Compuware Corp. (a) 48,320 388,493
Electronic Arts, Inc. (a)(b) 39,229 2,074,822
Intuit, Inc. (a) 43,733 1,543,775
V Microsoft Corp. 1,104,424 31,708,013
Novell, Inc. (a) 43,321 259,926
Oracle Corp. (a) 515,768 9,526,235
Parametric Technology Corp. (a) 14,226 277,976
Symantec Corp. (a) 126,482 2,509,403
-------------------
54,999,665
-------------------
SPECIALTY RETAIL (2.0%)
AutoNation, Inc. (a) 19,630 393,582
AutoZone, Inc. (a) 6,705 750,960
Bed Bath & Beyond, Inc. (a) 36,092 1,454,147
Best Buy Co., Inc. 51,917 2,868,414
Circuit City Stores, Inc. 18,041 486,746
Gap, Inc. (The) 68,813 1,446,449
Home Depot, Inc. (The) 263,951 9,853,291
Limited Brands, Inc. 43,474 1,281,179
Lowe's Cos., Inc. (b) 195,384 5,888,874
Office Depot, Inc. (a) 36,235 1,521,508
OfficeMax, Inc. 9,477 450,916
RadioShack Corp. (b) 17,020 303,637
Sherwin-Williams Co. (The) 14,403 853,090
</Table>
<Table>
<Caption>
SHARES VALUE
SPECIALTY RETAIL (CONTINUED)
Staples, Inc. 92,917 $ 2,396,329
Tiffany & Co. 17,681 631,565
TJX Cos., Inc. (The) 57,472 1,663,814
-------------------
32,244,501
-------------------
TEXTILES, APPAREL & LUXURY GOODS (0.4%)
Coach, Inc. (a) 46,758 1,853,487
Jones Apparel Group, Inc. 14,472 483,365
Liz Claiborne, Inc. 13,168 555,295
NIKE, Inc. Class B 24,538 2,254,551
VF Corp. 11,295 858,533
-------------------
6,005,231
-------------------
THRIFTS & MORTGAGE FINANCE (1.4%)
Countrywide Financial Corp. 78,247 2,982,776
Fannie Mae 123,749 7,333,366
Freddie Mac 88,357 6,095,749
MGIC Investment Corp. 10,846 637,311
Sovereign Bancorp, Inc. 45,836 1,093,647
Washington Mutual, Inc. 123,229 5,212,587
-------------------
23,355,436
-------------------
TOBACCO (1.5%)
V Altria Group, Inc. 267,703 21,772,285
Reynolds American, Inc. (b) 21,894 1,382,825
UST, Inc. 20,586 1,102,586
-------------------
24,257,696
-------------------
TRADING COMPANIES & DISTRIBUTERS (0.0%)++
W.W. Grainger, Inc. 9,635 701,235
-------------------
WIRELESS TELECOMMUNICATION SERVICES (0.6%)
ALLTEL Corp. 49,625 2,645,509
Sprint Nextel Corp. 382,026 7,140,066
-------------------
9,785,575
-------------------
Total Common Stocks
(Cost $1,155,432,016) 1,586,850,075(g)
-------------------
<Caption>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS (7.6%)
- -------------------------------------------------------------------------------------
COMMERCIAL PAPER (1.8%)
American Honda Finance Corp.
5.22%, due 11/13/06 $ 2,700,000 2,695,302
Fairway Finance Corp.
5.289%, due 11/20/06 (c) 4,792,469 4,792,469
FPL Fuels, Inc.
5.25%, due 11/15/06 $ 1,100,000 1,097,754
Greyhawk Funding
5.286%, due 11/13/06 (c) 1,996,862 1,996,862
</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.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONTINUED)
- -------------------------------------------------------------------------------------
COMMERCIAL PAPER (CONTINUED)
Jupiter Securitization Corp.
5.303%, due 11/14/06 (c) $ 1,996,862 $ 1,996,862
MetLife Funding, Inc.
5.21%, due 11/16/06 1,600,000 1,596,527
National Rural Utilities Cooperative Finance Corp.
5.23%, due 11/29/06 600,000 597,559
New Jersey Natural Gas
5.22%, due 11/9/06 1,000,000 998,840
UBS Finance Delaware LLC
5.225%, due 11/6/06 14,100,000 14,089,768
-------------------
Total Commercial Paper
(Cost $29,861,943) 29,861,943
-------------------
<Caption>
SHARES
INVESTMENT COMPANY (1.5%)
BGI Institutional Money Market Fund (c) 23,847,201 23,847,201
-------------------
Total Investment Company
(Cost $23,847,201) 23,847,201
-------------------
<Caption>
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT (0.3%)
Morgan Stanley & Co.
5.42%, dated 10/31/06
due 11/1/06
Proceeds at Maturity $5,215,792
(Collateralized by various Corporate Bonds,
with rates between 0% - 8.40% and
maturity dates between 1/30/07 - 6/15/34,
with a Principal Amount of
$5,274,807 and a Market Value
of $5,422,329) (c) $ 5,215,007 5,215,007
-------------------
Total Repurchase Agreement
(Cost $5,215,007) 5,215,007
-------------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
TIME DEPOSITS (3.3%)
Banco Bilbao Vizcaya Argentaria S.A.
5.30%, due 1/9/07 (c) $ 3,993,724 $ 3,993,724
Bank of America
5.27%, due 11/21/06 (c)(d) 3,993,723 3,993,723
Bank of Montreal
5.28%, due 11/27/06 (c) 3,993,723 3,993,723
Bank of Nova Scotia
5.30%, due 11/10/06 (c) 3,993,723 3,993,723
Barclays
5.32%, due 1/18/07 (c) 3,993,724 3,993,724
Deutsche Bank AG
5.27%, due 11/9/06 (c) 2,795,607 2,795,607
Fortis Bank
5.27%, due 11/6/06 (c) 7,987,448 7,987,448
Halifax Bank of Scotland
5.30%, due 1/10/07 (c) 3,993,724 3,993,724
Lloyds TSB Bank PLC
5.30%, due 12/21/06 (c) 3,993,724 3,993,724
Royal Bank of Canada
5.30%, due 12/22/06 (c) 3,993,724 3,993,724
Royal Bank of Scotland
5.29%, due 12/12/06 (c) 3,993,724 3,993,724
Skandinaviska Enskilda Banken AB
5.31%, due 11/3/06 (c) 3,993,724 3,993,724
UBS AG
5.28%, due 12/5/06 (c) 1,996,862 1,996,862
-------------------
Total Time Deposits
(Cost $52,717,154) 52,717,154
-------------------
U.S. GOVERNMENT (0.7%)
United States Treasury Bills
4.989%, due 1/18/07 (e) 2,300,000 2,275,430
4.998%, due 1/25/07 9,000,000 8,895,240
-------------------
Total U.S. Government
(Cost $11,170,733) 11,170,670
-------------------
Total Short-Term Investments
(Cost $122,812,038) 122,811,975
-------------------
Total Investments
(Cost $1,278,244,054) (h) 105.6% 1,709,662,050(i)
Liabilities in Excess of
Cash and Other Assets (5.6) (89,894,889)
----------- -------------------
Net Assets 100.0% $ 1,619,767,161
=========== ===================
</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.
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.
<Table>
<Caption>
UNREALIZED
CONTRACTS APPRECIATION/
LONG (DEPRECIATION) (F)
FUTURES CONTRACTS (0.1%)
- -----------------------------------------------------------------------------------
Standard & Poor's 500 Index
December 2006 89 $ 944,655
Mini December 2006 13 7,404
-------------------
Total Futures Contracts Long
(Settlement Value $31,675,280) $ 952,059
-------------------
<Caption>
CONTRACTS
SHORT
Standard & Poor's 500 Index
Mini December 2006 10 (1,005)
-------------------
Total Futures Contracts Short
(Settlement Value $691,600) (1,005)
-------------------
Total Futures Contracts
(Settlement Value $30,983,680) (g) $ 951,054
===================
</Table>
<Table>
++ Less than one tenth of a percent.
+++ Fifty percent of the Fund's assets are maintained to cover
"senior securities transactions" which may include, but are
not limited to, forwards, TBA's, options and futures. This
percentage is marked-to-market daily against the value of
the Fund's "senior securities" holdings to ensure proper
coverage for these transactions.
(a) Non-income producing security.
(b) Represents a security, or a portion thereof, which is out on
loan.
(c) Represents a security, or a portion thereof, purchased with
cash collateral received for securities on loan.
(d) Floating rate. Rate shown is the rate in effect at October
31, 2006.
(e) Segregated or partially segregated as collateral for futures
contracts.
(f) Represents the difference between the value of the contracts
at the time they were opened and the value at October 31,
2006.
(g) The combined market value of common stocks and settlement
value of Standard & Poor's 500 Index futures contracts
approximately represents 100.0% of net assets.
(h) The cost for federal income tax purposes is $1,298,369,002.
(i) At October 31, 2006 net unrealized appreciation was
$411,293,048, 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 $451,682,233 and aggregate gross
unrealized depreciation for all investments on which there
was an excess of cost over market value of $40,389,185.
</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 61
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2006
<Table>
ASSETS:
Investment in securities, at value
(identified cost $1,278,244,054) including
$87,692,175 market value of securities
loaned $1,709,662,050
Receivables:
Fund shares sold 1,504,923
Dividends and interest 1,375,150
Other assets 25,253
--------------
Total assets 1,712,567,376
--------------
LIABILITIES:
Securities lending collateral 90,565,555
Bank overdraft 11,072
Payables:
Investment securities purchased 1,265,182
Fund shares redeemed 355,151
Manager (See Note 3) 168,820
Shareholder communication 138,035
Professional fees 103,936
NYLIFE Distributors (See Note 3) 69,255
Transfer agent (See Note 3) 63,829
Directors 21,232
Custodian 13,992
Variation margin on futures contracts 3,618
Accrued expenses 20,538
--------------
Total liabilities 92,800,215
--------------
Net assets $1,619,767,161
==============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
500 million shares authorized:
Class A $ 10,042
Class I 40,415
Additional paid-in capital 1,271,363,494
Accumulated undistributed net investment
income 20,518,223
Accumulated net realized loss on investments
and futures transactions (104,534,063)
Net unrealized appreciation on investments
and futures contracts 432,369,050
--------------
Net assets $1,619,767,161
==============
CLASS A
Net assets applicable to outstanding shares $ 319,850,786
==============
Shares of capital stock outstanding 10,042,301
==============
Net asset value per share outstanding $ 31.85
Maximum sales charge (3.00% of offering
price) 0.99
--------------
Maximum offering price per share outstanding $ 32.84
==============
CLASS I
Net assets applicable to outstanding shares $1,299,916,375
==============
Shares of capital stock outstanding 40,414,581
==============
Net asset value and offering price per share
outstanding $ 32.16
==============
</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 OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2006
<Table>
INVESTMENT INCOME:
INCOME:
Dividends $ 30,160,703
Interest 1,543,905
Income from securities loaned--net 145,363
-------------
Total income 31,849,971
-------------
EXPENSES:
Manager (See Note 3) 3,852,919
Distribution/Service--Class A (See Note 3) 784,340
Transfer agent--Class A (See Note 3) 567,878
Transfer agent--Class I (See Note 3) 83,611
Professional fees 382,840
Shareholder communication 279,095
Directors 113,905
Custodian 69,001
Registration 46,533
Miscellaneous 158,963
-------------
Total expenses before waiver/reimbursement 6,339,085
Expense waiver/reimbursement from Manager
(See Note 3) (348,562)
-------------
Net expenses 5,990,523
-------------
Net investment income 25,859,448
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on:
Security transactions (52,890,140)
Futures transactions (854,008)
-------------
Net realized loss on investments and futures
transactions (53,744,148)
-------------
Net change in unrealized appreciation
(depreciation) on:
Security transactions 260,151,840
Futures contracts 1,045,739
-------------
Net change in unrealized appreciation on
investments and futures contracts 261,197,579
-------------
Net realized and unrealized gain on
investments and futures transactions 207,453,431
-------------
Net increase in net assets resulting from
operations $233,312,879
=============
</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 CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2006 AND OCTOBER 31, 2005
<Table>
<Caption>
2006 2005
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 25,859,448 $ 25,773,932
Net realized loss on investments
and futures transactions (53,744,148) (10,906,709)
Net change in unrealized
appreciation (depreciation) on
investments and futures
contracts 261,197,579 97,346,669
-------------------------------
Net increase in net assets
resulting from operations 233,312,879 112,213,892
-------------------------------
Dividends to shareholders:
From net investment income:
Class A (3,523,617) (3,521,725)
Class I (19,998,995) (16,314,898)
-------------------------------
Total dividends to shareholders (23,522,612) (19,836,623)
-------------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 88,694,150 131,907,053
Class I 331,096,431 442,646,109
Net asset value of shares issued
to shareholders in reinvestment
of dividends:
Class A 3,385,029 3,418,513
Class I 19,990,716 16,313,839
-------------------------------
443,166,326 594,285,514
Cost of shares redeemed:
Class A (123,565,658) (125,812,654)
Class I (464,492,239) (268,830,636)
-------------------------------
(588,057,897) (394,643,290)
Increase (decrease) in net
assets derived from capital
share transactions (144,891,571) 199,642,224
-------------------------------
Net increase in net assets 64,898,696 292,019,493
NET ASSETS:
Beginning of year 1,554,868,465 1,262,848,972
-------------------------------
End of year $1,619,767,161 $1,554,868,465
===============================
Accumulated undistributed net
investment income at end of year $ 20,518,223 $ 18,362,847
===============================
</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
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A
---------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
Net asset value at beginning of period $ 27.86 $ 26.11 $ 25.46
-------- -------- -----------
Net investment income 0.40 0.40(d) 0.20
Net realized and unrealized gain (loss) on
investments 3.91 1.68 0.45
-------- -------- -----------
Total from investment operations 4.31 2.08 0.65
-------- -------- -----------
Less dividends and distributions:
From net investment income (0.32) (0.33) --
From net realized gain on investments -- -- --
-------- -------- -----------
Total dividends and distributions (0.32) (0.33) --
-------- -------- -----------
Net asset value at end of period $ 31.85 $ 27.86 $ 26.11
======== ======== ===========
Total investment return (b) 15.61% 7.97% 2.55%(c)
Ratios (to average net assets)/Supplemental Data:
Net investment income 1.31% 1.43%(d) 1.09%+
Net expenses 0.68% 0.73% 0.59%+
Expenses (before waiver/reimbursement) 0.74% 0.87% 0.87%+
Portfolio turnover rate 5% 6% 2%
Net assets at end of period (in 000's) $319,851 $309,387 $280,346
</Table>
<Table>
* Commencement of operations.
+ Annualized.
(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) Net investment income and the ratio of net investment income includes $0.07 and 0.26%,
respectively, as a result of a special one time dividend from Microsoft Corp.
</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.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS I
- -------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2006 2005 2004 2003 2002
$ 28.15 $ 26.35 $ 24.43 $ 20.57 $ 25.84
---------- ---------- -------- -------- --------
0.53 0.48(d) 0.33 0.32(a) 0.31
3.93 1.73 1.88 3.85 (3.86)
---------- ---------- -------- -------- --------
4.46 2.21 2.21 4.17 (3.55)
---------- ---------- -------- -------- --------
(0.45) (0.41) (0.29) (0.31) (0.32)
-- -- -- -- (1.40)
---------- ---------- -------- -------- --------
(0.45) (0.41) (0.29) (0.31) (1.72)
---------- ---------- -------- -------- --------
$ 32.16 $ 28.15 $ 26.35 $ 24.43 $ 20.57
========== ========== ======== ======== ========
16.06% 8.42% 9.10% 20.59% (15.23%)
1.69% 1.86%(d) 1.38% 1.46% 1.31%
0.30% 0.30% 0.30% 0.30% 0.30%
0.31% 0.44% 0.58% 0.61% 0.59%
5% 6% 2% 3% 4%
$1,299,916 $1,245,481 $982,503 $777,843 $527,277
</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 61
MAINSTAY SMALL CAP OPPORTUNITY FUND
INVESTMENT AND PERFORMANCE COMPARISON (UNAUDITED)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE 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 CALL 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM. PERFORMANCE DATA SHOWN EXCLUDING SALES CHARGES DOES NOT
REFLECT THE DEDUCTION OF ANY SALES LOAD, WHICH IF REFLECTED, WOULD REDUCE
PERFORMANCE QUOTED.
CLASS A SHARES--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 5.08% 18.33% 12.70%
Excluding sales charges 11.20 19.67 13.34
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY
SMALL CAP LIPPER SMALL-
OPPORTUNITY RUSSELL 2000 S&P SMALLCAP CAP VALUE
FUND VALUE INDEX S&P 500 INDEX 600 INDEX FUNDS INDEX
----------- ------------ ------------- ------------ -------------
10/31/96 9450 10000 10000 10000 10000
13271 13718 13211 13197 13641
12740 12663 16117 11738 11988
13292 12754 20253 13151 12255
13509 14960 21487 16473 14589
13473 16269 16136 15413 15744
14234 15858 13698 14831 15288
20155 22247 16548 19811 21629
24244 26250 18107 23135 25331
29738 29672 19686 26667 29065
10/31/06 33068 36466 22903 30961 34246
<Caption>
RUSSELL 2000
INDEX
------------
10/31/96 10000
12933
11402
13097
15377
13424
11871
17019
19015
21312
10/31/06 25570
</Table>
CLASS B SHARES--MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 5.32% 18.56% 12.32%
Excluding sales charges 10.32 18.76 12.32
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY
SMALL CAP LIPPER SMALL-
OPPORTUNITY RUSSELL 2000 S&P SMALLCAP CAP VALUE
FUND VALUE INDEX S&P 500 INDEX 600 INDEX FUNDS INDEX
----------- ------------ ------------- ------------ -------------
10/31/96 10000 10000 10000 10000 10000
13857 13718 13211 13197 13641
13140 12663 16117 11738 11988
13558 12754 20253 13151 12255
13666 14960 21487 16473 14589
13531 16269 16136 15413 15744
14185 15858 13698 14831 15288
19965 22247 16548 19811 21629
23830 26250 18107 23135 25331
28975 29672 19686 26667 29065
10/31/06 31965 36466 22903 30961 34246
<Caption>
RUSSELL 2000
INDEX
------------
10/31/96 10000
12933
11402
13097
15377
13424
11871
17019
19015
21312
10/31/06 25570
</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 as 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 1.00% 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. These fee waivers and/or expense limitations are
contractual and may be modified or terminated only with the approval of the
Board of Directors/Trustees. The Manager may recoup the amount of any management
fee waivers or expense reimbursements from the Fund pursuant to this agreement
if such action does not cause the Fund to exceed existing expense limitations
and the recoupment is made within three years after the year in which the
Manager incurred the expense. From inception (1/12/87) through 12/31/03,
performance for Class A and B shares (each first offered 1/2/04) includes the
historical performance of Class I shares 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 1.00% sales
charge and a 1.00% CDSC on redemptions within one year of purchase. From
inception through 12/29/02, performance for Class L shares (first offered
12/30/02) includes the historical performance of Class I shares adjusted to
reflect the applicable sales charge (or CDSC) and fees and expenses for Class L
shares. Effective 1/02/04, all outstanding Class L shares of the Fund were
converted to Class C shares, redesignated Class C shares, or both.
THE DISCLOSURE AND FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THE TABLES
AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
62 MainStay Small Cap Opportunity Fund
CLASS C SHARES--MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 9.32% 18.82% 12.35%
Excluding sales charges 10.32 18.82 12.35
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY
SMALL CAP LIPPER SMALL-
OPPORTUNITY RUSSELL 2000 S&P SMALLCAP CAP VALUE
FUND VALUE INDEX S&P 500 INDEX 600 INDEX FUNDS INDEX
----------- ------------ ------------- ------------ -------------
10/31/96 10000 10000 10000 10000 10000
13863 13718 13211 13197 13641
13144 12663 16117 11738 11988
13575 12754 20253 13151 12255
13684 14960 21487 16473 14589
13536 16269 16136 15413 15744
14204 15858 13698 14831 15288
20009 22247 16548 19811 21629
23869 26250 18107 23135 25331
29053 29672 19686 26667 29065
10/31/06 32052 36466 22903 30961 34246
<Caption>
RUSSELL 2000
INDEX
------------
10/31/96 10000
12933
11402
13097
15377
13424
11871
17019
19015
21312
10/31/06 25570
</Table>
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
11.73% 20.09% 13.71%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY
SMALL CAP LIPPER SMALL-
OPPORTUNITY RUSSELL 2000 S&P SMALLCAP CAP VALUE
FUND VALUE INDEX S&P 500 INDEX 600 INDEX FUNDS INDEX
----------- ------------ ------------- ------------ -------------
10/31/96 10000 10000 10000 10000 10000
14088 13718 13211 13197 13641
13577 12663 16117 11738 11988
14203 12754 20253 13151 12255
14468 14960 21487 16473 14589
14468 16269 16136 15413 15744
15313 15858 13698 14831 15288
21751 22247 16548 19811 21629
26259 26250 18107 23135 25331
32338 29672 19686 26667 29065
10/31/06 36131 36466 22903 30961 34246
<Caption>
RUSSELL 2000
INDEX
------------
10/31/96 10000
12933
11402
13097
15377
13424
11871
17019
19015
21312
10/31/06 25570
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
- -------------------------------------------------------------------------------
Russell 2000(R) Value Index(1) 22.90% 17.52% 13.81%
S&P 500(R) Index(2) 16.34 7.26 8.64
Russell 2000(R) Index(3) 19.98 13.76 9.84
S&P SmallCap 600(R) Index(4) 16.10 14.97 11.96
Lipper Small-Cap Value Funds Index(5) 17.83 16.82 13.10
Average Lipper small-cap value fund(4) 16.79 15.57 12.38
</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 in 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 in 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 unmanagedindex 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 in 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 income
and capital gains. An investment cannot be made directly in 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 in 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 THE
TABLES AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
www.mainstayfunds.com 63
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY SMALL CAP OPPORTUNITY FUND
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from May 1, 2006, to October 31, 2006,
and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, if applicable, exchange fees, and sales
charges (loads) on purchases, and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds. The example is based on an investment of $1,000 made at the
beginning of the six-month period and held for the entire period from May 1,
2006, to October 31, 2006.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested to estimate the expenses that you
paid during the six-months ended October 31, 2006. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
- - HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The fourth and fifth data columns in the table below provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balances or
expenses you paid for the six-month period shown. You may use this information
to compare the ongoing costs of investing in the Fund with the ongoing costs of
investing in other Funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
Funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees, if applicable, exchange fees, or sales charges (loads).
Therefore, the fourth and fifth data columns of the table are useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT
ENDING ACCOUNT VALUE (BASED
VALUE (BASED ON HYPOTHETICAL
BEGINNING ON ACTUAL EXPENSES 5% ANNUALIZED EXPENSES
ACCOUNT RETURNS AND PAID RETURN AND PAID
VALUE EXPENSES) DURING ACTUAL EXPENSES) DURING
SHARE CLASS 5/1/06 10/31/06 PERIOD(1) 10/31/06 PERIOD(1)
CLASS A SHARES $1,000.00 $984.10 $ 8.20 $1,016.80 $ 8.34
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $980.15 $11.93 $1,013.05 $12.13
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $980.15 $11.93 $1,013.05 $12.13
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $987.45 $ 5.86 $1,019.15 $ 5.95
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio of each class
(1.64% for Class A, 2.39% for Class B and Class C, and 1.17% for Class I)
multiplied by the average account value over the period, divided by 365 and
multiplied by 184 (to reflect the one-half year period).
64 MainStay Small Cap Opportunity Fund
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2006
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
Common Stocks 99.3
Short-Term Investments (collateral from securities lending 20.6
is 19.8%)
Futures Contracts 0.0*
Liabilities in Excess of Cash and Other Assets (19.9)
</Table>
* Less than one-tenth of a percent.
See Portfolio of Investments on page 67 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2006 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. Veritas DGC, Inc.
2. Payless ShoeSource, Inc.
3. Ryerson, Inc.
4. BISYS Group, Inc. (The)
5. LaSalle Hotel Properties
6. Phoenix Cos., Inc. (The)
7. Vail Resorts, Inc.
8. NACCO Industries, Inc. Class A
9. Regal-Beloit Corp.
10. Westar Energy, Inc.
</Table>
www.mainstayfunds.com 65
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio managers Daniel Glickman and Victor Samoilovich
of New York Life Investment Management LLC
HOW DID MAINSTAY SMALL CAP OPPORTUNITY FUND PERFORM RELATIVE TO ITS PEERS AND
ITS BENCHMARK DURING THE 12 MONTHS ENDED OCTOBER 31, 2006?
Excluding all sales charges, MainStay Small Cap Opportunity Fund returned 11.20%
for Class A shares, 10.32% for Class B shares, and 10.32% for Class C shares for
the 12 months ended October 31, 2006. Over the same period, the Fund's Class I
shares returned 11.73%. All share classes underperformed the 22.90% return of
the Russell 2000(R) Value Index,(1) the Fund's broad-based securities-market
index, for the 12-month reporting period. All share classes also underperformed
the 16.79% return of the average Lipper(2) small-cap value fund for the 12
months ended October 31, 2006.
WHAT FACTORS AFFECTED THE FUND'S RELATIVE PERFORMANCE?
On the positive side, the small-cap stocks of the Russell 2000(R) Index
outperformed the large-cap stocks of the Russell 1000(R) Index for the 12-month
reporting period. Within the small-capitalization segment of the stock market,
value stocks outperformed growth stocks. Although the Fund's small-cap value
orientation was in favor during the reporting period, security selection--and to
a lesser extent, sector exposure--resulted in the Fund's disappointing relative
performance.
WHICH SECTORS HAD THE GREATEST POSITIVE OR NEGATIVE IMPACT ON THE FUND'S
PERFORMANCE DURING THE REPORTING PERIOD?
In absolute terms, the materials sector was the best performer during the
reporting period, followed by energy. Both sectors benefited from strong
commodity prices. Telecommunication services was also a strong absolute
performer. The weakest performing sectors in absolute terms were consumer
staples, health care, and financials.
Relative to the Russell 2000(R) Value Index, the Fund's performance was
negatively affected by security selection in the financials, information
technology, and industrials sectors. An overweighted position in utilities and
an underweighted allocation to materials also hurt the Fund's relative results.
DURING THE REPORTING PERIOD, WHICH STOCKS WERE THE FUND'S BEST PERFORMERS AND
WHICH ONES WERE THE WEAKEST?
During the reporting period, the Fund held approximately 200 securities, so no
single stock had a significant positive or negative impact on relative
performance. Among the strongest individual contributors were seismic data
services company Veritas DGC, disk maker Komag, and electrical machinery company
Regal-Beloit. Detractors included Chiquita Brands International, Six Flags, and
Zoran.
WERE THERE ANY SIGNIFICANT PURCHASES OR SALES DURING THE REPORTING PERIOD?
The Fund seeks stocks with attractive relative valuations and strong price
trends. Among the stocks that fit the Fund's purchase criteria during the
reporting period were Veritas DGC and Manitowoc. Two of the securities that were
sold because of unattractive valuations and deteriorating price trends were
Terex and The Sports Authority.
WERE THERE ANY NOTABLE CHANGES IN THE FUND'S WEIGHTINGS DURING THE REPORTING
PERIOD?
Weighting changes in the Fund are due to the Fund's proprietary quantitative
security selection process. During the reporting period, the Fund substantially
increased its weightings relative to the Russell 2000(R) Value Index in the
materials and information technology sectors. To make room for these
investments, the Fund's utilities weighting was significantly reduced.
As of October 31, 2006, the Fund was overweighted relative to the Russell
2000(R) Value Index in the industrials and energy sectors. On that same date,
the Fund was underweighted relative to the Index in the information technology
and financials sectors.
The Fund was closed to new investors as of June 1, 2006.
Stocks of small-capitalization 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, great 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's use of securities lending presents the risk of
default by the borrower, which may result in a loss to the Fund. See additional
securities-lending disclosure in the Notes to Financial Statements (Note 2). The
Fund may experience a portfolio turnover rate of more than 100% and may generate
taxable short-term capital gains.
1. See footnote on page 63 for more information on the Russell 2000(R) Value
Index.
2. See footnote on page 63 for more information about Lipper Inc.
The opinions expressed are those of the portfolio managers as of the date of
this report and are subject to change. There is no guarantee that any forecast
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.
66 MainStay Small Cap Opportunity Fund
PORTFOLIO OF INVESTMENTS+++ OCTOBER 31, 2006
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (99.3%)+
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE (1.2%)
AAR Corp. (a)(b) 248,662 $ 6,475,158
Orbital Sciences Corp. (a) 504,842 9,167,931
Triumph Group, Inc. (b) 46,730 2,250,050
--------------
17,893,139
--------------
AIR FREIGHT & LOGISTICS (0.1%)
Atlas Air Worldwide Holdings, Inc. (a) 32,853 1,494,483
--------------
AIRLINES (0.3%)
Mesa Air Group, Inc. (a)(b) 173,734 1,546,233
SkyWest, Inc. 143,813 3,834,055
--------------
5,380,288
--------------
AUTO COMPONENTS (0.5%)
Aftermarket Technology Corp. (a) 162,282 3,049,279
American Axle & Manufacturing Holdings, Inc. (b) 131,131 2,458,706
Tenneco, Inc. (a) 110,392 2,505,898
--------------
8,013,883
--------------
BUILDING PRODUCTS (0.4%)
Ameron International Corp. 29,745 2,178,821
Universal Forest Products, Inc. 82,458 3,741,944
--------------
5,920,765
--------------
CAPITAL MARKETS (2.1%)
Capital Southwest Corp. (b) 20,674 2,477,779
Investment Technology Group, Inc. (a) 83,512 3,900,010
Knight Capital Group, Inc. Class A (a) 524,339 9,778,922
LaBranche & Co., Inc. (a)(b) 488,943 4,336,924
Piper Jaffray Cos., Inc. (a) 94,824 6,557,080
SWS Group, Inc. 98,165 2,728,005
Waddell & Reed Financial, Inc. Class A 93,973 2,396,312
--------------
32,175,032
--------------
CHEMICALS (1.7%)
A. Schulman, Inc. 186,219 4,508,362
H.B. Fuller Co. 423,198 10,491,078
OM Group, Inc. (a) 109,167 6,222,519
PolyOne Corp. (a) 163,034 1,336,879
Sensient Technologies Corp. 51,977 1,198,070
Spartech Corp. 84,483 2,314,834
--------------
26,071,742
--------------
</Table>
<Table>
<Caption>
SHARES VALUE
COMMERCIAL BANKS (5.0%)
Ameris Bancorp 41,885 $ 1,169,010
Banner Corp. 64,684 2,811,167
Cascade Bancorp (b) 85,717 3,125,242
Columbia Banking System, Inc. 148,939 4,718,388
First Community Bancorp (b) 183,622 9,818,268
Frontier Financial Corp. (b) 95,286 2,764,247
Greater Bay Bancorp 349,069 8,988,527
Hancock Holding Co. 167,642 8,600,035
IBERIABANK Corp. 17,032 1,002,163
Independent Bank Corp. 32,762 1,097,199
Intervest Bancshares Corp. (a)(b) 81,318 2,906,305
Preferred Bank 37,301 2,184,720
Provident Bankshares Corp. 42,652 1,541,443
Sterling Bancshares, Inc. 219,397 4,017,159
Sterling Financial Corp. 67,984 2,261,148
Texas Regional Bancshares, Inc. Class A 350,027 13,598,549
Trustmark Corp. 159,885 5,061,959
West Coast Bancorp 44,107 1,451,120
--------------
77,116,649
--------------
COMMERCIAL SERVICES & SUPPLIES (1.2%)
CBIZ, Inc. (a) 317,873 2,237,826
Ennis, Inc. 139,572 3,205,969
Heidrick & Struggles International, Inc. (a) 35,343 1,444,468
IKON Office Solutions, Inc. 455,107 6,785,645
Watson Wyatt Worldwide, Inc. Class A 110,718 4,998,918
--------------
18,672,826
--------------
COMMUNICATIONS EQUIPMENT (0.6%)
Anaren, Inc. (a) 83,053 1,670,196
CommScope, Inc. (a)(b) 40,936 1,306,268
Sycamore Networks, Inc. (a) 1,760,596 6,602,235
--------------
9,578,699
--------------
COMPUTERS & PERIPHERALS (1.2%)
Brocade Communications Systems, Inc. (a)(b) 2,222,805 18,026,949
--------------
CONSTRUCTION & ENGINEERING (2.8%)
EMCOR Group, Inc. (a) 343,019 20,289,574
Quanta Services, Inc. (a)(b) 76,457 1,399,163
URS Corp. (a) 142,992 5,778,307
Washington Group International, Inc. 267,135 15,125,184
--------------
42,592,228
--------------
CONSTRUCTION MATERIALS (0.3%)
Headwaters, Inc. (a)(b) 215,000 5,321,250
--------------
</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 67
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------
CONSUMER FINANCE (1.3%)
Advanta Corp. Class B 305,703 $ 11,995,786
Cash America International, Inc. 184,294 7,616,871
--------------
19,612,657
--------------
CONTAINERS & PACKAGING (0.4%)
Greif, Inc. Class A 19,802 1,855,645
Silgan Holdings, Inc. 103,370 4,276,417
--------------
6,132,062
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES (1.0%)
Talk America Holdings, Inc. (a)(b) 554,703 4,448,718
Time Warner Telecom, Inc. Class A (a)(b) 513,036 10,229,938
--------------
14,678,656
--------------
ELECTRIC UTILITIES (3.8%)
Cleco Corp. 559,394 14,376,426
IDACORP, Inc. 527,802 20,811,233
Sierra Pacific Resources (a) 106,106 1,608,567
V Westar Energy, Inc. 873,704 22,122,185
--------------
58,918,411
--------------
ELECTRICAL EQUIPMENT (2.6%)
A.O. Smith Corp. 36,960 1,299,514
Belden CDT, Inc. 46,861 1,696,368
General Cable Corp. (a) 346,961 13,045,734
V Regal-Beloit Corp. (b) 469,443 23,213,956
--------------
39,255,572
--------------
ELECTRONIC EQUIPMENT & INSTRUMENTS (1.1%)
Global Imaging Systems, Inc. (a) 136,082 2,962,505
Park Electrochemical Corp. 77,628 2,384,732
Paxar Corp. (a) 63,296 1,267,186
Rofin-Sinar Technologies, Inc. (a) 83,398 5,135,649
Technitrol, Inc. 201,384 5,078,904
--------------
16,828,976
--------------
ENERGY EQUIPMENT & SERVICES (3.4%)
Hanover Compressor Co. (a)(b) 174,178 3,225,777
NS Group, Inc. (a) 100,170 6,547,111
Universal Compression Holdings, Inc. (a) 122,961 7,409,630
V Veritas DGC, Inc. (a)(b) 476,529 34,314,853
--------------
51,497,371
--------------
FOOD & STAPLES RETAILING (1.3%)
Ingles Markets, Inc. Class A 152,253 4,330,075
Pantry, Inc. (The) (a)(b) 38,983 2,127,692
Performance Food Group Co. (a)(b) 483,734 14,062,147
--------------
20,519,914
--------------
FOOD PRODUCTS (3.1%)
Chiquita Brands International, Inc. 1,074,404 14,719,335
Gold Kist, Inc. (a) 587,217 11,632,769
Hain Celestial Group, Inc. (a) 166,977 4,713,761
</Table>
<Table>
<Caption>
SHARES VALUE
FOOD PRODUCTS (CONTINUED)
Lance, Inc. 63,111 $ 1,231,927
Premium Standard Farms, Inc. 171,198 3,293,850
Seaboard Corp. (b) 8,321 11,749,252
--------------
47,340,894
--------------
GAS UTILITIES (0.4%)
Southwest Gas Corp. 150,037 5,383,328
--------------
HEALTH CARE EQUIPMENT & SUPPLIES (0.4%)
Hologic, Inc. (a)(b) 32,056 1,543,496
Viasys Healthcare, Inc. (a) 159,919 4,581,679
--------------
6,125,175
--------------
HEALTH CARE PROVIDERS & SERVICES (2.9%)
Kindred Healthcare, Inc. (a)(b) 725,742 19,595,034
Magellan Health Services, Inc. (a) 255,960 11,170,094
Res-Care, Inc. (a) 98,058 1,896,442
Sunrise Senior Living, Inc. (a)(b) 358,776 11,197,399
--------------
43,858,969
--------------
HEALTH CARE TECHNOLOGY (0.1%)
Per-Se Technologies, Inc. (a)(b) 41,865 1,024,855
--------------
HOTELS, RESTAURANTS & LEISURE (3.9%)
Bob Evans Farms, Inc. 81,152 2,751,864
Jack in the Box, Inc. (a) 52,627 2,952,901
Landry's Restaurants, Inc. 35,907 1,052,075
O'Charley's, Inc. (a) 106,279 2,113,889
Papa John's International, Inc. (a)(b) 416,867 15,299,019
Six Flags, Inc. (a)(b) 1,979,648 11,283,994
V Vail Resorts, Inc. (a)(b) 636,005 24,581,593
--------------
60,035,335
--------------
HOUSEHOLD DURABLES (1.8%)
Avatar Holdings, Inc. (a)(b) 28,249 1,836,467
Ethan Allen Interiors, Inc. (b) 154,929 5,518,571
Furniture Brands International, Inc. (b) 818,405 15,222,333
National Presto Industries, Inc. 75,473 4,621,212
--------------
27,198,583
--------------
INSURANCE (14.8%)
American Equity Investment Life Holding Co. (b) 1,504,468 19,197,012
American Physicians Capital, Inc. (a) 131,143 7,174,834
AmerUs Group Co. 20,770 1,422,330
Argonaut Group, Inc. (a) 477,228 16,230,524
Delphi Financial Group, Inc. Class A 348,951 13,696,327
FBL Financial Group, Inc. Class A 166,256 5,877,150
FPIC Insurance Group, Inc. (a)(b) 97,143 3,471,891
Harleysville Group, Inc. 20,425 736,934
Hilb, Rogal & Hobbs Co. 117,286 4,682,057
Infinity Property & Casualty Corp. 7,018 301,914
LandAmerica Financial Group, Inc. (b) 316,398 19,961,550
</Table>
68 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)
- --------------------------------------------------------------------------------
INSURANCE (CONTINUED)
Midland Co. (The) 27,812 $ 1,299,933
National Western Life Insurance Co. Class A 15,925 3,819,611
Navigators Group, Inc. (a) 61,482 2,893,958
Ohio Casualty Corp. 625,343 17,153,158
V Phoenix Cos., Inc. (The) 1,566,604 24,815,007
Presidential Life Corp. 97,304 2,296,374
RLI Corp. 300,103 16,268,584
Safety Insurance Group, Inc. 152,551 7,629,076
Selective Insurance Group, Inc. 338,149 18,682,732
Stewart Information Services Corp. (b) 263,773 9,775,427
United Fire & Casualty Co. 410,765 14,532,866
Zenith National Insurance Corp. 315,477 14,675,990
--------------
226,595,239
--------------
INTERNET SOFTWARE & SERVICES (0.7%)
EarthLink, Inc. (a) 234,045 1,642,996
RealNetworks, Inc. (a)(b) 768,746 8,440,831
SonicWALL, Inc. (a) 130,049 1,365,515
--------------
11,449,342
--------------
IT SERVICES (2.2%)
V BISYS Group, Inc. (The) (a) 2,374,652 26,216,158
Gartner, Inc. (a) 60,927 1,133,242
MPS Group, Inc. (a) 301,296 4,594,764
Wright Express Corp. (a) 53,359 1,460,436
--------------
33,404,600
--------------
LEISURE EQUIPMENT & PRODUCTS (0.2%)
Jakks Pacific, Inc. (a)(b) 116,094 2,518,079
--------------
LIFE SCIENCES TOOLS & SERVICES (0.1%)
Molecular Devices Corp. (a) 57,270 1,153,418
--------------
MACHINERY (3.4%)
Albany International Corp. Class A (b) 49,693 1,670,182
Barnes Group, Inc. 111,063 2,226,813
Circor International, Inc. 91,273 3,009,271
EnPro Industries, Inc. (a)(b) 158,120 5,059,840
Flowserve Corp. (a) 44,320 2,348,960
Kennametal, Inc. 25,469 1,571,692
Manitowoc Co., Inc. (The) 42,978 2,358,633
V NACCO Industries, Inc. Class A 160,729 24,205,787
Nordson Corp. 133,687 6,156,286
Trinity Industries, Inc. 49,840 1,797,230
Valmont Industries, Inc. 38,448 2,145,398
--------------
52,550,092
--------------
MARINE (0.1%)
Kirby Corp. (a) 58,907 2,063,512
--------------
</Table>
<Table>
<Caption>
SHARES VALUE
MEDIA (1.2%)
Belo Corp. Class A 107,879 $ 1,890,040
Lin TV Corp. Class A (a) 5,220 42,908
Media General, Inc. Class A 30,470 1,130,437
RCN Corp. (a)(b) 404,944 11,694,783
Westwood One, Inc. 393,483 3,112,451
--------------
17,870,619
--------------
METALS & MINING (4.8%)
A.M. Castle & Co. 345,391 11,549,875
Commercial Metals Co. 81,043 2,156,554
Metal Management, Inc. 197,846 5,436,808
Olympic Steel, Inc. (b) 79,789 1,969,990
Oregon Steel Mills, Inc. (a) 268,706 14,617,606
Reliance Steel & Aluminum Co. 164,212 5,640,682
V Ryerson, Inc. (b) 1,109,405 26,736,661
Schnitzer Steel Industries, Inc. Class A 75,191 2,628,677
Steel Technologies, Inc. 140,992 2,705,636
--------------
73,442,489
--------------
MULTI-UTILITIES (0.5%)
Aquila, Inc. (a) 318,613 1,462,434
Avista Corp. 222,098 5,716,803
--------------
7,179,237
--------------
OIL, GAS & CONSUMABLE FUELS (3.3%)
Callon Petroleum Co. (a) 891,827 13,716,299
Cimarex Energy Co. 55,480 1,998,390
Foundation Coal Holdings, Inc. 32,604 1,196,893
Giant Industries, Inc. (a) 255,477 20,688,527
Holly Corp. 93,363 4,440,344
Overseas Shipholding Group, Inc. 37,901 2,370,708
Penn Virginia Corp. 28,245 2,020,930
St. Mary Land & Exploration Co. (b) 119,943 4,472,674
--------------
50,904,765
--------------
PAPER & FOREST PRODUCTS (0.2%)
Glatfelter 248,547 3,638,728
--------------
PHARMACEUTICALS (0.2%)
Alpharma, Inc. Class A 68,594 1,513,870
Perrigo Co. 80,972 1,448,589
--------------
2,962,459
--------------
REAL ESTATE INVESTMENT TRUSTS (5.8%)
American Home Mortgage Investment Corp. (b) 232,935 7,959,389
DiamondRock Hospitality Co. 891,966 15,047,466
FelCor Lodging Trust, Inc. 807,775 16,769,409
Gramercy Capital Corp. 68,167 1,901,859
Impac Mortgage Holdings, Inc. (b) 530,754 5,026,240
Kilroy Realty Corp. 37,271 2,807,624
V LaSalle Hotel Properties 598,587 25,290,301
Luminent Mortgage Capital, Inc. 398,825 4,231,533
</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, 2006 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
National Retail Properties, Inc. (b) 102,771 $ 2,309,264
NorthStar Realty Finance Corp. 310,784 4,708,378
PS Business Parks, Inc. 20,904 1,376,528
Redwood Trust, Inc. (b) 35,842 1,970,235
--------------
89,398,226
--------------
REAL ESTATE MANAGEMENT & DEVELOPMENT (0.9%)
Trammell Crow Co. (a)(b) 270,250 13,174,688
--------------
ROAD & RAIL (2.5%)
AMERCO (a) 172,210 15,795,101
Arkansas Best Corp. 138,391 5,671,263
Dollar Thrifty Automotive Group, Inc. (a) 274,672 11,030,828
Florida East Coast Industries, Inc. (b) 28,029 1,674,733
Kansas City Southern (a)(b) 160,815 4,565,538
--------------
38,737,463
--------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (1.3%)
MKS Instruments, Inc. (a) 302,870 6,557,136
Zoran Corp. (a) 991,211 13,797,657
--------------
20,354,793
--------------
SOFTWARE (1.6%)
Altiris, Inc. (a) 66,242 1,491,107
ANSYS, Inc. (a) 61,087 2,810,002
Aspen Technology, Inc. (a)(b) 112,602 1,128,272
Blackbaud, Inc. 58,484 1,462,100
THQ, Inc. (a)(b) 574,809 17,284,507
--------------
24,175,988
--------------
SPECIALTY RETAIL (6.4%)
Asbury Automotive Group, Inc. 242,414 5,817,936
Borders Group, Inc. (b) 167,382 3,446,395
Charming Shoppes, Inc. (a)(b) 439,760 6,508,448
Group 1 Automotive, Inc. (b) 227,087 13,014,356
V Payless ShoeSource, Inc. (a) 1,256,379 33,608,138
Rent-A-Center, Inc. (a) 89,407 2,571,345
Sonic Automotive, Inc. (b) 309,375 8,136,563
Stage Stores, Inc. 424,740 13,765,823
United Auto Group, Inc. 462,919 10,637,879
--------------
97,506,883
--------------
TEXTILES, APPAREL & LUXURY GOODS (0.9%)
Brown Shoe Co., Inc. 224,896 8,761,948
Kellwood Co. (b) 170,877 5,228,836
--------------
13,990,784
--------------
THRIFTS & MORTGAGE FINANCE (2.7%)
Accredited Home Lenders Holding Co. (a)(b) 72,465 2,217,429
Bank Mutual Corp. 152,983 1,854,154
BankUnited Financial Corp. Class A (b) 139,044 3,750,017
</Table>
<Table>
<Caption>
SHARES VALUE
THRIFTS & MORTGAGE FINANCE (CONTINUED)
City Bank Lynnwood 25,579 $ 1,374,615
Corus Bankshares, Inc. (b) 104,465 2,144,666
Federal Agricultural Mortgage Corp. Class C 65,525 1,723,308
FirstFed Financial Corp. (a)(b) 106,650 6,587,771
Franklin Bank Corp. (a) 94,781 1,915,524
Fremont General Corp. 90,051 1,308,441
MAF Bancorp, Inc. 40,662 1,752,126
Ocwen Financial Corp. (a)(b) 176,675 2,764,964
PFF Bancorp, Inc. 122,133 3,787,344
Provident Financial Services, Inc. (b) 309,697 5,679,843
TierOne Corp. 120,342 3,848,537
--------------
40,708,739
--------------
TRADING COMPANIES & DISTRIBUTORS (0.5%)
GATX Corp. 179,102 7,803,474
--------------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
SBA Communications Corp. Class A (a) 45,994 1,228,500
--------------
Total Common Stocks
(Cost $1,359,958,648) 1,519,480,808(i)
--------------
<Caption>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS (20.6%)
- --------------------------------------------------------------------------------
COMMERCIAL PAPER (3.9%)
Fairway Finance Corp.
5.289%, due 11/20/06 (c) $ 7,101,098 7,101,098
Greyhawk Funding
5.286%, due 11/13/06 (c) 7,101,098 7,101,098
Jupiter Securitization Corp.
5.303%, due 11/14/06 (c) 7,101,098 7,101,098
Lexington Parker Capital Co.
5.282%, due 11/8/06 (c) 7,101,098 7,101,098
Liberty Street Funding Co.
5.286%, due 11/27/06 (c) 7,101,098 7,101,098
Old Line Funding LLC
5.287%, due 11/15/06 (c) 7,101,098 7,101,098
Sheffiled Receivables Corp.
5.272%, due 11/8/06 (c) 7,101,098 7,101,098
Yorktown Capital LLC
5.282%, due 11/16/06 (c) 10,651,646 10,651,646
--------------
Total Commercial Paper
(Cost $60,359,332) 60,359,332
--------------
</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
SHORT-TERM INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
INVESTMENT COMPANY (5.5%)
BGI Institutional Money Market Fund (c) 84,689,535 84,689,535
--------------
Total Investment Company
(Cost $84,689,535) 84,689,535
--------------
<Caption>
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT (2.0%)
Morgan Stanley & Co.
5.42%, dated 10/31/06
due 11/1/06
Proceeds at Maturity $30,295,933
(Collateralized by various Corporate Bonds,
with rates between 0% - 8.40% and
maturity dates between 1/30/07 - 6/15/34,
with a Principal Amount of $30,638,735 and Market
Value of $31,495,605) (c) $30,291,374 30,291,374
--------------
Total Repurchase Agreement
(Cost $30,291,374) 30,291,374
--------------
TIME DEPOSITS (8.4%)
Banco Bilbao Vizcaya Argentaria S.A.
5.30%, due 1/9/07 (c) 7,101,098 7,101,098
Bank of America
5.27%, due 11/21/06 (c)(d) 14,202,195 14,202,195
Bank of Montreal
5.28%, due 11/27/06 (c) 7,101,098 7,101,098
Bank of Nova Scotia
5.30%, due 11/10/06 (c) 7,101,098 7,101,098
Barclays
5.32%, due 1/18/07 (c) 10,651,646 10,651,646
Deutsche Bank AG
5.27%, due 11/9/06 (c) 7,101,098 7,101,098
Fortis Bank
5.27%, due 11/6/06 (c) 14,202,195 14,202,195
Halifax Bank of Scotland
5.30%, due 1/10/07 (c) 7,101,098 7,101,098
Lloyds TSB Bank PLC
5.30%, due 12/21/06 (c) 7,101,098 7,101,098
Royal Bank of Canada
5.30%, due 12/22/06 (c) 7,101,098 7,101,098
Royal Bank of Scotland
5.29%, due 12/12/06 (c) 7,101,098 7,101,098
Skandinaviska Enskilda Banken AB
5.31%, due 11/3/06 (c) 7,101,098 7,101,098
Societe Generale North America, Inc.
5.28%, due 12/6/06 (c) 14,202,195 14,202,195
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
TIME DEPOSITS (CONTINUED)
UBS AG
5.28%, due 12/5/06 (c) $10,651,646 $ 10,651,646
--------------
Total Time Deposits
(Cost $127,819,759) 127,819,759
--------------
U.S. GOVERNMENT (0.8%)
United States Treasury Bills
4.989%, due 1/18/07 (e) 2,000,000 1,978,636
4.998%, due 1/25/07 11,000,000 10,871,960
--------------
12,850,596
--------------
Total U.S. Government
(Cost $12,850,810) 12,850,596
--------------
Total Short-Term Investments
(Cost $316,010,810) 316,010,596
--------------
Total Investments
(Cost $1,675,969,458) (g) 119.9% 1,835,491,404(h)
Liabilities in Excess of Cash and Other Assets (19.9) (304,344,886)
----------- --------------
Net Assets 100.0% $1,531,146,518
=========== ==============
</Table>
<Table>
<Caption>
CONTRACTS UNREALIZED
LONG APPRECIATION (F)
FUTURES CONTRACTS (0.0%)++
- -----------------------------------------------------------------------------------
Standard & Poor's 500 Index
December 2006 37 $ 346,665
-------------------
Total Futures Contracts
(Settlement Value $12,794,600) (i) $ 346,665
===================
</Table>
<Table>
++ Less than one tenth of a percent.
+++ Fifty percent of the Fund's assets are maintained to cover "senior
securities transactions" which may include, but are not limited to,
forwards, TBA's, options and futures. This percentage is marked-to-market
daily against the value of the Fund's "senior securities" holdings to
ensure proper coverage for these transactions.
(a) Non-income producing security.
(b) Represents a security, or a portion thereof, which is out on loan.
(c) Represents a security, or a portion thereof, purchased with cash collateral
received for securities on loan.
(d) Floating rate. Rate shown is the rate in effect at October 31, 2006.
(e) Segregated or partially segregated as collateral for futures contracts.
(f) Represents the difference between the value of the contracts at the time
they were opened and the value at October 31, 2006.
(g) The cost for federal income tax purposes is $1,694,569,399.
(h) At October 31, 2006 net unrealized appreciation was $140,922,005, 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 $172,383,060 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $31,461,055.
(i) The combined market value of common stocks and settlement value of Standard
& Poor's 500 Index futures contracts approximately represents 100.1% of 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 71
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2006
<Table>
ASSETS:
Investment in securities, at value
(identified cost
$1,675,969,458) including $292,923,347
market
value of securities loaned $1,835,491,404
Cash 1,987,368
Receivables:
Fund shares sold 2,227,530
Dividends and interest 885,938
Other assets 58,941
--------------
Total assets 1,840,651,181
--------------
LIABILITIES:
Securities lending collateral 303,160,000
Payables:
Fund shares redeemed 4,001,555
Manager (See Note 3) 1,338,949
Transfer agent (See Note 3) 427,010
NYLIFE Distributors (See Note 3) 257,541
Shareholder communication 167,437
Professional fees 92,853
Custodian 25,892
Trustees 18,953
Variation margin on futures contracts 5,751
Accrued expenses 8,722
--------------
Total liabilities 309,504,663
--------------
Net assets $1,531,146,518
==============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
1 billion shares authorized:
Class A $ 252,796
Class B 23,954
Class C 62,529
Class I 427,479
Additional paid-in capital 1,392,728,663
Accumulated net realized loss on investments
and futures transactions (22,217,514)
Net unrealized appreciation on investments
and futures contracts 159,868,611
--------------
Net assets $1,531,146,518
==============
CLASS A
Net assets applicable to outstanding shares $ 502,181,866
==============
Shares of capital stock outstanding 25,279,550
==============
Net asset value per share outstanding $ 19.87
Maximum sales charge (5.50% of offering
price) 1.16
--------------
Maximum offering price per share outstanding $ 21.03
==============
CLASS B
Net assets applicable to outstanding shares $ 46,111,798
==============
Shares of capital stock outstanding 2,395,448
==============
Net asset value and offering price per share
outstanding $ 19.25
==============
CLASS C
Net assets applicable to outstanding shares $ 120,413,732
==============
Shares of capital stock outstanding 6,252,900
==============
Net asset value and offering price per share
outstanding $ 19.26
==============
CLASS I
Net assets applicable to outstanding shares $ 862,439,122
==============
Shares of capital stock outstanding 42,747,911
==============
Net asset value and offering price per share
outstanding $ 20.18
==============
</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.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2006
<Table>
INVESTMENT INCOME:
INCOME:
Dividends $ 12,937,789
Interest 1,330,904
Income from securities loaned--net 216,822
-------------
Total income 14,485,515
-------------
EXPENSES:
Manager (See Note 3) 11,565,305
Transfer agent--Classes A, B and C (See Note
3) 1,706,683
Transfer agent--Class I (See Note 3) 436,731
Distribution/Service--Class A (See Note 3) 1,046,634
Service--Class B (See Note 3) 115,260
Service--Class C (See Note 3) 262,985
Distribution--Class B (See Note 3) 345,780
Distribution--Class C (See Note 3) 788,956
Shareholder communication 392,927
Professional fees 246,117
Registration 172,038
Custodian 99,024
Trustees 74,330
Miscellaneous 64,022
-------------
Total expenses 17,316,792
-------------
Net investment loss (2,831,277)
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on:
Security transactions (19,660,128)
Futures transactions 1,321,524
-------------
Net realized loss on investments and futures
transactions (18,338,604)
-------------
Net change in unrealized appreciation on:
Security transactions 124,989,515
Futures contracts 346,665
-------------
Net change in unrealized appreciation on
investments and futures contracts 125,336,180
-------------
Net realized and unrealized gain on
investments and futures transactions 106,997,576
-------------
Net increase in net assets resulting from
operations $104,166,299
=============
</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 CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2006 AND OCTOBER 31, 2005
<Table>
<Caption>
2006 2005
INCREASE IN NET ASSETS:
Operations:
Net investment loss $ (2,831,277) $ (887,774)
Net realized gain (loss) on
investments and futures
transactions (18,338,604) 61,067,318
Net change in unrealized
appreciation on investments and
futures contracts 125,336,180 2,629,815
------------------------------
Net increase in net assets
resulting from operations 104,166,299 62,809,359
------------------------------
Distributions to shareholders:
From net realized gain on investments:
Class A (20,984,570) (5,109,697)
Class B (4,734,873) (2,976,305)
Class C (5,461,202) (1,216,425)
Class I (32,376,431) (31,247,732)
------------------------------
Total distributions to
shareholders (63,557,076) (40,550,159)
------------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 448,429,649 186,567,392
Class B 19,339,451 32,762,708
Class C 94,319,777 44,287,573
Class I 663,749,722 156,616,407
Net asset value of shares issued to
shareholders in reinvestment of distributions:
Class A 15,882,368 3,678,131
Class B 4,539,793 2,891,437
Class C 2,891,829 864,881
Class I 31,213,755 29,358,441
------------------------------
1,280,366,344 457,026,970
Cost of shares redeemed:
Class A (182,893,061) (23,646,858)
Class B (10,261,741) (3,927,509)
Class C (26,149,239) (3,193,494)
Class I (179,554,565) (79,008,062)
------------------------------
(398,858,606) (109,775,923)
Net asset value of shares converted (See Note 1):
Class A 15,343,811 --
Class B (15,343,811) --
Increase in net assets derived
from capital share
transactions 881,507,738 347,251,047
------------------------------
Net increase in net assets 922,116,961 369,510,247
</Table>
<Table>
<Caption>
2006 2005
NET ASSETS:
Beginning of year $ 609,029,557 $ 239,519,310
------------------------------
End of year $1,531,146,518 $ 609,029,557
==============================
</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.
This page intentionally left blank
www.mainstayfunds.com 75
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A
---------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
Net asset value at beginning of period $ 19.60 $ 18.58 $ 16.78
-------- -------- -----------
Net investment loss (0.07)(a) (0.08)(a) (0.09)(a)
Net realized and unrealized gain on
investments 2.14 4.01 1.89
-------- -------- -----------
Total from investment operations 2.07 3.93 1.80
-------- -------- -----------
Less distributions:
From net realized gain on investments (1.80) (2.91) --
-------- -------- -----------
Net asset value at end of period $ 19.87 $ 19.60 $ 18.58
======== ======== ===========
Total investment return (b) 11.20% 22.66% 10.73%(c)
Ratios (to average net
assets)/Supplemental Data:
Net investment loss (0.39%) (0.44%) (0.36%)+
Net expenses 1.64% 1.66% 1.87% +#
Expenses (before reimbursement) 1.64% 1.66% 1.87% +#
Portfolio turnover rate 124% 159% 132%
Net assets at end of period (in 000's) $502,182 $194,615 $24,621
</Table>
<Table>
<Caption>
CLASS C
---------------------------------------------------
DECEMBER 30,
2002*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004 2003
Net asset value at beginning of period $ 19.19 $ 18.37 $16.15 $11.46
-------- ------- ------ ------------
Net investment income (loss) (0.21)(a) (0.22)(a) (0.25)(a) (0.05)(a)
Net realized and unrealized gain on
investments 2.08 3.95 3.28 4.74
-------- ------- ------ ------------
Total from investment operations 1.87 3.73 3.03 4.69
-------- ------- ------ ------------
Less dividends and distributions:
From net investment income -- -- -- --
From net realized gain on investments (1.80) (2.91) (0.81) --
-------- ------- ------ ------------
Total dividends and distributions (1.80) (2.91) (0.81) --
-------- ------- ------ ------------
Net asset value at end of period $ 19.26 $ 19.19 $18.37 $16.15
======== ======= ====== ============
Total investment return (b) 10.32% 21.72% 19.29% 40.92%(c)
Ratios (to average net
assets)/Supplemental Data:
Net investment income (loss) (1.14%) (1.19%) (1.13%) (0.47%)+
Net expenses 2.39% 2.41% 2.62%# 2.27% +#
Expenses (before reimbursement) 2.39% 2.41% 2.62%# 2.34% +#
Portfolio turnover rate 124% 159% 132% 135%
Net assets at end of period (in 000's) $120,414 $48,316 $5,518 $ 2
</Table>
<Table>
* Commencement of operations.
+ Annualized.
# Includes transfer agent fees paid directly which amounted to 0.02%, 0.08% and 0.07% of
average net assets for the years or periods ended October 31, 2004, October 31, 2003 and
October 31, 2002, respectively, and custodian fees and other expenses paid indirectly
which amounted to less than 0.01% of average net assets for the years indicated.
(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.
</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.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS B
---------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
$ 19.18 $ 18.38 $ 16.71
-------- -------- -----------
(0.21)(a) (0.22)(a) (0.19)(a)
2.08 3.93 1.86
-------- -------- -----------
1.87 3.71 1.67
-------- -------- -----------
(1.80) (2.91) --
-------- -------- -----------
$ 19.25 $ 19.18 $ 18.38
======== ======== ===========
10.32% 21.59% 9.99%(c)
(1.12%) (1.19%) (1.12%)+
2.39% 2.41% 2.62% +#
2.39% 2.41% 2.62% +#
124% 159% 132%
$46,112 $48,496 $14,905
</Table>
<Table>
<Caption>
CLASS I
----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2006 2005 2004 2003 2002
$ 19.79 $ 18.67 $ 16.26 $ 11.58 $ 11.04
-------- -------- -------- -------- --------
0.02(a) 0.01(a) 0.06(a) 0.07(a) 0.15
2.17 4.02 3.21 4.74 0.50
-------- -------- -------- -------- --------
2.19 4.03 3.27 4.81 0.65
-------- -------- -------- -------- --------
-- -- (0.05) (0.13) (0.11)
(1.80) (2.91) (0.81) -- --
-------- -------- -------- -------- --------
(1.80) (2.91) (0.86) (0.13) (0.11)
-------- -------- -------- -------- --------
$ 20.18 $ 19.79 $ 18.67 $ 16.26 $ 11.58
======== ======== ======== ======== ========
11.73% 23.15% 20.72% 42.04% 5.84%
0.09% 0.06% 0.32% 0.53% 1.08%
1.17% 1.16% 1.18%# 1.27%# 1.26%#
1.17% 1.16% 1.18%# 1.34%# 1.27%#
124% 159% 132% 135% 103%
$862,439 $317,602 $194,476 $163,362 $111,181
</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 77
MAINSTAY CASH RESERVES FUND
INVESTMENT AND PERFORMANCE COMPARISON (UNAUDITED)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE 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 CALL 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM. PERFORMANCE DATA SHOWN EXCLUDING SALES CHARGES DOES NOT
REFLECT THE DEDUCTION OF ANY SALES LOAD, WHICH IF REFLECTED, WOULD REDUCE
PERFORMANCE QUOTED.
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.
CLASS I SHARES(1)--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
4.39% 2.00% 3.59%
7-DAY CURRENT YIELD: 4.87%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
AVERAGE LIPPER
MAINSTAY CASH RESERVES INSTITUTIONAL MONEY AVERAGE LIPPER MONEY
FUND MARKET FUND MARKET FUND
---------------------- ------------------- --------------------
10/31/96 10000 10000 10000
10523 10535 10486
11081 11103 11006
11614 11642 11495
12309 12348 12137
12884 12930 12655
13097 13149 12814
13205 13273 12889
13307 13392 12958
13629 13736 13233
10/31/06 14228 14363 13779
</Table>
SWEEP SHARES CLASS(1) SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
3.88% 1.50% 3.06%
7-DAY CURRENT YIELD: 4.37%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
AVERAGE LIPPER
MAINSTAY CASH RESERVES INSTITUTIONAL MONEY AVERAGE LIPPER MONEY
FUND MARKET FUND MARKET FUND
---------------------- ------------------- --------------------
10/31/96 10000 10000 10000
10466 10535 10486
10967 11103 11006
11425 11642 11495
12049 12348 12137
12549 12930 12655
12692 13149 12814
12733 13273 12889
12768 13392 12958
13012 13736 13233
10/31/06 13517 14363 13779
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
- ------------------------------------------------------------------------------
Average Lipper money market fund(2) 3.99% 1.64% 3.26%
Average Lipper institutional money market fund(2) 4.49% 2.07% 3.69%
</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. 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 fee,
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. These fee waivers
and/or expense limitations are contractual and may be modified or terminated
only with the approval of the Board of Directors/Trustees. The Manager may
recoup the amount of any management fee waivers or expense reimbursements from
the Fund pursuant to this agreement if such action does not cause the Fund to
exceed existing expense limitations and the recoupment is made within three
years after the year in which the Manager incurred the expense. From inception
(1/2/91) through 12/7/98, performance for the Sweep Shares Class shares (first
offered 12/8/98) includes the performance of Class I shares.
1. As of 10/31/06, MainStay Cash Reserves Fund had an effective 7-day yield of
4.97% and a 7-day current yield of 4.87% for Class I shares and an effective
7-day yield of 4.45% and a 7-day current yield of 4.37% for Sweep Shares
Class shares. These yields reflect certain expense limitations. Had these
expense limitations not been in effect, the effective 7-day yield and the
7-day current yield would have been 4.70% and 4.64% for Class I shares and
4.18% and 4.14% for Sweep Shares Class shares. The fee waivers and/or expense
limitations are contractual and may be modified or terminated only with the
approval of the Board of Directors/Trustees. The current yield is more
reflective of the Fund's earnings than the total return.
2. Lipper Inc. is an independent fund performance monitor. Results are based on
total returns with all dividend and capital-gain distributions reinvested.
78 MainStay Cash Reserves Fund
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY CASH RESERVES FUND
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from May 1, 2006, to October 31, 2006,
and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, if applicable, exchange fees, and sales
charges (loads) on purchases, and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds. The example is based on an investment of $1,000 made at the
beginning of the six-month period and held for the entire period from May 1,
2006, to October 31, 2006.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested to estimate the expenses that you
paid during the six-months ended October 31, 2006. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
- - HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The fourth and fifth data columns in the table below provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balances or
expenses you paid for the six-month period shown. You may use this information
to compare the ongoing costs of investing in the Fund with the ongoing costs of
investing in other Funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
Funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees, if applicable, exchange fees, or sales charges (loads).
Therefore, the fourth and fifth data columns of the table are useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT
ENDING ACCOUNT VALUE (BASED
VALUE (BASED ON HYPOTHETICAL
BEGINNING ON ACTUAL EXPENSES 5% ANNUALIZED EXPENSES
ACCOUNT RETURNS AND PAID RETURN AND PAID
VALUE EXPENSES) DURING ACTUAL EXPENSES) DURING
SHARE CLASS 5/1/06 10/31/06 PERIOD(1) 10/31/06 PERIOD(1)
CLASS I SHARES $1,000.00 $1,024.10 $2.55 $1,022.50 $2.55
- ---------------------------------------------------------------------------------------------------------------------------
CLASS SWEEP SHARES $1,000.00 $1,021.60 $5.10 $1,020.00 $5.09
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio of each class
(0.50% for Class I and 1.00% for Sweep Shares Class) multiplied by the
average account value over the period, divided by 365 and multiplied by 184
(to reflect the one-half year period). In the absence of waivers and/or
reimbursements, expenses would have been higher.
www.mainstayfunds.com 79
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2006
(COMPOSITION PIE CHART)
<Table>
Commercial Paper 72.8
Corporate Bonds 7.3
Bank Notes 6.6
Medium-Term Notes 4.3
Repurchase Agreement 4.2
Certificates of Deposit 4.0
Cash and Other Assets, Less Liabilities 0.8
</Table>
See Portfolio of Investments on page 83 for specific holdings within these
categories.
80 MainStay Cash Reserves Fund
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio managers Mark C. Boyce and David Clement, CFA,
of New York Life Investment Management LLC
HOW DID MAINSTAY CASH RESERVES FUND PERFORM RELATIVE TO ITS PEERS AND ITS
BENCHMARK DURING THE 12 MONTHS ENDED OCTOBER 31, 2006?
For the seven-day period ended October 31, 2006, MainStay Cash Reserves Fund's
Class I shares provided a current yield of 4.87% and an effective yield of
4.97%, while Sweep Shares Class shares provided a current yield of 4.37% and an
effective yield of 4.45%. For the 12 months ended October 31, 2006, Class I
shares returned 4.39% and Sweep Shares Class shares returned 3.88%. Class I
shares outperformed and Sweep Shares Class shares underperformed the 3.99%
return of the Lipper(1) money market funds average for the 12 months ended
October 31, 2006. Both share classes underperformed the average Lipper
institutional money market fund, which returned 4.49% over the same period.
WHAT FACTORS CONTRIBUTED TO THE FUND'S RELATIVE PERFORMANCE DURING THE REPORTING
PERIOD?
From November 2005 through June 2006, the Federal Open Market Committee raised
the federal funds target rate six times, with a 25-basis-point increase on each
occasion. (A basis point is one-hundredth of a percentage point.) Then, after 17
consecutive rate hikes dating back to June 2004, the Federal Open Market
Committee chose to keep rates steady at 5.25% during its regularly scheduled
meetings in August, September, and October 2006.
Although Sweep Shares Class shares fell short by 11 basis points, Class I shares
outperformed the average Lipper money market fund during the 12-month period.
This was primarily because the Fund maintained a shorter targeted weighted
average maturity, which ranged between 30 and 40 days. This positioning allowed
the Fund to react more swiftly to the rising interest-rate environment during
the first nine months of the reporting period. In addition, the Fund's focus on
the corporate floating-rate sector benefited performance.
DID YOU TRY TO CAPITALIZE ON THE CHANGING YIELD CURVE DURING THE REPORTING
PERIOD?
With the Federal Reserve continuing its tightening campaign through June 2006,
the Fund focused on maintaining a short maturity and identifying attractively
valued floating-rate securities. During the third quarter of 2006, when the
Federal Reserve stopped raising interest rates, the Fund began to search for
bonds with maturities between six months and one year. These securities offered
a yield premium relative to their shorter-term counterparts. Supply was light,
however, which limited the Fund's ability to add exposure to this sector. Toward
the end of the 12-month reporting period, the money market yield curve flattened
and the Fund focused its attention on securities that matured in six months or
less.
HOW DID THE FUND INVEST DURING THE REPORTING PERIOD?
Significant areas that contributed to the Fund's absolute performance included
the Yankee bank sector, where certificates of deposit of Toronto Dominion Bank
and Barclays Bank allowed the Fund to invest in securities with longer
maturities and higher yields. As mentioned, the Fund's holdings in the
floating-rate corporate sector were also beneficial. In particular, the bonds of
Branch Bank & Trust and IBM offered a spread premium relative to commercial
paper. Floating-rate bonds also allowed the Fund to profit from rising
short-term rates during the first nine months of the reporting period.
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. See footnote on page 78 for more information about Lipper Inc.
www.mainstayfunds.com 81
WERE THERE ANY SIGNIFICANT PURCHASES OR SALES DURING THE REPORTING PERIOD?
We continued to add to the Fund's corporate-bond exposure, swapping a bit of
liquidity for higher yields than the Fund could obtain from commercial paper and
certificates of deposit. During the reporting period, the Fund invested in the
corporate bonds of such issuers as State Street Bank, Berkshire Hathaway,
Campbell Soup, and Norfolk Southern.
We reduced the Fund's exposure to asset-backed and agency securities during the
reporting period. Because of tightening spreads, we decreased the Fund's overall
position in repurchase agreements, but we increased the Fund's exposure to
repurchase agreements backed by Treasury collateral.
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.
82 MainStay Cash Reserves Fund
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006
<Table>
<Caption>
PRINCIPAL AMORTIZED
AMOUNT COST
SHORT-TERM INVESTMENTS (99.2%)+
- ------------------------------------------------------------------------------
BANK NOTES (6.6%)
Bank of America N.A.
5.31%, due 1/23/07 (a) $ 5,000,000 $ 5,000,000
5.315%, due 2/23/07 (a) 5,000,000 5,000,000
Branch Banking & Trust
5.461%, due 6/4/07 (a) 5,075,000 5,078,072
Fifth Third Bancorp
2.70%, due 1/30/07 5,000,000 4,969,650
M&I Marshall & Ilsley Bank
2.625%, due 2/9/07 2,000,000 1,986,669
National City Bank
5.43%, due 9/4/07 (a) 5,000,000 5,004,452
5.44%, due 9/7/07 (a) 5,000,000 5,003,642
Wachovia Bank N.A.
5.30%, due 5/22/07 (a) 5,000,000 5,000,000
------------
37,042,485
------------
CERTIFICATES OF DEPOSITS (4.0%)
Manufacturers & Traders Trust Co.
5.30%, due 3/30/07 (a) 10,000,000 9,999,987
State Street Bank & Trust Co.
5.36%, due 12/11/06 (a) 2,600,000 2,599,966
Toronto Dominion Bank
5.32%, due 4/27/07 (a) 5,000,000 5,000,000
5.43%, due 10/23/07 5,000,000 5,000,000
------------
22,599,953
------------
COMMERCIAL PAPER (72.8%)
Abbott Laboratories
5.19%, due 11/2/06 (b) 10,000,000 9,998,558
ABN AMRO North America Finance, Inc.
5.20%, due 4/5/07 10,000,000 9,776,111
Alcoa, Inc.
5.27%, due 11/21/06 10,000,000 9,970,722
5.28%, due 11/17/06 5,000,000 4,988,267
Bank of America Corp.
5.24%, due 12/14/06 10,000,000 9,937,411
CAFCO LLC
5.24%, due 11/17/06 (b) 10,000,000 9,976,711
Cargill, Inc.
5.22%, due 11/8/06 (b) 10,000,000 9,989,850
Coca-Cola Enterprises
5.22%, due 11/29/06 (b) 10,000,000 9,959,400
Colgate-Palmolive Co.
5.19%, due 11/1/06 (b) 10,000,000 10,000,000
Countrywide Financial Corp.
5.27%, due 11/14/06 10,000,000 9,980,970
CRC Funding LLC
5.26%, due 11/7/06 (b) 10,000,000 9,991,233
</Table>
<Table>
<Caption>
PRINCIPAL AMORTIZED
AMOUNT COST
COMMERCIAL PAPER (CONTINUED)
Edison Asset Securitization LLC
5.18%, due 4/11/07 (b) $10,000,000 $ 9,768,339
5.23%, due 2/15/07 (b) 5,000,000 4,923,003
Falcon Asset Securitization LLC
5.25%, due 11/22/06 (b) 10,000,000 9,969,375
Govco, Inc.
5.26%, due 11/14/06 (b) 10,000,000 9,981,006
Hershey Co. (The)
5.19%, due 11/10/06 (b) 10,000,000 9,987,025
Illinois Tool Works, Inc.
5.21%, due 12/8/06 10,000,000 9,946,453
Kimberly Clark, Inc.
5.18%, due 11/27/06 (b) 10,000,000 9,962,589
Kitty Hawk Funding Corp.
5.25%, due 11/27/06 (b) 10,000,000 9,962,083
Liberty Street Funding Corp.
5.26%, due 11/27/06 (b) 10,000,000 9,962,011
Market Street Funding Corp.
5.26%, due 11/15/06 (b) 10,000,000 9,979,544
Marshall & Ilsley Corp.
5.25%, due 11/13/06 10,000,000 9,982,500
McCormick & Co., Inc.
5.10%, due 11/15/06 (b) 6,050,000 6,038,000
5.14%, due 11/30/06 (b) 5,000,000 4,979,297
5.20%, due 2/28/07 (b) 2,500,000 2,457,028
Merrill Lynch & Co., Inc.
5.22%, due 1/30/07 5,000,000 4,934,750
Minnesota Mining & Manufacturing Co.
5.18%, due 11/22/06 5,000,000 4,984,892
5.20%, due 12/11/06 5,000,000 4,971,111
Morgan Stanley
5.25%, due 11/17/06 9,000,000 8,979,000
5.31%, due 6/8/07 (a) 5,000,000 5,000,000
National Rural Utilities
Cooperative Finance Corp.
5.25%, due 11/6/06 10,000,000 9,992,708
Paccar Financial Corp.
5.25%, due 11/9/06 10,000,000 9,988,333
Parker-Hannifin Corp.
5.25%, due 11/1/06 (b) 5,300,000 5,300,000
Pitney Bowes, Inc.
5.20%, due 11/6/06 (b) 10,000,000 9,992,778
5.22%, due 11/3/06 (b) 10,000,000 9,997,100
Private Export Funding Corp.
5.20%, due 3/14/07 (b) 5,000,000 4,903,944
5.28%, due 1/30/07 (b) 10,000,000 9,868,000
5.40%, due 12/6/06 (b) 5,000,000 4,973,750
Sheffield Receivables Corp.
5.26%, due 11/1/06 (b) 10,000,000 10,000,000
</Table>
+ Percentages indicated are based on Fund net assets.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. www.mainstayfunds.com 83
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL AMORTIZED
AMOUNT COST
SHORT-TERM INVESTMENTS (CONTINUED)
- ------------------------------------------------------------------------------
COMMERCIAL PAPER (CONTINUED)
Southern Co. Funding Corp.
5.26%, due 11/20/06 (b) $10,000,000 $ 9,972,239
Three Pillars Funding Corp.
5.26%, due 11/20/06 (b) 10,000,000 9,972,239
Three Rivers Funding Corp.
5.25%, due 11/16/06 (b) 10,000,000 9,978,125
Vulcan Materials Co.
5.21%, due 11/16/06 (b) 10,000,000 9,978,292
5.22%, due 11/3/06 (b) 10,000,000 9,997,100
Wal-Mart Stores, Inc.
5.19%, due 12/5/06 (b) 10,000,000 9,950,984
Windmill Funding Corp.
5.20%, due 3/2/07 (b) 10,000,000 9,825,222
5.25%, due 11/21/06 (b) 5,000,000 4,985,417
World Omni Leasing, Inc.
5.28%, due 11/15/06 (b) 9,391,000 9,371,717
------------
410,385,187
------------
CORPORATE BONDS (7.3%)
3M Co.
5.645%, due 12/12/06 (b) 3,500,000 3,503,710
American Express Credit Corp.
5.41%, due 12/15/06 (a) 11,465,000 11,466,600
Baltimore Gas & Electric
5.25%, due 12/15/06 3,385,000 3,385,940
Berkshire Hathaway Finance Corp.
3.40%, due 7/2/07 1,850,000 1,825,776
Campbell Soup Co.
5.50%, due 3/15/07 3,195,000 3,197,356
Honeywell International, Inc.
5.125%, due 11/1/06 1,500,000 1,500,000
Merrill Lynch & Co., Inc.
5.363%, due 5/29/07 (a) 5,000,000 4,999,796
Norfolk Southern Corp.
7.35%, due 5/15/07 3,000,000 3,026,623
SunTrust Banks, Inc.
5.454%, due 10/15/07 (a) 5,000,000 5,005,065
TIAA Global Markets
4.125%, due 11/15/07 (b) 3,600,000 3,557,096
------------
41,467,962
------------
</Table>
<Table>
<Caption>
PRINCIPAL AMORTIZED
AMOUNT COST
MEDIUM-TERM NOTES (4.3%)
Caterpillar Financial Services Corp. Series F
5.39%, due 7/27/07 (a) $ 5,000,000 $ 5,000,833
CIT Group, Inc.
5.62%, due 9/20/07 (a) 5,000,000 5,010,887
General Electric Capital Corp.
5.39%, due 12/8/06 (a) 3,000,000 3,000,172
International Business Machines Corp.
5.364%, due 6/28/07 (a) 8,000,000 8,001,835
Pan American Energy LLC
6.75%, due 2/1/07 3,000,000 3,014,619
------------
24,028,346
------------
REPURCHASE AGREEMENT (4.2%)
Deutsche Bank Securities
5.27%, dated 10/31/06
due 11/1/06
Proceeds at Maturity $23,801,484
(Collateralized by a U.S. Treasury Obligation,
with a rate of 3.50% and
a maturity date of 1/15/11
with a Principal Amount of
$19,780,000 and a Market Value
of $24,275,116) 23,798,000
------------
Total Short-Term Investments
(Amortized Cost $559,321,933) (c) 99.2% 559,321,933
Cash and Other Assets, Less Liabilities 0.8 4,711,689
----------- ------------
Net Assets 100.0% $564,033,622
=========== ============
</Table>
<Table>
(a) Floating rate. Rate shown is the rate in effect at October 31, 2006.
(b) May be sold to institutional investors only under Rule 144a or securities
offered pursuant to Section 4(2) of the Securities Act of 1933, as amended.
(c) The cost stated also represents the aggregate cost for federal income tax
purposes.
</Table>
84 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+
Agricultural Operations $ 9,989,850 1.8%
Beverages--Non-Alcoholic 9,959,400 1.8
Commercial Banks--Central U.S. 21,977,263 3.9
Commercial Banks--Eastern U.S. 22,599,953 4.0
Commercial Banks--Southern U.S. 10,078,072 1.8
Computers 8,001,835 1.4
Cosmetics & Toiletries 19,962,589 3.5
Diversified Financial Services 3,000,172 0.5
Diversified Manufacturing Operations 30,206,166 5.4
Electric--Integrated 13,358,179 2.4
Finance--Auto Loans 9,988,333 1.8
Finance--Commercial 10,011,720 1.8
Finance--Credit Card 11,466,600 2.0
Finance--Investment Banker/Broker 23,913,546 4.2
Finance--Mortgage Loan/Banker 9,980,970 1.8
Finance--Other Services 63,043,848 11.2
Food--Confectionery 9,987,025 1.8
Food--Miscellaneous/Diversified 16,671,681 3.0
Medical--Drugs 9,998,558 1.8
Metal--Aluminum 14,958,989 2.7
Office Automation & Equipment 19,989,878 3.5
Oil & Gas Drilling 3,014,619 0.5
Quarrying 19,975,392 3.5
Reinsurance 1,825,776 0.3
Retail--Discount 9,950,984 1.8
Sovereign 23,798,000 4.2
Special Purpose Entity 118,673,786 21.0
Super-Regional Banks--U.S. 29,912,126 5.3
Tools--Hand Held 3,026,623 0.5
------------ --------
559,321,933 99.2
Cash and Other Assets,
Less Liabilities 4,711,689 0.8
------------ --------
Net Assets $564,033,622 100.0%
============ ========
</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 85
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2006
<Table>
ASSETS:
Investment in securities, at value
(amortized cost $559,321,933) $559,321,933
Cash 263
Receivables:
Fund shares sold 4,641,705
Interest 974,088
Other assets 21,879
-------------
Total assets 564,959,868
-------------
LIABILITIES:
Payables:
Fund shares redeemed 484,907
NYLIFE Distributors (See Note 3) 135,504
Manager (See Note 3) 122,558
Shareholder communication 85,075
Professional fees 48,189
Directors 7,697
Custodian 5,478
Transfer agent (See Note 3) 2,776
Accrued expenses 5,518
Dividend payable 28,544
-------------
Total liabilities 926,246
-------------
Net assets $564,033,622
=============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
8 billion shares authorized:
Class I $ 253,030
Sweep Shares Class 311,007
Additional paid-in capital 563,474,485
Accumulated distributions in excess of net
investment income (1,403)
Accumulated net realized loss on investments (3,497)
-------------
Net assets $564,033,622
=============
CLASS I
Net assets applicable to outstanding shares $253,013,146
=============
Shares of capital stock outstanding 253,029,525
=============
Net asset value and offering price per share
outstanding $ 1.00
=============
SWEEP SHARES CLASS
Net assets applicable to outstanding shares $311,020,476
=============
Shares of capital stock outstanding 311,006,834
=============
Net asset value and offering price per share
outstanding $ 1.00
=============
</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.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2006
<Table>
INVESTMENT INCOME:
INCOME:
Interest $26,020,138
------------
EXPENSES:
Manager (See Note 3) 2,408,421
Distribution--Sweep Shares Class (See Note 3) 731,836
Service--Sweep Shares Class (See Note 3) 731,836
Shareholder communication 174,096
Professional fees 145,426
Registration 40,590
Directors 38,626
Custodian 20,914
Transfer agent--Sweep Shares Class
(See Note 3) 8,682
Transfer agent--Class I (See Note 3) 7,146
Miscellaneous 46,801
------------
Total expenses before waiver 4,354,374
Expense waiver from Manager (See Note 3) (193,963)
------------
Net expenses 4,160,411
------------
Net investment income 21,859,727
------------
Net increase in net assets resulting from
operations $21,859,727
============
</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 CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2006 AND OCTOBER 31, 2005
<Table>
<Caption>
2006 2005
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 21,859,727 $ 10,727,700
Net realized loss on investments -- (789)
-----------------------------
Net increase in net assets
resulting from operations 21,859,727 10,726,911
-----------------------------
Dividends to shareholders:
From net investment income:
Class I (10,662,917) (5,645,755)
Sweep Shares Class (11,198,213) (5,081,945)
-----------------------------
Total dividends to shareholders (21,861,130) (10,727,700)
-----------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class I 586,245,434 625,554,688
Sweep Shares Class 197,493,743 283,632,518
Net asset value of shares issued
to shareholders in reinvestment
of dividends:
Class I 10,564,190 5,645,755
Sweep Shares Class 11,198,212 5,081,945
-----------------------------
805,501,579 919,914,906
Cost of shares redeemed:
Class I (575,982,191) (645,555,155)
Sweep Shares Class (168,710,025) (278,489,784)
-----------------------------
(744,692,216) (924,044,939)
Increase (decrease) in net
assets derived from capital
share transactions 60,809,363 (4,130,033)
-----------------------------
Net increase (decrease) in net
assets 60,807,960 (4,130,822)
NET ASSETS:
Beginning of year 503,225,662 507,356,484
-----------------------------
End of year $ 564,033,622 $ 503,225,662
=============================
Accumulated distributions in excess
of net investment income at end of
year $ (1,403) $ --
=============================
</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.
This page intentionally left blank
www.mainstayfunds.com 89
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS I
----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2006 2005 2004 2003 2002
Net asset value at beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Net investment income 0.04 0.02 0.01 0.01 0.02
Net realized and unrealized gain (loss) on
investments -- (0.00)(a) 0.00 (a) 0.00 (a) 0.00 (a)
-------- -------- -------- -------- --------
Total from investment operations 0.04 0.02 0.01 0.01 0.02
-------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income (0.04) (0.02) (0.01) (0.01) (0.02)
From net realized gain on investments -- -- (0.00)(a) (0.00)(a) (0.00)(a)
-------- -------- -------- -------- --------
Total dividends and distributions (0.04) (0.02) (0.01) (0.01) (0.02)
-------- -------- -------- -------- --------
Net asset value at end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total investment return 4.39% 2.42% 0.77% 0.83% 1.65%
Ratios (to average net
assets)/Supplemental Data:
Net investment income 4.32% 2.40% 0.77% 0.84% 1.61%
Net expenses 0.50% 0.50% 0.50% 0.50% 0.50%
Expenses (before waiver) 0.54% 0.59% 0.60% 0.60% 0.62%
Net assets at end of year (in 000's) $253,013 $232,187 $246,542 $221,058 $329,921
</Table>
<Table>
(a) Less than one cent per share.
</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.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
SWEEP SHARES CLASS
- --------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2006 2005 2004 2003 2002
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
0.04 0.02 0.00 (a) 0.00 (a) 0.01
-- (0.00)(a) 0.00 (a) 0.00 (a) 0.00 (a)
-------- -------- -------- -------- --------
0.04 0.02 0.00 (a) 0.00 (a) 0.01
-------- -------- -------- -------- --------
(0.04) (0.02) (0.00)(a) (0.00)(a) (0.01)
-- -- (0.00)(a) (0.00)(a) (0.00)(a)
-------- -------- -------- -------- --------
(0.04) (0.02) (0.00)(a) (0.00)(a) (0.01)
-------- -------- -------- -------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
3.88% 1.91% 0.27% 0.33% 1.14%
3.82% 1.90% 0.27% 0.34% 1.11%
1.00% 1.00% 1.00% 1.00% 1.00%
1.04% 1.09% 1.10% 1.10% 1.12%
$311,020 $271,039 $260,814 $272,856 $291,312
</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 91
MAINSTAY FLOATING RATE FUND
INVESTMENT AND PERFORMANCE COMPARISON (UNAUDITED)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE 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 CALL 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM. PERFORMANCE DATA SHOWN EXCLUDING SALES CHARGES DOES NOT
REFLECT THE DEDUCTION OF ANY SALES LOAD, WHICH IF REFLECTED, WOULD REDUCE
PERFORMANCE QUOTED.
A REDEMPTION FEE OF 2% WILL BE APPLIED TO SHARES THAT ARE REDEEMED WITHIN 60
DAYS OF PURCHASE. PERFORMANCE DATA SHOWN DOES NOT REFLECT THIS FEE, WHICH, IF
SHOWN, WOULD LOWER PERFORMANCE.
CLASS A SHARES--MAXIMUM 3% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- -----------------------------------------
With sales charges 2.18% 3.07%
Excluding sales charges 5.34 4.33
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
(With sales charges)
CREDIT SUISSE LEVERAGED LOAN
MAINSTAY FLOATING RATE FUND INDEX
--------------------------- ----------------------------
05/3/04 9700 10000
9874 10226
10241 10826
10/31/06 10788 11565
</Table>
CLASS B SHARES--MAXIMUM 3% CDSC IF REDEEMED WITHIN THE FIRST FOUR YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- -----------------------------------------
With sales charges 1.68% 2.85%
Excluding sales charges 4.66 3.60
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
(With sales charges)
CREDIT SUISSE LEVERAGED LOAN
MAINSTAY FLOATING RATE FUND INDEX
--------------------------- ----------------------------
05/3/04 10000 10000
10141 10226
10440 10826
10/31/06 10728 11565
</Table>
CLASS C SHARES--MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- -----------------------------------------
With sales charges 3.66% 3.60%
Excluding sales charges 4.66 3.60
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
(With sales charges)
CREDIT SUISSE LEVERAGED LOAN
MAINSTAY FLOATING RATE FUND INDEX
--------------------------- ----------------------------
05/3/04 10000 10000
10141 10226
10439 10826
10/31/06 10925 11565
</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 as 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 3.00%
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 3.00%
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 1.00% 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. These fee waivers and/or
expense limitations are contractual and may be modified or terminated only with
the approval of the Board of Directors/Trustees. The Manager may recoup the
amount of any management fee waivers or expense reimbursements from the Fund
pursuant to this agreement if such action does not cause the Fund to exceed
existing expense limitations and the recoupment is made within three years after
the year in which the Manager incurred the expense.
THE DISCLOSURE AND FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THE TABLES
AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
92 MainStay Floating Rate Fund
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- -----------------------------------------
5.71% 4.64%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
CREDIT SUISSE LEVERAGED LOAN
MAINSTAY FLOATING RATE FUND INDEX
--------------------------- ----------------------------
05/3/04 10000 10000
10192 10226
10597 10826
10/31/06 11202 11565
</Table>
<Table>
<Caption>
ONE SINCE
BENCHMARK PERFORMANCE YEAR INCEPTION
- -------------------------------------------------------------------------
Credit Suisse Leveraged Loan Index(1) 6.83% 6.00%
Average Lipper loan participation fund(2) 5.80 4.60
</Table>
1. The Credit Suisse 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 Leveraged Loan Index is considered to be the Fund's broad-based
securities-market index for comparison purposes. An investment cannot be made
directly in 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 THE
TABLES AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
www.mainstayfunds.com 93
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY FLOATING RATE FUND
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from May 1, 2006, to October 31, 2006,
and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, if applicable, exchange fees, and sales
charges (loads) on purchases, and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds. The example is based on an investment of $1,000 made at the
beginning of the six-month period and held for the entire period from May 1,
2006, to October 31, 2006.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested to estimate the expenses that you
paid during the six-months ended October 31, 2006. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
- - HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The fourth and fifth data columns in the table below provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balances or
expenses you paid for the six-month period shown. You may use this information
to compare the ongoing costs of investing in the Fund with the ongoing costs of
investing in other Funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
Funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees, if applicable, exchange fees, or sales charges (loads).
Therefore, the fourth and fifth data columns of the table are useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT
ENDING ACCOUNT VALUE (BASED
VALUE (BASED ON HYPOTHETICAL
BEGINNING ON ACTUAL EXPENSES 5% ANNUALIZED EXPENSES
ACCOUNT RETURNS AND PAID RETURN AND PAID
VALUE EXPENSES) DURING ACTUAL EXPENSES) DURING
SHARE CLASS 5/1/06 10/31/06 PERIOD(1) 10/31/06 PERIOD(1)
CLASS A SHARES $1,000.00 $1,025.00 $5.10 $1,020.00 $5.09
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $1,021.25 $8.92 $1,016.25 $8.89
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $1,021.25 $8.92 $1,016.25 $8.89
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,026.25 $3.83 $1,021.25 $3.82
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio of each class
(1.00% for Class A, 1.75% for Class B and Class C, and 0.75% for Class I)
multiplied by the average account value over the period, divided by 365 and
multiplied by 184 (to reflect the one-half year period).
94 MainStay Floating Rate Fund
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2006
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
Floating Rate Loans 83.1
Short-Term Investments 12.1
Foreign Floating Rate Loans 4.1
Corporate Bonds 0.5
Foreign Corporate Bond 0.1
Cash and Other Assets, Less Liabilities 0.1
</Table>
See Portfolio of Investments on page 97 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2006 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. Charter Communications Operating LLC, 8.005%,
due 4/28/13
2. Community Health Systems, Inc., 7.15%, due
8/19/11
3. SunGard Data Systems, Inc. 7.999%, due 2/11/13
4. Insight Midwest Holdings LLC, 7.57%, due 4/7/14
5. Yell Group PLC, 7.32%, due 10/27/12
6. Huntsman International LLC, 7.07%, due 8/16/12
7. Penn National Gaming, Inc., 7.129%, due 10/3/12
8. Windstream Corp., 7.12%, due 7/17/13
9. NRG Energy, Inc., 7.367%, due 2/1/13
10. Jean Coutu Group (PJC), Inc. (The), 7.937%, due
7/30/11
</Table>
www.mainstayfunds.com 95
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio managers Anthony Malloy and Robert Dial of New
York Life Investment Management LLC
HOW DID MAINSTAY FLOATING RATE FUND PERFORM RELATIVE TO ITS PEERS AND ITS
BENCHMARK DURING THE 12 MONTHS ENDED OCTOBER 31, 2006?
Excluding all sales charges, MainStay Floating Rate Fund returned 5.34% for
Class A shares, 4.66% for Class B shares, and 4.66% for Class C shares for the
12 months ended October 31, 2006. Over the same period, Class I shares returned
5.71%. All share classes underperformed the 6.83% return of the Credit Suisse
Leveraged Loan Index,(1) the Fund's broad-based securities-market index, for the
12-month period. All share classes also underperformed the 5.80% return of the
average Lipper(2) loan participation fund for the 12 months ended October 31,
2006.
WHAT FACTORS ACCOUNTED FOR THE FUND'S UNDERPERFORMANCE RELATIVE TO THE INDEX?
There were several. First, the Fund incurs fees and expenses that a tracking
index does not. Second, we maintained a cash position of 10% to 15% for daily
liquidity. Third, although the Fund enjoyed significant inflows, there is a lag
associated with the longer-settlement nature of the loan asset class. Fourth,
unlike the Index, which tracks assets at new issue prices, the Fund must
amortize premiums paid for assets purchased in the secondary market. Finally,
the Fund maintains a conservative orientation and remains significantly
underweighted in unrated loans and loans rated CCC and below.(3)
WHAT ARE SOME OF THE CHARACTERISTICS OF THE LOANS IN THE FUND?
The Fund invests in floating-rate loans that have an effective duration of less
than three months. The floating-rate loans may have final maturities of seven to
nine years, but the loans' underlying interest-rate contracts, which are
typically pegged to LIBOR,(4) may reset every 30, 60, 90, or 180 days. The
weighted average reset figure for the Fund at the end of the annual period was
48 days. This means that if short-term interest rates were to increase, the Fund
would "catch up" within 48 days and thus increase the yield it would pay to
investors.
WHAT MAJOR FACTORS INFLUENCED THE DECISIONS YOU MADE FOR THE FUND DURING THE
REPORTING PERIOD?
Demand was strong for floating-rate bank loans during the reporting period. New
issue volume was stronger early in the reporting period than it was later. The
early activity led to contraction of credit spreads, but credit trends later
stabilized. By way of comparison, new issue volume during the first nine months
of 2006 was 62% higher than the corresponding period in 2005.
WHAT WERE THE FUND'S LARGEST INDUSTRY CONCENTRATIONS AND HOW DID THE FUND'S
WEIGHTINGS DIFFER FROM THOSE OF THE BENCHMARK?
As of October 31, 2006, the largest industry concentrations in the Fund (on a
par-value basis) were in health care, chemicals, diversified media, and business
services. Among these concentrated positions, the Fund was overweighted relative
to the Credit Suisse Leveraged Loan Index in health care, chemicals, and
business services and approximately market-weighted in diversified media. At the
end of October 2006, the Fund was significantly underweighted relative to the
Index in unrated loans and loans rated CCC or below.
Floating-rate funds are generally considered to have speculative characteristics
that may involve risk of default on principal and interest and risks associated
with 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.
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 93 for more information on the Credit Suisse Leveraged
Loan Index.
2. See footnote on page 93 for more information on Lipper Inc.
3. 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.
4. London interbank offer rates (LIBOR) are floating interest rates that are
widely used as reference rates in bank, corporate, and government lending
agreements.
The opinions expressed are those of the portfolio managers as of the date of
this report and are subject to change. There is no guarantee that any forecast
made will come to pass. This material does not constitute investment advice and
is not intended as an endorsement of any specific investment.
INFORMATION ABOUT MAINSTAY FLOATING RATE FUND ON THIS PAGE AND THE PRECEDING
PAGES HAS NOT BEEN AUDITED.
96 MainStay Floating Rate Fund
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
LONG-TERM INVESTMENTS (87.8%)+
CORPORATE BONDS (0.5%)
- --------------------------------------------------------------------------------
PACKAGING & CONTAINERS (0.2%)
Berry Plastics Holding Corp.
8.875%, due 9/15/14 (a) $ 1,500,000 $ 1,515,000
--------------
TELECOMMUNICATIONS (0.3%)
Qwest Corp.
8.64%, due 6/15/13 (b) 3,000,000 3,232,500
--------------
Total Corporate Bonds
(Cost $4,506,462) 4,747,500
--------------
FOREIGN CORPORATE BOND (0.1%)
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS (0.1%)
Intelsat Subsidiary Holding Co., Ltd.
10.48%, due 1/15/12 (b) 1,000,000 1,013,750
--------------
Total Foreign Corporate Bond
(Cost $1,000,000) 1,013,750
--------------
FLOATING RATE LOANS (83.1%) (c)
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE (2.0%)
Axletech International Holdings, Inc.
Tranche B Term Loan
7.62%, due 10/19/12 1,914,286 1,920,666
2nd Lien Term Loan
11.87%, due 4/22/13 1,000,000 1,005,833
Hexcel Corp.
Tranche B Term Loan
7.125%, due 3/1/12 5,117,665 5,117,665
Spirit Aerosystems, Inc.
Term Loan B
7.57%, due 12/31/11 4,229,411 4,258,488
Transdigm, Inc.
Term Loan
7.389%, due 6/23/13 3,500,000 3,520,125
Vought Aircraft Industries, Inc.
Tranche B Letter of Credit
7.329%, due 12/22/10 560,000 562,100
Term Loan
7.88%, due 12/22/11 4,425,882 4,449,857
--------------
20,834,734
--------------
AUTOMOBILE (2.3%)
Accuride Corp.
Term Loan
7.438%, due 1/31/12 2,724,545 2,727,270
Dayco Products LLC
Tranche B Term Loan
8.022%, due 6/21/11 2,892,750 2,913,239
Goodyear Tire & Rubber Co. (The)
2nd Lien Term Loan
8.14%, due 4/30/10 4,250,000 4,278,840
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
AUTOMOBILE (CONTINUED)
HLI Operating Co., Inc.
Term Loan B
8.958%, due 6/3/09 $ 1,864,961 $ 1,545,350
Key Automotive Group
Term Loan B
8.845%, due 6/29/10 2,809,962 2,834,549
Term Loan C
11.60%, due 6/29/11 1,357,000 1,367,177
Plastech Engineered Products, Inc.
2nd Lien Term Loan
12.874%, due 3/31/11 1,000,000 976,667
TRW Automotive, Inc.
Tranche E Term Loan
6.75%, due 10/31/10 1,965,000 1,960,088
Tranche B2 Term Loan
6.813%, due 6/30/12 1,985,000 1,980,038
Tranche B Term Loan
7.188%, due 6/30/12 1,965,000 1,958,246
United Components, Inc.
Term Loan D
7.70%, due 6/29/12 842,245 846,456
--------------
23,387,920
--------------
BEVERAGE, FOOD & TOBACCO (4.7%)
American Seafoods Group LLC
Term Loan A
7.117%, due 9/30/11 3,579,772 3,575,297
Tranche B1 Term Loan
7.117%, due 9/28/12 322,360 321,957
Tranche B2 Term Loan
7.117%, due 9/28/12 176,719 176,498
BF Bolthouse Holdco LLC
1st Lien Term Loan
7.625%, due 12/17/12 1,637,625 1,639,672
2nd Lien Term Loan
10.867%, due 12/16/13 330,000 332,200
Chiquita Brands LLC
Term Loan B
7.58%, due 6/28/12 732,072 730,241
Term Loan C
7.616%, due 6/28/12 3,974,899 3,968,691
</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 97
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FLOATING RATE LOANS (CONTINUED)
- --------------------------------------------------------------------------------
BEVERAGE, FOOD & TOBACCO (CONTINUED)
Commonwealth Brands, Inc.
New Term Loan
7.688%, due 12/22/12 $ 6,953,328 $ 6,993,310
Constellation Brands, Inc.
New Term Loan B
6.931%, due 6/5/13 5,833,333 5,853,995
Culligan International Co.
Term Loan
7.07%, due 9/30/11 2,430,015 2,434,572
Del Monte Corp.
Term Loan B
6.948%, due 2/8/12 2,985,000 2,988,731
Dole Food Co., Inc.
Credit Link Deposit
5.244%, due 4/12/13 651,163 645,375
Tranche C Term Loan
7.474%, due 4/12/13 4,859,302 4,816,108
Tranche B Term Loan
7.55%, due 4/12/13 1,457,791 1,444,832
Michael Foods, Inc.
Term Loan B1
7.541%, due 11/21/10 2,458,268 2,460,316
Nellson Nutraceutical, Inc.
1st Lien Term Loan
8.32%, due 10/4/09 (d) 911,541 880,776
OSI Group LLC
Dutch Term Loan
7.117%, due 9/2/11 1,088,889 1,086,847
German Term Loan
7.117%, due 9/2/11 871,111 869,478
U.S. Term Loan
7.117%, due 9/2/11 1,960,000 1,956,325
Reddy Ice Group, Inc.
Term Loan
7.122%, due 8/12/12 5,500,000 5,496,563
--------------
48,671,784
--------------
BROADCASTING & ENTERTAINMENT (6.9%)
Atlantic Broadband Finance LLC
Term Loan B
8.14%, due 9/1/11 2,985,000 3,022,312
Bragg Communications, Inc.
Term Loan B
7.08%, due 8/31/11 2,940,000 2,943,675
V Charter Communications Operating LLC
Replacement Term Loan
8.005%, due 4/28/13 9,023,000 9,096,032
CSC Holdings, Inc.
Incremental Term Loan
7.148%, due 3/29/13 6,965,000 6,958,474
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
BROADCASTING & ENTERTAINMENT (CONTINUED)
DirectTV Holdings LLC
Term Loan B
6.82%, due 4/13/13 $ 4,311,503 $ 4,311,994
Emmis Operating Co.
Term Loan
9.00%, due 11/10/11 666,667 666,786
Entravision Communications Corp.
Term Loan
6.87%, due 3/29/13 4,442,399 4,437,771
Gray Television, Inc.
Term Loan B
6.877%, due 11/22/12 3,943,250 3,934,098
Incremental Term Loan
6.88%, due 11/22/12 496,250 495,098
Insight Midwest Holdings LLC
Initial Term Loan
V 7.57%, due 4/7/14 8,247,806 8,299,998
Mediacom Broadband Group
(FKA MCC Iowa)
Tranche A Term Loan
6.505%, due 3/31/10 2,406,888 2,360,254
Tranche D1 Term Loan
6.983%, due 1/31/15 3,939,603 3,919,290
Nexstar Broadcasting, Inc.
Mission Term Loan B
7.117%, due 10/1/12 3,371,299 3,358,656
Nexstar Term Loan B
7.117%, due 10/1/12 3,195,194 3,183,212
Olympus Cable Holdings LLC
Term Loan B
10.25%, due 9/30/10 3,000,000 2,924,532
Raycom TV Broadcasting, Inc.
Tranche B Term Loan
6.875%, due 8/28/13 3,968,846 3,939,080
UPC Broadband Holding B.V.
Term Loan J2
7.64%, due 3/31/13 4,000,000 3,997,500
Term Loan K2
7.64%, due 12/31/13 4,000,000 3,997,144
--------------
71,845,906
--------------
BUILDINGS & REAL ESTATE (2.5%)
Armstrong World Industries, Inc.
Term Loan
7.124%, due 10/2/13 5,000,000 5,004,690
Gables GP, Inc.
Term Loan
7.07%, due 3/30/07 170,526 170,597
</Table>
98 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)
- --------------------------------------------------------------------------------
BUILDINGS & REAL ESTATE (CONTINUED)
General Growth Properties, Inc.
Tranche A1 Term Loan
6.57%, due 2/24/10 $ 7,250,000 $ 7,193,537
LNR Property Corp.
Initial Tranche B Term Loan
8.22%, due 7/12/11 3,171,807 3,180,396
Macerich Partnership, L.P.
Term Loan
6.875%, due 4/26/10 5,000,000 4,975,000
Stile Acquisition Corp.
Canadian Term Loan
7.38%, due 4/6/13 2,960,441 2,890,824
U.S. Term Loan
7.38%, due 4/6/13 2,977,422 2,907,405
--------------
26,322,449
--------------
CARGO TRANSPORT (1.3%)
Horizon Lines LLC
Tranche C Term Loan
7.62%, due 7/7/11 3,979,644 3,992,080
Pacer International, Inc.
Term Loan
6.937%, due 6/10/10 1,323,529 1,316,912
Performance Transportation Services
Credit Link Deposit
4.35%, due 1/31/10 (d) 330,224 317,015
Synthetic Letter of Credit
5.267%, due 2/12/07 231,405 231,405
DIP Revolver Credit Linked Deposit
5.399%, due 1/27/07 115,393 115,393
New Term Loan
10.65%, due 1/26/07 345,545 345,545
Term Loan
11.65%, due 1/27/07 (d) 502,060 481,978
RailAmerica, Inc.
Canadian Term Loan
7.438%, due 9/29/11 379,837 381,024
U.S. Term Loan
7.438%, due 9/29/11 4,136,353 4,149,279
SIRVA Worldwide, Inc.
Term Loan
11.611%, due 12/1/10 2,472,878 2,265,003
--------------
13,595,634
--------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CHEMICALS, PLASTICS & RUBBER (7.2%)
Basell AF S.A.R.L
Facility B2 U.S.
7.60%, due 8/1/13 $ 1,261,207 $ 1,275,395
Facility B4 U.S.
7.60%, due 8/1/13 252,241 255,079
Facility C2 U.S.
8.35%, due 8/1/14 1,261,207 1,275,395
Facility C4 U.S.
8.35%, due 8/1/14 252,241 255,079
Celanese AG
Credit Link Deposit
5.32%, due 4/6/09 2,000,000 2,013,334
Dollar Term Loan
7.367%, due 4/6/11 6,494,847 6,527,321
Gentek, Inc.
1st Lien Term Loan
7.373%, due 2/28/11 5,788,386 5,799,240
Hercules, Inc.
Term Loan B
6.87%, due 10/8/10 4,462,519 4,456,941
Hexion Specialty Chemicals, Inc.
Term Loan C2
7.37%, due 5/5/13 1,246,108 1,241,880
Term Loan C1
7.375%, due 5/5/13 5,736,392 5,716,929
V Huntsman International LLC
Term B Dollar Facility
7.07%, due 8/16/12 8,042,077 8,032,032
INEOS Group Holdings, Ltd.
Tranche A4 Term Loan
7.611%, due 12/17/12 3,500,000 3,522,971
Tranche B2 Term Loan
7.611%, due 12/16/13 2,000,000 2,022,916
Tranche C2 Term Loan
8.111%, due 12/16/14 2,000,000 2,022,916
ISP Chemco, Inc.
Term Loan
7.449%, due 2/15/13 4,975,000 4,987,438
Kraton Polymers LLC
Term Loan
7.375%, due 5/13/13 1,086,178 1,088,215
Lyondell Chemical Co.
Initial Term Loan
7.11%, due 8/16/13 5,000,000 5,023,960
Nalco Co.
Term Loan B
7.16%, due 11/4/10 5,088,229 5,098,059
Polymer Group, Inc.
Term Loan
7.614%, due 11/22/12 4,471,225 4,469,360
</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, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FLOATING RATE LOANS (CONTINUED)
- --------------------------------------------------------------------------------
CHEMICALS, PLASTICS & RUBBER (CONTINUED)
Rockwood Specialties Group, Inc.
Tranche E Term Loan
7.376%, due 7/30/12 $ 6,914,899 $ 6,944,287
Texas Petrochemicals, L.P.
Letter of Credit
7.905%, due 12/29/08 625,000 628,906
Term Loan B
7.911%, due 6/27/13 1,870,313 1,882,002
--------------
74,539,655
--------------
CONTAINERS, PACKAGING & GLASS (3.7%)
Berry Plastics Corp.
Term Loan B
7.124%, due 9/20/13 2,900,000 2,901,450
Bluegrass Container Co.
Delayed Draw 1st Lien Term Loan
7.601%, due 6/30/13 1,119,920 1,129,370
Term Loan B
7.604%, due 6/30/13 3,742,892 3,774,475
Delayed Draw 2nd Lien
10.32%, due 12/30/13 393,939 398,125
2nd Lien Term Loan
10.323%, due 12/30/13 1,231,061 1,244,141
Covalence Specialty Materials Corp.
Term Loan C
7.375%, due 5/20/13 2,907,000 2,907,910
2nd Lien Term Loan
8.625%, due 8/16/13 2,000,000 2,021,666
Crown Americas LLC
Term B Dollar Loan
7.07%, due 11/15/12 4,000,000 4,006,252
Term Loan B1
7.249%, due 11/15/12 2,000,000 2,003,126
Graham Packaging Holdings Co.
Incremental Term Loan B
7.687%, due 10/7/11 994,937 999,378
Term Loan B
7.725%, due 10/7/11 5,403,750 5,427,872
2nd Lien Term Loan
9.688%, due 4/7/12 714,286 719,196
Graphic Packaging International, Inc.
Term Loan C
7.884%, due 8/8/10 5,987,040 6,049,048
Smurfit-Stone Container Enterprises, Inc.
Deposit Fund Commitment
4.729%, due 11/1/10 770,105 774,393
Tranche C1 Term Loan
7.625%, due 11/1/11 590,427 593,714
Tranche B Term Loan
7.658%, due 11/1/11 2,704,356 2,719,414
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CONTAINERS, PACKAGING & GLASS (CONTINUED)
Tranche C Term Loan
7.667%, due 11/1/11 $ 877,548 $ 882,435
--------------
38,551,965
--------------
DIVERSIFIED NATURAL RESOURCES, PRECIOUS METALS & MINERALS (1.7%)
Appleton Papers, Inc.
Term Loan
7.645%, due 6/11/10 2,412,567 2,421,614
Boise Cascade LLC
Term Loan D
7.108%, due 10/28/11 843,679 846,948
Georgia-Pacific Corp.
Term Loan B
7.385%, due 12/20/12 6,625,106 6,658,457
Term Loan C
8.39%, due 12/23/13 2,330,000 2,358,580
RLC Industries Co.
Term Loan B
6.82%, due 2/24/10 5,361,250 5,337,794
--------------
17,623,393
--------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING (2.1%)
Aearo Technologies, Inc.
1st Lien Term Loan
7.867%, due 3/22/13 1,990,000 2,004,095
2nd Lien Term Loan
11.867%, due 9/24/13 1,500,000 1,516,875
EnerSys Capital, Inc.
Term Loan
7.45%, due 3/17/11 3,890,051 3,904,639
Invensys International Holdings, Ltd.
Tranche A Term Loan
7.398%, due 1/15/11 2,248,634 2,254,255
Term A Bonding
7.446%, due 12/15/10 2,501,366 2,507,620
Mueller Group, Inc.
Term Loan B
7.388%, due 10/3/12 4,202,613 4,220,562
Polypore, Inc.
Term Loan
8.32%, due 11/12/11 2,385,946 2,397,876
Walter Industries, Inc.
Term Loan
7.155%, due 10/3/12 2,438,541 2,440,980
--------------
21,246,902
--------------
DIVERSIFIED/CONGLOMERATE SERVICE (3.3%)
Affiliated Computer Services, Inc.
Term Loan B
7.389%, due 3/20/13 997,487 998,812
Delayed Draw Term Loan
7.395%, due 3/20/13 4,987,500 4,994,123
</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)
- --------------------------------------------------------------------------------
DIVERSIFIED/CONGLOMERATE SERVICE (CONTINUED)
American Reprographics Co. LLC
Term Loan C
7.15%, due 6/18/09 $ 2,831,469 $ 2,831,469
Coinmach Corp.
Term Loan B1
7.906%, due 12/19/12 4,486,382 4,517,786
Fidelity National Information Solutions, Inc.
Term Loan B
7.07%, due 3/8/13 7,055,000 7,069,209
Language Line LLC
Term Loan B
9.63%, due 6/10/11 2,105,008 2,115,533
V SunGard Data Systems, Inc.
Term Loan
7.999%, due 2/11/13 8,414,894 8,487,826
Telcordia Technologies, Inc.
Term Loan
8.15%, due 9/15/12 3,447,500 3,309,600
--------------
34,324,358
--------------
ECOLOGICAL (2.0%)
Allied Waste Industries, Inc.
Tranche A Credit-Linked Deposit
5.334%, due 1/15/12 1,603,467 1,603,133
Term Loan B
7.153%, due 1/15/12 5,865,402 5,863,144
Duratek, Inc.
Term Loan B
7.76%, due 6/7/13 1,197,323 1,205,554
EnergySolutions LLC
Synthetic Letter of Credit
7.57%, due 6/7/13 125,786 126,651
Term Loan
7.759%, due 6/7/13 2,642,684 2,660,852
IESI Corp.
Term Loan
7.13%, due 1/20/12 4,000,000 3,997,500
Synagro Technologies, Inc.
Term Loan
7.57%, due 6/21/12 285,714 285,714
Term Loan B
7.57%, due 6/21/12 1,714,286 1,712,143
Wastequip, Inc.
Tranche B Term Loan
7.57%, due 7/15/11 2,190,049 2,190,049
2nd Lien Term Loan
10.82%, due 7/13/12 1,000,000 1,010,000
--------------
20,654,740
--------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
ELECTRONICS (1.2%)
Advanced Micro Devices, Inc.
Tranche B1 Term Loan
7.57%, due 12/31/13 $ 4,000,000 $ 4,014,284
Sanmina-SCI Corp.
Term Loan B
7.88%, due 1/31/08 1,500,000 1,503,375
Sensata Technologies Finance Co. LLC
Term Loan
7.13%, due 4/26/13 6,483,750 6,442,215
--------------
11,959,874
--------------
FARMING & AGRICULTURE (0.1%)
Agco Corp.
Term Loan
7.117%, due 3/31/08 1,314,837 1,318,124
--------------
FINANCE (1.3%)
Brand Services, Inc.
Term Loan
7.623%, due 1/16/12 1,972,530 1,973,763
Hertz Corp. (The)
Letter of Credit
5.39%, due 12/21/12 388,889 391,579
Tranche B Term Loan
7.654%, due 12/21/12 7,079,777 7,128,748
United Rentals, Inc.
Tranche B Credit-Linked Deposit
6.00%, due 2/14/11 987,758 990,228
Initial Term Loan
7.32%, due 2/14/11 2,654,125 2,660,760
--------------
13,145,078
--------------
GROCERY (1.7%)
BI-LO LLC
Term Loan
9.371%, due 6/30/11 3,335,145 3,350,430
Giant Eagle, Inc.
Term Loan
6.898%, due 11/7/12 5,657,250 5,650,178
Roundy's Supermarkets, Inc.
Term Loan
8.415%, due 11/3/11 2,977,500 2,994,621
</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, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FLOATING RATE LOANS (CONTINUED)
- --------------------------------------------------------------------------------
GROCERY (CONTINUED)
SUPERVALU, Inc.
Term Loan B
7.188%, due 6/1/12 $ 5,974,987 $ 5,988,061
--------------
17,983,290
--------------
HEALTHCARE, EDUCATION & CHILDCARE (9.1%)
Accellent, Inc.
Term Loan
7.40%, due 11/22/12 2,729,375 2,729,375
AGA Medical Corp.
Tranche B Term Loan
7.72%, due 4/28/13 4,580,523 4,577,660
Alliance Imaging, Inc.
Tranche C1 Term Loan
7.938%, due 12/29/11 6,747,170 6,749,983
AMR HoldCo., Inc./Emcare Holdco., Inc.
Term Loan
7.276%, due 2/10/12 3,243,549 3,241,522
Aveta Holdings LLC
New Term Loan Namm
7.62%, due 8/22/11 151,893 151,513
Term Loan MMM
7.62%, due 8/22/11 1,163,243 1,161,789
Term Loan Namm
7.62%, due 8/22/11 273,704 273,362
Term Loan PHMC
7.62%, due 8/22/11 953,304 950,921
Term Loan PHMC Namm
7.62%, due 8/22/11 26,481 26,414
V Community Health Systems, Inc.
Term Loan
7.15%, due 8/19/11 8,887,139 8,887,139
Concentra Operating Corp.
Term Loan
7.619%, due 9/30/11 6,074,186 6,096,965
DaVita, Inc.
Term Loan B
7.425%, due 10/5/12 6,432,908 6,458,755
Fresenius Medical Care Holdings, Inc.
Term Loan
6.752%, due 3/31/13 4,970,013 4,937,568
Gentiva Health Services, Inc.
Term Loan B
7.665%, due 3/31/13 2,821,622 2,826,912
HealthSouth Corp.
Term Loan B
8.62%, due 3/10/13 7,198,396 7,224,390
LifePoint Hospitals, Inc.
Term Loan B
6.945%, due 4/15/12 6,275,229 6,242,284
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
HEALTHCARE, EDUCATION & CHILDCARE (CONTINUED)
Quintiles Transnational Corp.
Term Loan B
7.37%, due 3/31/13 $ 1,492,500 $ 1,491,754
2nd Lien Term Loan C
9.37%, due 3/31/14 500,000 507,969
Rural/Metro Operating Co. LLC
Letter of Credit Facility Deposits
5.17%, due 3/4/11 411,765 413,824
Term Loan B1
7.523%, due 3/4/11 1,258,824 1,265,118
Select Medical Corp.
Term Loan B
7.151%, due 2/24/12 5,415,025 5,305,371
Sunrise Medical Holdings, Inc.
Term Loan B1
8.888%, due 5/13/10 3,862,202 3,842,891
U.S. Oncology, Inc.
Term Loan B
7.762%, due 8/20/11 5,951,206 5,962,365
Vanguard Health Holding Co. LLC
Replacement Term Loan
7.868%, due 9/23/11 6,875,822 6,873,677
VWR International, Inc.
Term Loan B
7.63%, due 4/7/11 2,555,312 2,558,506
Warner Chilcott Corp.
Dovobet Delayed Draw Term Loan
7.867%, due 1/18/12 109,858 110,078
Dovonex Delayed Draw Term Loan
7.867%, due 1/18/12 549,290 550,389
Tranche C Term Loan
7.867%, due 1/18/12 650,722 653,743
Tranche B Term Loan
7.926%, due 1/18/12 2,370,143 2,381,147
--------------
94,453,384
--------------
HOME & OFFICE FURNISHINGS, HOUSEWARES, & DURABLE
CONSUMER PRODUCTS (1.7%)
Berkline/Benchcraft Holdings LLC
2nd Lien Term Loan
14.99%, due 5/3/12 (d)(e) 750,000 169,602
Term Loan B
11.00%, due 11/3/11 2,965,625 2,323,072
Jarden Corp.
Term Loan B2
7.117%, due 1/24/12 475,266 474,434
Term Loan B1
7.367%, due 1/24/12 4,517,146 4,521,383
</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)
- --------------------------------------------------------------------------------
HOME & OFFICE FURNISHINGS, HOUSEWARES, & DURABLE
CONSUMER PRODUCTS (CONTINUED)
National Bedding Co. LLC
2nd Lien Term Loan
5.374%, due 8/31/12 $ 1,000,000 $ 1,006,250
1st Lien Term Loan
7.386%, due 8/31/11 2,962,500 2,968,425
Sealy Mattress Co.
Tranche D Term Loan
7.371%, due 8/25/12 2,000,000 1,996,250
Simmons Co.
Term Loan D
7.173%, due 12/19/11 4,531,867 4,557,359
--------------
18,016,775
--------------
HOTELS, MOTELS, INNS & GAMING (1.7%)
Boyd Gaming Corp.
Term Loan
6.867%, due 6/30/11 3,416,350 3,413,299
V Penn National Gaming, Inc.
Term Loan B
7.129%, due 10/3/12 7,934,962 7,971,661
Venetian Casino Resort LLC/Las Vegas Sands, Inc.
Delayed Draw Term Loan B
7.12%, due 6/15/11 1,025,641 1,027,083
Term Loan B
7.12%, due 6/15/11 4,974,359 4,981,353
--------------
17,393,396
--------------
LEISURE, AMUSEMENT, MOTION PICTURES,
ENTERTAINMENT (4.3%)
Affinity Group, Inc.
Term Loan
7.82%, due 6/24/09 2,605,046 2,611,559
AMC Entertainment, Inc.
Term Loan
7.445%, due 1/26/13 4,466,250 4,498,818
Bombardier Recreational Products, Inc.
Term Loan
8.13%, due 6/28/13 5,000,000 4,990,625
Cedar Fair, L.P.
U.S. Term Loan B
7.867%, due 8/30/12 4,987,500 5,038,936
Easton-Bell Sports, Inc.
Tranche B Term Loan
7.118%, due 3/16/12 5,972,494 5,977,469
Metro-Goldwyn-Mayer Studios, Inc.
Tranche B Term Loan
8.617%, due 4/8/12 4,839,840 4,775,886
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
LEISURE, AMUSEMENT, MOTION PICTURES,
ENTERTAINMENT (CONTINUED)
Regal Cinemas Corp.
Term Loan
7.117%, due 11/10/10 $ 2,526,108 $ 2,521,258
Six Flags Theme Parks, Inc.
Tranche B1 Term Loan
8.661%, due 6/30/09 5,274,375 5,327,119
Universal City Development Partners, Ltd.
Term Loan
7.387%, due 6/9/11 3,729,792 3,739,116
WMG Acquisition Corp.
Term Loan
7.369%, due 2/28/11 4,886,141 4,901,718
--------------
44,382,504
--------------
MACHINERY (1.4%)
Coinstar, Inc.
Term Loan
7.37%, due 7/7/11 1,124,333 1,128,550
Colfax Corp.
New Term Loan B
7.375%, due 11/30/11 1,496,222 1,501,833
Flowserve Corp.
Term Loan B
6.881%, due 8/10/12 3,883,581 3,882,370
Gleason Corp.
1st Lien Term Loan
7.906%, due 6/30/13 1,617,647 1,626,746
2nd Lien Term Loan
10.938%, due 12/30/13 882,353 887,316
RBS Global, Inc.
Term Loan B
7.876%, due 7/19/13 5,000,000 5,025,000
--------------
14,051,815
--------------
MINING, STEEL, IRON & NON-PRECIOUS METALS (1.5%)
Aleris International, Inc.
Term Loan B
7.875%, due 8/1/13 2,992,500 2,992,500
Magnum Coal Co.
Funded Letter of Credit
8.57%, due 3/21/13 454,545 455,682
Term Loan
8.62%, due 3/21/13 4,522,727 4,534,034
Novelis Corp.
U.S. Term Loan B1
7.718%, due 1/9/12 3,599,746 3,607,227
Novelis, Inc.
Canadian Term Loan B2
7.718%, due 1/9/12 2,072,582 2,076,888
</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, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FLOATING RATE LOANS (CONTINUED)
- --------------------------------------------------------------------------------
MINING, STEEL, IRON & NON-PRECIOUS METALS (CONTINUED)
Tube City IMS Corp.
1st Lien Term Loan C
8.12%, due 12/31/10 $ 1,965,150 $ 1,970,063
--------------
15,636,394
--------------
OIL & GAS (1.6%)
Babcock & Wilcox Co. (The)
Synthetic Letter of Credit
8.117%, due 2/22/12 2,500,000 2,512,500
Dresser Rand Group, Inc.
Term Loan B1
7.485%, due 10/29/11 1,432,377 1,438,107
EPCO Holdings, Inc.
Term Loan A
7.125%, due 8/18/08 1,732,329 1,733,412
Institutional Term Loan C
7.372%, due 8/18/10 1,980,000 1,989,546
LB Pacific, L.P.
Term Loan B
8.07%, due 3/3/12 1,970,000 1,970,000
Regency Gas Services LLC
Term Loan B
7.82%, due 8/15/13 1,000,000 1,010,625
Targa Resources, Inc.
Synthetic Letter of Credit
7.617%, due 10/31/12 1,162,074 1,167,469
Term Loan
7.632%, due 10/31/12 4,793,555 4,815,811
--------------
16,637,470
--------------
PERSONAL & NONDURABLE CONSUMER PRODUCTS (2.6%)
ACCO Brands Corp.
U.S. Term Loan
7.138%, due 8/17/12 2,560,025 2,565,626
Hillman Companies, Inc.
Term Loan B
8.50%, due 3/31/11 1,984,847 1,999,734
JohnsonDiversey, Inc.
New Term Loan B
7.97%, due 12/16/11 3,969,720 3,997,012
Mega Bloks, Inc.
Term Loan B
7.188%, due 7/26/12 3,225,503 3,229,534
Solo Cup Co.
Term Loan B1
8.608%, due 2/27/11 6,113,447 5,135,021
Spectrum Brands, Inc.
Term Loan
8.387%, due 2/6/12 3,969,174 3,977,680
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
PERSONAL & NONDURABLE CONSUMER PRODUCTS (CONTINUED)
Visant Corp.
Term Loan C
7.372%, due 12/21/11 $ 5,584,523 $ 5,605,465
--------------
26,510,072
--------------
PERSONAL TRANSPORTATION (0.6%)
United Airlines, Inc.
Delayed Draw Term Loan
9.125%, due 2/1/12 746,250 757,444
Tranche B Term Loan
9.25%, due 2/1/12 5,223,750 5,302,106
--------------
6,059,550
--------------
PRINTING & PUBLISHING (3.6%)
Dex Media East LLC
Term Loan B
6.917%, due 5/8/09 4,587,006 4,569,167
Dex Media West LLC
Tranche B2 Term Loan
6.885%, due 3/9/10 2,572,249 2,559,971
Tranche B1 Term Loan
6.905%, due 3/9/10 1,633,343 1,626,810
Hanley Wood LLC
Delayed Draw Term Loan
7.61%, due 8/1/12 724,774 723,868
Closing Date Term Loan
7.694%, due 8/1/12 6,068,000 6,060,415
Medianews Group, Inc.
Term Loan C
7.07%, due 8/2/13 2,493,750 2,494,790
Merrill Communications LLC
Term Loan
7.59%, due 12/22/12 5,458,750 5,470,694
New Publishing Acquisition, Inc.
Tranche B Term Loan
8.44%, due 8/5/12 4,146,577 4,155,214
Nielsen Finance LLC
Dollar Term Loan
8.19%, due 8/9/13 4,500,000 4,515,471
R.H. Donnelley, Inc.
Tranche A4 Term Loan
6.624%, due 12/31/09 341,943 338,707
Tranche D1 Term Loan
6.885%, due 6/30/11 992,424 988,816
Tranche D2 Term Loan
6.887%, due 6/30/11 4,064,719 4,046,655
--------------
37,550,578
--------------
</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)
- --------------------------------------------------------------------------------
RETAIL STORE (2.7%)
Buffets, Inc.
PF Letter of Credit
4.879%, due 6/28/09 $ 1,000,000 $ 1,000,000
Term Loan
10.75%, due 6/28/09 1,988,161 1,988,161
Eddie Bauer, Inc.
Term Loan B
9.57%, due 6/21/11 5,046,250 5,021,019
Eye Care Centers of America, Inc.
Term Loan B
8.414%, due 3/1/12 4,925,000 4,928,078
V Jean Coutu Group (PJC), Inc. (The)
Term Loan B
7.937%, due 7/30/11 7,292,258 7,309,439
Neiman Marcus Group, Inc. (The)
Term Loan B
7.641%, due 4/6/13 5,434,221 5,474,527
Petco Animal Supplies, Inc.
Term Loan B
8.10%, due 10/26/13 2,000,000 2,010,000
--------------
27,731,224
--------------
TELECOMMUNICATIONS (2.2%)
Centennial Cellular Operating Co. LLC
Term Loan
7.616%, due 2/9/11 5,269,123 5,304,252
Madison River Capital LLC
Term Loan B1
7.62%, due 7/29/12 3,961,905 3,976,762
PanAmSat Corp.
Term Loan B2
7.872%, due 1/3/14 6,000,000 6,046,668
V Windstream Corp.
Tranche B Term Loan
7.12%, due 7/17/13 7,500,000 7,536,158
--------------
22,863,840
--------------
TEXTILES & LEATHER (0.9%)
Springs Windows Fashions LLC
Term Loan B
8.125%, due 12/31/12 2,977,500 2,992,388
St. Johns Knits International, Inc.
Term Loan B
9.32%, due 3/23/12 4,193,128 4,161,680
William Carter Co. (The)
Term Loan
6.867%, due 7/14/12 2,606,229 2,600,120
--------------
9,754,188
--------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
UTILITIES (5.2%)
AES Corp.
Term Loan
7.125%, due 4/30/08 $ 2,000,000 $ 2,001,250
Calpine Generating Co. LLC
1st Lien Term Loan
9.073%, due 4/1/09 5,000,000 5,120,835
Cogentrix Delaware Holdings, Inc.
Term Loan
6.87%, due 4/14/12 2,054,287 2,054,714
Coleto Creek Power, L.P.
Synthetic Letter of Credit
5.267%, due 6/28/13 350,318 347,691
Term Loan
8.117%, due 6/28/13 5,136,807 5,098,281
Covanta Energy Corp.
Funded Letter of Credit
5.371%, due 6/24/12 2,601,626 2,620,053
Tranche C Term Loan
7.615%, due 6/24/12 1,859,668 1,872,840
InfrastruX Group, Inc.
Term Loan B
8.313%, due 5/8/12 995,000 992,513
Term Loan C
11.813%, due 5/8/13 1,000,000 1,015,000
KGen LLC
Tranche A Term Loan
7.992%, due 8/5/11 4,925,000 4,918,844
LSP General Finance Co. LLC
1st Lien Term Loan
7.117%, due 5/6/13 5,140,278 5,129,571
Delayed Draw 1st Lien Term Loan
7.117%, due 5/6/13 218,619 218,163
2nd Lien Term Loan
8.867%, due 5/5/14 1,750,000 1,767,500
Midwest Generation LLC
Term Loan B
6.931%, due 4/27/11 2,226,313 2,224,922
Mirant North America LLC
Term Loan
7.07%, due 1/3/13 6,457,469 6,445,936
NRG Energy, Inc.
Credit Link Deposit
7.367%, due 2/1/13 1,485,305 1,491,888
Term Loan B
V 7.367%, due 2/1/13 7,479,616 7,516,236
Pike Electric, Inc.
Term Loan B
6.875%, due 7/2/12 1,529,412 1,526,863
Term Loan C
6.875%, due 12/10/12 580,392 579,425
</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
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FLOATING RATE LOANS (CONTINUED)
- --------------------------------------------------------------------------------
UTILITIES (CONTINUED)
Reliant Energy, Inc.
Term Loan
7.695%, due 4/30/10 $ 1,260,434 $ 1,259,384
--------------
54,201,909
--------------
Total Floating Rate Loans
(Cost $864,938,530) 861,248,905
--------------
FOREIGN FLOATING RATE LOANS (4.1%) (c)
- --------------------------------------------------------------------------------
BROADCASTING & ENTERTAINMENT (0.3%)
VTR Globalcom S.A.
Term Loan B
8.372%, due 9/19/14 (e) 3,000,000 2,962,500
--------------
CARGO TRANSPORT (0.4%)
Laidlaw International, Inc.
Canadian Term Loan B
7.117%, due 7/31/13 997,500 1,004,565
Term Loan B
7.117%, due 7/31/13 2,992,500 3,013,696
--------------
4,018,261
--------------
CHEMICALS, PLASTICS & RUBBER (1.5%)
Brenntag Holding GmbH and Co.
Acquisition Term Loan
8.08%, due 1/20/14 1,708,364 1,724,024
Term Loan B2
8.08%, due 1/20/14 2,973,455 2,996,686
Invista B.V.
Tranche B1 Term Loan
6.875%, due 4/29/11 4,108,441 4,103,306
Tranche B2 Term Loan
6.875%, due 4/29/11 2,037,597 2,035,050
Lucite International US Finco, Ltd.
Term Loan B1
8.07%, due 7/7/13 3,323,731 3,346,582
--------------
14,205,648
--------------
FINANCE (0.3%)
Ashtead Group PLC
Term Loan
7.14%, due 8/31/11 3,000,000 2,996,250
--------------
PRINTING & PUBLISHING (0.7%)
V Yell Group PLC
Term Loan B1
7.32%, due 10/27/12 8,000,000 8,033,832
--------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
RETAIL STORE (0.4%)
Dollarama Group, L.P.
Replacement Term Loan B
7.376%, due 11/18/11 $ 3,930,250 $ 3,940,076
--------------
TELECOMMUNICATIONS (0.5%)
Intelsat Subsidiary Holding Co.
Tranche B Term Loan
7.622%, due 7/3/13 4,910,113 4,939,270
--------------
Total Foreign Floating Rate Loans
(Cost $41,093,054) 41,095,837
--------------
Total Long-Term Investments
(Cost $911,538,046) 908,105,992
--------------
SHORT-TERM INVESTMENTS (12.1%)
- --------------------------------------------------------------------------------
COMMERCIAL PAPER (8.7%)
Bankamerica Corp.
5.25%, due 11/14/06 8,000,000 7,982,500
General Electric Capital Corp.
5.23%, due 11/14/06 4,000,000 3,985,472
Illinois Tool Works, Inc.
5.21%, due 12/8/06 8,000,000 7,950,216
ING U.S. Funding LLC
5.24%, due 11/6/06 5,000,000 4,982,533
Minnesota Mining & Manufacturing Co.
5.15%, due 11/13/06 5,000,000 4,975,680
Morgan Stanley
5.25%, due 11/6/06 5,000,000 4,982,500
National Rural Utilities Cooperative Finance Corp.
(Discount Notes)
5.23%, due 11/9/06 5,500,000 5,484,019
5.25%, due 11/6/06 4,000,000 3,976,667
Prudential Funding LLC
5.22%, due 11/1/06 8,000,000 7,982,600
Royal Bank of Scotland
5.24%, due 11/21/06 8,000,000 7,975,547
Siemens Capital LLC
5.20%, due 11/2/06 10,000,000 9,966,778
Societe Generale North America, Inc.
5.23%, due 11/24/06 7,000,000 6,968,475
Swedish Export Credit Corp.
5.24%, due 11/8/06 7,000,000 6,985,736
Washington Gas Light Co.
5.22%, due 11/3/06 6,000,000 5,990,430
--------------
Total Commercial Paper
(Cost $90,189,153) 90,189,153
--------------
</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.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (3.4%)
Wachovia Capital Markets LLC
5.29%, dated 10/31/06
due 11/1/06
Proceeds at Maturity $35,422,204
(Collateralized by various Federal Agencies,
with rates between 5.125% - 5.94% and
maturity dates between 4/18/11 - 10/3/13,
with a Principal Amount of
$35,784,000 and a Market Value
of $36,125,501) $35,417,000 $ 35,417,000
--------------
Total Repurchase Agreement
(Cost $35,417,000) 35,417,000
--------------
Total Short-Term Investments
(Cost $125,606,153) 125,606,153
--------------
Total Investments
(Cost $1,037,144,199) (f) 99.9% 1,033,712,145(g)
Cash and Other Assets,
Less Liabilities 0.1 2,377,574
----------- --------------
Net Assets 100.0% $1,036,089,719
=========== ==============
</Table>
<Table>
(a) May be sold to institutional investors only under Rule 144a
or securities offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
(b) Floating rate. Rate shown is the rate in effect at October
31, 2006.
(c) Floating Rate Loan--generally pays 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, 2006.
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. Under procedures
adopted by the Board, the loans are deemed to be liquid
except those identified with a footnote (e). (See footnote
(e) below.)
(d) Issue in default.
(e) Illiquid security. The total market value of these
securities at October 31, 2006 is $3,132,102, which
represents 0.3% of the Fund's net assets.
(f) The cost stated also represents the aggregate cost for
federal tax purposes.
(g) At October 31, 2006 net unrealized depreciation was
$3,432,054, 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 $254,788 and aggregate gross unrealized
depreciation for all investments on which there was an
excess of cost over market value of $3,686,842.
</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 ASSETS AND LIABILITIES AS OF OCTOBER 31, 2006
<Table>
ASSETS:
Investment in securities, at value
(identified cost $1,037,144,199) $1,033,712,145
Cash 1,838,455
Unrealized appreciation on unfunded
commitments 11,202
Receivables:
Interest 6,485,651
Investment securities sold 3,458,675
Fund shares sold 3,401,346
Other assets 90,576
--------------
Total assets 1,048,998,050
--------------
LIABILITIES:
Payables:
Investment securities purchased 7,031,250
Fund shares redeemed 2,981,295
Manager (See Note 3) 540,717
NYLIFE Distributors (See Note 3) 409,770
Transfer agent (See Note 3) 111,043
Professional fees 104,189
Shareholder communication 20,043
Trustees 13,476
Custodian 6,428
Accrued expenses 7,678
Dividend payable 1,682,442
--------------
Total liabilities 12,908,331
--------------
Net assets $1,036,089,719
==============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
1 billion shares authorized:
Class A $ 69,764
Class B 5,383
Class C 24,418
Class I 4,809
Additional paid-in capital 1,044,615,310
Accumulated distributions in excess of net
investment income (377,871)
Accumulated net realized loss on investments (4,831,242)
Net unrealized depreciation on investments (3,432,054)
Net unrealized appreciation on unfunded
commitments 11,202
--------------
Net assets $1,036,089,719
==============
CLASS A
Net assets applicable to outstanding shares $ 692,411,436
==============
Shares of capital stock outstanding 69,764,236
==============
Net asset value per share outstanding $ 9.93
Maximum sales charge (3.00% of offering
price) 0.31
--------------
Maximum offering price per share outstanding $ 10.24
==============
CLASS B
Net assets applicable to outstanding shares $ 53,466,123
==============
Shares of capital stock outstanding 5,383,112
==============
Net asset value and offering price per share
outstanding $ 9.93
==============
CLASS C
Net assets applicable to outstanding shares $ 242,469,087
==============
Shares of capital stock outstanding 24,418,202
==============
Net asset value and offering price per share
outstanding $ 9.93
==============
CLASS I
Net assets applicable to outstanding shares $ 47,743,073
==============
Shares of capital stock outstanding 4,809,262
==============
Net asset value and offering price per share
outstanding $ 9.93
==============
</Table>
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.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2006
<Table>
INVESTMENT INCOME:
INCOME:
Interest $61,042,661
------------
EXPENSES:
Manager (See Note 3) 5,269,162
Distribution/Service--Class A (See Note 3) 1,456,261
Service--Class B (See Note 3) 129,587
Service--Class C (See Note 3) 513,886
Distribution--Class B (See Note 3) 388,760
Distribution--Class C (See Note 3) 1,541,658
Transfer agent (See Note 3) 719,293
Professional fees 252,813
Registration 124,318
Shareholder communication 111,047
Trustees 57,415
Portfolio pricing 32,312
Custodian 17,002
Miscellaneous 35,729
------------
Total expenses 10,649,243
------------
Net investment income 50,393,418
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments (1,436,506)
Net change in unrealized appreciation on
investments and unfunded commitments (4,340,716)
------------
Net realized and unrealized loss on investments
and unfunded commitments (5,777,222)
------------
Net increase in net assets resulting from
operations $44,616,196
============
</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
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2006 AND OCTOBER 31, 2005
<Table>
<Caption>
2006 2005
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 50,393,418 $ 23,039,400
Net realized loss on investments (1,436,506) (3,165,728)
Net change in unrealized
appreciation on investments (4,340,716) (271,327)
------------------------------
Net increase in net assets
resulting from operations 44,616,196 19,602,345
------------------------------
Dividends to shareholders:
From net investment income:
Class A (34,614,958) (16,755,410)
Class B (2,670,914) (1,737,768)
Class C (10,694,929) (4,370,180)
Class I (2,380,488) (195,925)
------------------------------
Total dividends to shareholders (50,361,289) (23,059,283)
------------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 461,947,197 442,727,728
Class B 21,350,806 40,272,526
Class C 142,509,075 128,405,865
Class I 40,394,940 7,453,652
Net asset value of shares issued to
shareholders in reinvestment of dividends:
Class A 22,752,783 9,346,235
Class B 2,112,975 1,400,576
Class C 6,670,825 2,808,555
Class I 2,339,168 181,033
------------------------------
700,077,769 632,596,170
Cost of shares redeemed+:
Class A (311,626,366) (198,902,816)
Class B (14,431,800) (17,441,086)
Class C (73,374,836) (48,255,192)
Class I (4,037,272) (620,570)
------------------------------
(403,470,274) (265,219,664)
Net asset value of shares converted (See Note 1):
Class A 17,416,899 --
Class B (17,416,899) --
Increase in net assets derived
from capital share
transactions 296,607,495 367,376,506
------------------------------
Net increase in net assets 290,862,402 363,919,568
</Table>
<Table>
<Caption>
2006 2005
NET ASSETS:
Beginning of year $ 745,227,317 $ 381,307,749
------------------------------
End of year $1,036,089,719 $ 745,227,317
==============================
Accumulated distributions in
excess of net investment income
at end of year $ (377,871) $ (410,185)
==============================
</Table>
+ Cost of shares redeemed net of redemption fee of $99,928 for the year ended
October 31, 2006 and $137,240 for the year ended October 31, 2005. (See Note
2(P))
110 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.
This page intentionally left blank
www.mainstayfunds.com 111
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A
---------------------------------------
MAY 3,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
Net asset value at beginning of period $ 9.99 $ 10.03 $ 10.00
-------- -------- -----------
Net investment income 0.59 0.40(a) 0.14(a)
Net realized and unrealized gain (loss) on
investments (0.06) (0.03) 0.04
-------- -------- -----------
Total from investment operations 0.53 0.37 0.18
-------- -------- -----------
Less dividends:
From net investment income (0.59) (0.41) (0.15)
-------- -------- -----------
Redemption fee 0.00(b) 0.00(b) 0.00(b)
-------- -------- -----------
Net asset value at end of period $ 9.93 $ 9.99 $ 10.03
======== ======== ===========
Total investment return (c) 5.34% 3.72% 1.79%(d)
Ratios (to average net assets)/Supplemental Data:
Net investment income 5.95% 4.11% 2.83%+
Net expenses 1.00% 1.04% 1.07%+
Expenses (before reimbursement) 1.00% 1.04% 1.07%+
Portfolio turnover rate 8% 13% 3%
Net assets at end of period (in 000's) $692,411 $505,726 $254,969
</Table>
<Table>
<Caption>
CLASS C
---------------------------------------
MAY 3,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
Net asset value at beginning of period $ 9.99 $ 10.03 $ 10.00
-------- -------- -----------
Net investment income 0.51 0.33(a) 0.10(a)
Net realized and unrealized gain (loss) on
investments (0.06) (0.04) 0.04
-------- -------- -----------
Total from investment operations 0.45 0.29 0.14
-------- -------- -----------
Less dividends:
From net investment income (0.51) (0.33) (0.11)
-------- -------- -----------
Redemption fee 0.00(b) 0.00(b) 0.00(b)
-------- -------- -----------
Net asset value at end of period $ 9.93 $ 9.99 $ 10.03
======== ======== ===========
Total investment return (c) 4.66% 2.94% 1.41%(d)
Ratios (to average net assets)/Supplemental Data:
Net investment income 5.20% 3.36% 2.08%+
Net expenses 1.75% 1.79% 1.82%+
Expenses (before reimbursement) 1.75% 1.79% 1.82%+
Portfolio turnover rate 8% 13% 3%
Net assets at end of period (in 000's) $242,469 $168,021 $85,807
</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>
112 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 B
- -------------------------------------------
MAY 3,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
$ 9.99 $ 10.03 $ 10.00
-------- -------- -----------
0.51 0.33(a) 0.10(a)
(0.06) (0.04) 0.04
-------- -------- -----------
0.45 0.29 0.14
-------- -------- -----------
(0.51) (0.33) (0.11)
-------- -------- -----------
0.00(b) 0.00(b) 0.00(b)
-------- -------- -----------
$ 9.93 $ 9.99 $ 10.03
======== ======== ===========
4.66% 2.95% 1.41%(d)
5.20% 3.36% 2.08%+
1.75% 1.79% 1.82%+
1.75% 1.79% 1.82%+
8% 13% 3%
$53,466 $62,196 $38,233
</Table>
<Table>
<Caption>
CLASS I
- --------------------------------------------
MAY 3,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
$ 9.99 $10.03 $10.00
--------- -------- -----------
0.61 0.43(a) 0.15(a)
(0.06) (0.04) 0.04
--------- -------- -----------
0.55 0.39 0.19
--------- -------- -----------
(0.61) (0.43) (0.16)
--------- -------- -----------
0.00(b) 0.00(b) 0.00(b)
--------- -------- -----------
$ 9.93 $ 9.99 $10.03
========= ======== ===========
5.71% 3.98% 1.92%(d)
6.20% 4.36% 3.08%+
0.75% 0.79% 0.82%+
0.75% 0.79% 0.82%+
8% 13% 3%
$47,743 $9,284 $2,298
</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 113
MAINSTAY INDEXED BOND FUND
INVESTMENT AND PERFORMANCE COMPARISON (UNAUDITED)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE 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 CALL 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM. PERFORMANCE DATA SHOWN EXCLUDING SALES CHARGES DOES NOT
REFLECT THE DEDUCTION OF ANY SALES LOAD, WHICH IF REFLECTED, WOULD REDUCE
PERFORMANCE QUOTED.
CLASS A SHARES--MAXIMUM 3% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
With sales charges 1.16% 3.13% 5.08%
Excluding sales charges 4.29 3.76 5.40
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
CITIGROUP BROAD INVESTMENT
MAINSTAY INDEXED BOND FUND GRADE BOND INDEX
-------------------------- --------------------------
10/31/96 9700 10000
10488 10884
11382 11906
11274 11964
12063 12835
13651 14710
14424 15556
14961 16333
15682 17264
15743 17479
10/31/06 16418 18394
</Table>
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
4.60% 4.05% 5.67%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
CITIGROUP BROAD INVESTMENT
MAINSTAY INDEXED BOND FUND GRADE BOND INDEX
-------------------------- --------------------------
10/31/96 10000 10000
10837 10884
11787 11906
11696 11964
12545 12835
14231 14710
15074 15556
15672 16333
16458 17264
16592 17479
10/31/06 17355 18394
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
- --------------------------------------------------------------------------------
Citigroup Broad Investment Grade Bond Index(1) 5.24% 4.57% 6.28%
Average Lipper general U.S. government fund(2) 3.76 3.12 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 as 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 3.00%
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. These fee waivers
and/or expense limitations are contractual and may be modified or terminated
only with the approval of the Board of Directors/ Trustees. The Manager may
recoup the amount of any management fee waivers or expense reimbursements from
the Fund pursuant to this agreement if such action does not cause the Fund to
exceed existing expense limitations and the recoupment is made within three
years after the year in which the Manager incurred the expense. From inception
(1/2/91) through 12/31/03, performance for Class A shares (first offered 1/2/04)
includes the historical performance of Class I shares adjusted to reflect the
applicable sales charge and fees and expenses for Class A shares.
1. The Citigroup Broad Investment Grade 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 in 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.
114 MainStay Indexed Bond Fund
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY INDEXED BOND FUND
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from May 1, 2006, to October 31, 2006,
and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, if applicable, exchange fees, and sales
charges (loads) on purchases, and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds. The example is based on an investment of $1,000 made at the
beginning of the six-month period and held for the entire period from May 1,
2006, to October 31, 2006.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested to estimate the expenses that you
paid during the six-months ended October 31, 2006. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
- - HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The fourth and fifth data columns in the table below provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balances or
expenses you paid for the six-month period shown. You may use this information
to compare the ongoing costs of investing in the Fund with the ongoing costs of
investing in other Funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
Funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees, if applicable, exchange fees, or sales charges (loads).
Therefore, the fourth and fifth data columns of the table are useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT
ENDING ACCOUNT VALUE (BASED
VALUE (BASED ON HYPOTHETICAL
BEGINNING ON ACTUAL EXPENSES 5% ANNUALIZED EXPENSES
ACCOUNT RETURNS AND PAID RETURN AND PAID
VALUE EXPENSES) DURING ACTUAL EXPENSES) DURING
SHARE CLASS 5/1/06 10/31/06 PERIOD(1) 10/31/06 PERIOD(1)
CLASS A SHARES $1,000.00 $1,041.60 $4.22 $1,020.90 $4.18
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,042.85 $2.21 $1,022.85 $2.19
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio of each class
(0.82% for Class A and 0.43% for Class I) multiplied by the average account
value over the period, divided by 365 and multiplied 184 (to reflect the
one-half year period). In the absence of waivers and/or reimbursements,
expenses would have been higher.
www.mainstayfunds.com 115
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2006
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
U.S. Government & Federal Agencies 74.0
Corporate Bonds 19.1
Short-Term Investments (collateral from securities lending 15.6
is 13.3%)
Foreign Bonds 3.0
Asset-Backed Securities 1.2
Yankee Bonds 1.2
Mortgage-Backed Security 0.1
Futures Contracts 0.0*
Liabilities in Excess of Cash and Other Assets (14.2)
</Table>
* Less than one-tenth of a percent.
See Portfolio of Investments on page 119 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2006 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. United States Treasury Note, 4.875%, due 8/15/16
2. United States Treasury Note, 3.375%, due 2/15/08
3. United States Treasury Note, 4.375%, due
11/15/08
4. Federal Home Loan Mortgage Corporation (Mortgage
Pass-Through Security), 5.00%, due 10/1/36
5. Federal National Mortgage Association (Mortgage
Pass-Through Security), 5.00%, due 4/1/36
6. Federal National Mortgage Association (Mortgage
Pass-Through Security), 6.00%, due 7/1/36
7. United States Treasury Note, 4.25%, due 11/30/07
8. United States Treasury Note, 3.375%, due
10/15/09
9. United States Treasury Note, 4.50%, due 2/15/09
10. United States Treasury Note, 4.50%, due 2/28/11
</Table>
116 MainStay Indexed Bond Fund
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio managers Paul Cunningham and Donald Serek of New
York Life Investment Management LLC
HOW DID MAINSTAY INDEXED BOND FUND PERFORM RELATIVE TO ITS PEERS AND ITS
BENCHMARK FOR THE 12 MONTHS ENDED OCTOBER 31, 2006?
Excluding all sales charges, MainStay Indexed Bond Fund returned 4.29% for Class
A shares for the 12 months ended October 31, 2006. Over the same period, Class I
shares returned 4.60%. Both share classes underperformed the 5.24% return of the
Citigroup Broad Investment Grade Bond Index (BIG Index),(1) the Fund's
broad-based securities-market index, for the 12-month reporting period. Since
the Fund incurs expenses that an unmanaged index does not, there will be times
when the Fund's performance will lag that of the Index. Both share classes
outperformed the 3.76% return of the average Lipper(2) general U.S. government
fund for the 12 months ended October 31, 2006.
WHAT MAJOR FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THE REPORTING PERIOD?
During the 12-month reporting period, bond prices fluctuated in response to the
changing outlook for the U.S. economy and inflation. As expected, when the
economy appeared to be strengthening or when inflation appeared to be
accelerating, interest rates rose and bond prices fell. (Interest rates and bond
prices tend to move in opposite directions.) When the economic recovery appeared
to be losing momentum or when inflation appeared to be decelerating, interest
rates declined and bond prices rose.
Over the course of the reporting period, the yield curve reshaped several times.
Early in 2006, short-term rates rose higher than long-term rates, resulting in
an inverted yield curve. Later in the first quarter of 2006, the yield curve
flattened out. For the last six months of the reporting period, the Treasury
curve has remained relatively flat.
HOW DID YOU POSITION THE FUND DURING THE REPORTING PERIOD?
As always, the Fund sought to track the total-return performance of the BIG
Index. Since the Fund does not hold every security in the Index, however, the
Fund's performance will vary from that of the Index.
Our primary reasons for selling securities during the reporting period were to
accommodate changes in credit opinions or to extend the Fund's maturity profile.
The Fund sold Commonwealth Edison because of a change in credit opinion, and we
switched holdings in Burlington Northern to extend the Fund's maturity.
Purchases were made during the reporting period to rebalance the Fund's
exposures and maintain Index-weighted positions across sectors, industries, and
issuers. Among the Fund's largest purchases in the corporate-bond sector were
AIG, General Electric, and Viacom. The Fund also made substantial purchases in
U.S. Treasurys and mortgage pass-through securities to rebalance its exposures.
HOW DID SECURITIES IN DIFFERENT RATING CATEGORIES PERFORM DURING THE REPORTING
PERIOD?
In general, securities rated BBB had the highest absolute returns for the 12
months ended October 31, 2006.(3) A-rated securities had the next highest
returns, followed by securities rated AAA and those rated AA.
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, interest rate, and maturities risk and can lose principal
value when interest rates rise. The Fund may experience a portfolio turnover
rate of more than 100% and may generate taxable short-term capital gains.
1. See footnote on page 114 for more information on the Citigroup Broad
Investment Grade Bond Index.
2. See footnote on page 114 for more information about Lipper Inc.
3. 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. Debt rated AA by
Standard & Poor's is deemed by Standard & 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 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 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 117
WHICH INDEX MARKET SECTORS WERE STRONG PERFORMERS DURING THE REPORTING PERIOD
AND WHICH ONES WERE WEAK?
Treasurys, government-sponsored securities, mortgage-backed securities,
asset-backed securities, and credit are the largest segments of the BIG Index.
Mortgage-backed securities provided the best sector performance during the
reporting period, followed by high-grade corporate bonds, which also had strong
returns. The weakest sector was U.S. Treasury securities. The second-weakest
sector was asset-backed securities.
The opinions expressed are those of the portfolio managers as of the date of
this report and are subject to change. There is no guarantee that any 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.
118 MainStay Indexed Bond Fund
PORTFOLIO OF INVESTMENTS+++ OCTOBER 31, 2006
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
LONG-TERM BONDS (98.6%)+
ASSET-BACKED SECURITIES (1.2%)
- ------------------------------------------------------------------------------
CREDIT CARDS (0.8%)
Bank One Issuance Trust
Series 2002-3, Class A3
3.59%, due 5/17/10 $ 1,000,000 $ 985,416
Chase Issuance Trust
Series 2005, Class A-10
4.65%, due 12/17/12 500,000 494,882
MBNA Credit Card Master Note Trust
Series 2005, Class A-6
4.50%, due 1/15/13 500,000 492,490
Series 2002-1, Class A6
4.95%, due 6/15/09 1,000,000 999,478
------------
2,972,266
------------
FINANCE--OTHER (0.4%)
Centex Home Equity
Series 2004-B, Class AF4
4.122%, due 1/25/32 500,000 487,370
Drive Auto Receivables Trust
Series 2005-3, Class A4
5.09%, due 6/17/13 (a) 250,000 249,193
Equity One ABS, Inc.
Series 2003-4, Class AF6
4.833%, due 10/25/34 250,000 247,169
Residential Asset Mortgage Products, Inc.
Series 2003-RZ5, Class A7
4.97%, due 9/25/33 250,000 245,994
Saxon Asset Securities Trust
Series 2003-1, Class AF5
4.955%, due 6/25/33 96,707 95,901
------------
1,325,627
------------
TRANSPORTATION (0.0%)++
Continental Airlines, Inc.
Series 1992-2, Class A1
7.256%, due 3/15/20 65,999 69,973
------------
Total Asset-Backed Securities
(Cost $4,397,230) 4,367,866
------------
CORPORATE BONDS (19.1%)
- ------------------------------------------------------------------------------
BANKS (3.3%)
Bank of America Corp.
4.75%, due 8/1/15 $ 250,000 $ 240,414
5.25%, due 12/1/15 200,000 197,906
5.375%, due 6/15/14 250,000 251,589
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
BANKS (CONTINUED)
5.875%, due 2/15/09 $ 250,000 $ 254,316
7.40%, due 1/15/11 500,000 541,282
Bank of New York (The)
3.80%, due 2/1/08 350,000 343,806
Bank One Corp.
5.90%, due 11/15/11 250,000 256,568
BB&T Corp.
5.20%, due 12/23/15 200,000 195,980
Branch Banking & Trust Co.
4.875%, due 1/15/13 100,000 97,786
Capital One Bank
4.25%, due 12/1/08 100,000 97,998
5.125%, due 2/15/14 100,000 98,371
Citigroup, Inc.
4.70%, due 5/29/15 300,000 288,106
4.875%, due 5/7/15 350,000 338,006
5.00%, due 3/6/07 250,000 249,652
5.625%, due 8/27/12 100,000 101,791
5.875%, due 2/22/33 500,000 503,630
Fifth Third Bank
4.75%, due 2/1/15 250,000 239,553
Fleet National Bank
5.75%, due 1/15/09 250,000 253,168
HSBC Bank USA N.A.
3.875%, due 9/15/09 100,000 96,922
JPMorgan Chase & Co.
4.875%, due 3/15/14 250,000 241,673
5.15%, due 10/1/15 500,000 489,152
5.75%, due 1/2/13 200,000 204,820
6.75%, due 2/1/11 500,000 528,881
Key Bank N.A.
5.00%, due 7/17/07 100,000 99,582
5.80%, due 7/1/14 225,000 230,047
Marshall & Ilsley Bank
5.00%, due 1/17/17 150,000 144,740
MBNA America Bank N.A.
5.375%, due 1/15/08 300,000 300,094
Mellon Funding Corp.
5.00%, due 12/1/14 250,000 244,256
Mercantile Bankshares Corp.
Series B
4.625%, due 4/15/13 100,000 96,155
National City Bank of Pennsylvania
6.25%, due 3/15/11 250,000 260,096
</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, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
BANKS (CONTINUED)
Pemex Project Funding Master Trust
6.625%, due 6/15/35 $ 250,000 $ 252,250
7.375%, due 12/15/14 350,000 384,125
PNC Bank N.A.
5.25%, due 1/15/17 75,000 74,132
PNC Funding Corp.
7.50%, due 11/1/09 100,000 106,133
Popular North America, Inc.
4.70%, due 6/30/09 100,000 98,127
Sanwa Bank, Ltd.
7.40%, due 6/15/11 100,000 108,042
SunTrust Banks, Inc.
5.05%, due 7/1/07 250,000 249,549
5.45%, due 12/1/17 100,000 99,939
U.S. Bank N.A.
6.375%, due 8/1/11 250,000 262,587
UBS AG
5.875%, due 7/15/16 125,000 128,801
Union Planters Corp.
7.75%, due 3/1/11 100,000 109,559
Wachovia Bank N.A.
4.85%, due 7/30/07 500,000 497,843
4.875%, due 2/1/15 450,000 433,251
Wachovia Corp.
5.25%, due 8/1/14 100,000 99,130
6.25%, due 8/4/08 250,000 253,531
Washington Mutual Bank
5.95%, due 5/20/13 350,000 357,845
Washington Mutual Financial Corp.
6.875%, due 5/15/11 100,000 106,732
Washington Mutual, Inc.
5.25%, due 9/15/17 175,000 168,673
Wells Fargo & Co.
4.625%, due 8/9/10 350,000 344,791
Wells Fargo Bank N.A.
5.75%, due 5/16/16 250,000 256,864
6.45%, due 2/1/11 500,000 524,569
World Savings Bank FSB
4.125%, due 12/15/09 100,000 97,190
Zions Bancorp.
5.50%, due 11/16/15 75,000 74,247
------------
12,574,250
------------
CONSUMER (1.3%)
Altria Group, Inc.
7.65%, due 7/1/08 100,000 103,492
Anheuser-Busch Cos., Inc.
5.95%, due 1/15/33 250,000 256,016
Archer-Daniels-Midland Co.
8.125%, due 6/1/12 250,000 284,242
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CONSUMER (CONTINUED)
Avon Products, Inc.
5.125%, due 1/15/11 $ 50,000 $ 49,689
Bunge Limited Finance Corp.
5.35%, due 4/15/14 100,000 96,613
Campbell Soup Co.
4.875%, due 10/1/13 100,000 97,014
Clorox Co. (The)
5.00%, due 1/15/15 50,000 48,814
Coca-Cola Enterprises, Inc.
7.00%, due 10/1/26 100,000 114,055
8.50%, due 2/1/22 252,000 323,104
ConAgra Foods, Inc.
7.00%, due 10/1/28 100,000 108,625
7.875%, due 9/15/10 67,000 72,893
Coors Brewing Co.
6.375%, due 5/15/12 50,000 52,088
Corn Products International, Inc.
8.25%, due 7/15/07 50,000 50,746
Fortune Brands, Inc.
5.375%, due 1/15/16 100,000 94,741
5.875%, due 1/15/36 25,000 22,843
General Mills, Inc.
5.125%, due 2/15/07 100,000 99,897
6.00%, due 2/15/12 65,000 66,873
H.J. Heinz Finance Co.
6.625%, due 7/15/11 300,000 313,402
Hershey Co. (The)
5.45%, due 9/1/16 100,000 101,052
Home Depot, Inc.
5.40%, due 3/1/16 200,000 199,694
J.C. Penney Co., Inc.
6.875%, due 10/15/15 150,000 158,874
7.375%, due 8/15/08 151,000 155,662
Kellogg Co.
Series B
6.60%, due 4/1/11 200,000 210,899
Kraft Foods, Inc.
5.25%, due 10/1/13 100,000 99,153
6.25%, due 6/1/12 250,000 260,491
Limited Brands, Inc.
6.125%, due 12/1/12 75,000 76,066
Mohawk Industries, Inc.
6.125%, due 1/15/16 100,000 99,538
Newell Rubbermaid, Inc.
6.75%, due 3/15/12 50,000 52,908
Park Place Entertainment Corp.
7.50%, due 9/1/09 125,000 129,665
Pepsi Bottling Holdings, Inc.
5.625%, due 2/17/09 (a) 250,000 252,737
</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
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
CONSUMER (CONTINUED)
Procter & Gamble Co. (The)
5.80%, due 8/15/34 $ 75,000 $ 78,397
6.875%, due 9/15/09 250,000 261,845
Sara Lee Corp.
6.25%, due 9/15/11 150,000 151,975
Sysco Corp.
5.375%, due 9/21/35 100,000 96,237
Tyson Foods, Inc.
6.85%, due 4/1/16 50,000 51,433
Unilever Capital Corp.
5.90%, due 11/15/32 100,000 101,738
Wm. Wrigley Jr. Co.
4.65%, due 7/15/15 50,000 47,721
------------
4,841,232
------------
ELECTRIC (1.4%)
Alabama Power Co.
Series FF
5.20%, due 1/15/16 50,000 49,535
American Electric Power Co., Inc.
Series C
5.375%, due 3/15/10 200,000 200,455
Appalachian Power Co.
Series H
5.95%, due 5/15/33 100,000 97,143
Arizona Public Service Co.
6.375%, due 10/15/11 100,000 103,228
CenterPoint Energy Houston Electric LLC
Series K2
6.95%, due 3/15/33 100,000 111,776
Dominion Resources, Inc.
5.00%, due 3/15/13 100,000 97,192
5.15%, due 7/15/15 100,000 97,006
Series B
6.25%, due 6/30/12 150,000 155,703
DTE Energy Co.
7.05%, due 6/1/11 100,000 106,159
Duke Energy Corp.
6.45%, due 10/15/32 250,000 270,239
Exelon Corp.
6.75%, due 5/1/11 200,000 209,771
FirstEnergy Corp.
Series B
6.45%, due 11/15/11 250,000 261,563
Series C
7.375%, due 11/15/31 50,000 58,486
FPL Group Capital, Inc.
7.375%, due 6/1/09 250,000 262,810
Kansas City Power & Light Co.
6.50%, due 11/15/11 50,000 52,354
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
ELECTRIC (CONTINUED)
MidAmerican Energy Holdings Co.
5.875%, due 10/1/12 $ 100,000 $ 102,330
6.125%, due 4/1/36 250,000 257,084
MidAmerican Funding LLC
6.75%, due 3/1/11 100,000 105,586
Niagara Mohawk Power Corp.
7.75%, due 10/1/08 50,000 52,133
Pacific Gas & Electric Co.
6.05%, due 3/1/34 250,000 255,376
Peco Energy Co.
5.95%, due 10/1/36 100,000 102,834
Pepco Holdings, Inc.
6.45%, due 8/15/12 100,000 103,949
7.45%, due 8/15/32 100,000 114,271
Progress Energy, Inc.
5.625%, due 1/15/16 50,000 50,127
6.85%, due 4/15/12 400,000 428,260
PSE&G Power LLC
7.75%, due 4/15/11 100,000 108,697
PSI Energy, Inc.
5.00%, due 9/15/13 100,000 96,844
Public Service Electric & Gas Co.
Series D
5.25%, due 7/1/35 50,000 46,045
6.375%, due 5/1/08 250,000 253,643
Puget Sound Energy, Inc.
6.274%, due 3/15/37 100,000 103,229
San Diego Gas & Electric Co.
5.35%, due 5/15/35 25,000 23,875
SCANA Corp.
6.25%, due 2/1/12 100,000 104,021
Sempra Energy
6.00%, due 2/1/13 100,000 102,560
Southern California Edison Co.
5.00%, due 1/15/14 100,000 97,935
6.00%, due 1/15/34 100,000 103,548
Southern Power Co.
Series B
6.25%, due 7/15/12 100,000 103,924
TXU Electric Delivery Co.
6.375%, due 5/1/12 100,000 103,775
7.00%, due 9/1/22 100,000 109,042
Union Electric Co.
4.65%, due 10/1/13 100,000 95,229
5.40%, due 2/1/16 100,000 97,522
Virginia Electric and Power Co.
6.00%, due 1/15/36 100,000 100,817
Wisconsin Energy Corp.
6.50%, due 4/1/11 100,000 104,507
------------
5,460,583
------------
</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, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
ENERGY (1.0%)
Amerada Hess Corp.
7.30%, due 8/15/31 $ 100,000 $ 113,406
Amoco Co.
6.50%, due 8/1/07 250,000 251,735
Anadarko Finance Co.
6.75%, due 5/1/11 100,000 105,364
Atmos Energy Corp.
4.00%, due 10/15/09 100,000 95,906
Burlington Resources, Inc.
7.375%, due 3/1/29 104,000 125,836
ConocoPhillips
5.90%, due 10/15/32 250,000 257,755
Consolidated Edison Co. of New York, Inc.
5.625%, due 7/1/12 100,000 101,622
6.20%, due 6/15/36 100,000 105,767
Constellation Energy Group, Inc.
6.125%, due 9/1/09 100,000 102,205
Consumers Energy Co.
Series B
5.375%, due 4/15/13 100,000 99,176
Cooper Industries, Inc.
5.25%, due 11/15/12 50,000 49,817
Devon Financing Corp. LLC
6.875%, due 9/30/11 400,000 426,357
Enterprise Products Operating, L.P.
6.875%, due 3/1/33 200,000 210,414
Florida Power & Light Co.
5.95%, due 10/1/33 100,000 104,260
Halliburton Co.
5.50%, due 10/15/10 100,000 100,695
Kinder Morgan Energy Partners, L.P.
5.80%, due 3/15/35 250,000 229,855
6.75%, due 3/15/11 200,000 209,019
7.125%, due 3/15/12 150,000 159,447
Kinder Morgan, Inc.
5.15%, due 3/1/15 100,000 90,457
Marathon Oil Corp.
6.80%, due 3/15/32 100,000 111,897
Northern States Power Co.
6.875%, due 8/1/09 100,000 104,035
Occidental Petroleum Corp.
7.20%, due 4/1/28 100,000 116,898
PPL Energy Supply LLC
5.40%, due 8/15/14 100,000 98,384
Texaco Capital, Inc.
9.75%, due 3/15/20 176,000 246,854
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
ENERGY (CONTINUED)
Valero Energy Corp.
7.50%, due 4/15/32 $ 100,000 $ 116,530
XTO Energy, Inc.
4.90%, due 2/1/14 75,000 71,654
------------
3,805,345
------------
FINANCE--OTHER (2.9%)
American Express Travel Related Services Co., Inc.
Series E
3.625%, due 2/20/09 250,000 241,568
Archstone-Smith Operating Trust
5.25%, due 5/1/15 100,000 98,224
AvalonBay Communities, Inc.
4.95%, due 3/15/13 100,000 97,446
Barrick Gold Finance Co.
4.875%, due 11/15/14 50,000 47,393
Bear Stearns Cos., Inc. (The)
5.70%, due 11/15/14 250,000 254,627
Boston Properties, Inc.
6.25%, due 1/15/13 100,000 104,057
Brandywine Operating Partnership, L.P.
4.50%, due 11/1/09 125,000 121,792
BRE Properties, Inc.
5.75%, due 9/1/09 100,000 100,925
Camden Property Trust
4.375%, due 1/15/10 100,000 97,468
Capital One Financial Corp.
5.25%, due 2/21/17 100,000 96,409
6.15%, due 9/1/16 75,000 77,182
CarrAmerica Realty Corp.
3.625%, due 4/1/09 50,000 48,009
Chelsea Property Group, Inc.
6.00%, due 1/15/13 100,000 102,975
Colonial Realty, L.P.
4.80%, due 4/1/11 50,000 48,167
Countrywide Financial Corp.
6.25%, due 5/15/16 100,000 101,859
Countrywide Home Loans, Inc.
3.25%, due 5/21/08 250,000 242,704
5.625%, due 5/15/07 100,000 100,096
Credit Suisse First Boston USA, Inc.
3.875%, due 1/15/09 125,000 121,796
4.875%, due 1/15/15 350,000 338,275
5.125%, due 1/15/14 100,000 98,664
5.25%, due 3/2/11 100,000 100,248
6.50%, due 1/15/12 250,000 263,939
D.R. Horton, Inc.
4.875%, due 1/15/10 100,000 97,702
Deutsche Bank Financial, Inc.
7.50%, due 4/25/09 125,000 131,354
</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
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
FINANCE--OTHER (CONTINUED)
Developers Diversified Realty Corp.
3.875%, due 1/30/09 $ 100,000 $ 96,784
5.00%, due 5/3/10 50,000 49,371
EOP Operating, L.P.
4.75%, due 3/15/14 100,000 95,193
7.75%, due 11/15/07 425,000 434,389
5.375%, due 8/1/16 50,000 49,472
6.95%, due 3/2/11 100,000 106,393
Golden West Financial Corp.
4.75%, due 10/1/12 100,000 97,596
Goldman Sachs Group, Inc. (The)
4.75%, due 7/15/13 250,000 241,323
5.15%, due 1/15/14 625,000 614,938
5.35%, due 1/15/16 250,000 246,968
5.70%, due 9/1/12 450,000 458,472
6.45%, due 5/1/36 100,000 105,116
Goldman Sachs Group, L.P.
5.00%, due 10/1/14 100,000 97,176
Hospitality Properties Trust
5.125%, due 2/15/15 50,000 47,682
Kimco Realty Corp.
5.783%, due 3/15/16 50,000 50,613
Lehman Brothers Holdings, Inc.
5.50%, due 4/4/16 200,000 200,178
6.625%, due 1/18/12 150,000 159,379
7.00%, due 2/1/08 250,000 254,584
Liberty Property, L.P.
5.125%, due 3/2/15 100,000 96,379
8.50%, due 8/1/10 100,000 109,819
Mack-Cali Realty, L.P.
5.05%, due 4/15/10 201,000 198,232
Merrill Lynch & Co., Inc.
Series C
5.00%, due 1/15/15 150,000 146,540
Series B
5.30%, due 9/30/15 250,000 247,715
5.77%, due 7/25/11 200,000 204,682
6.00%, due 2/17/09 250,000 254,165
Morgan Stanley
3.625%, due 4/1/08 250,000 244,236
4.75%, due 4/1/14 100,000 95,681
5.375%, due 10/15/15 275,000 273,038
5.625%, due 1/9/12 350,000 355,576
6.60%, due 4/1/12 175,000 185,332
6.75%, due 10/15/13 175,000 187,926
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FINANCE--OTHER (CONTINUED)
National Rural Utilities Cooperative Finance Corp.
5.75%, due 8/28/09 $ 250,000 $ 253,926
Series C
7.25%, due 3/1/12 50,000 54,668
8.00%, due 3/1/32 75,000 97,356
Pricoa Global Funding I
4.20%, due 1/15/10 (a) 100,000 96,859
4.625%, due 6/25/12 (a) 100,000 96,608
Principal Life Income Funding Trust
5.20%, due 11/15/10 50,000 50,044
ProLogis
5.625%, due 11/15/15 50,000 50,044
Regency Centers, L.P.
5.25%, due 8/1/15 100,000 97,530
Residential Capital Corp.
6.125%, due 11/21/08 350,000 351,943
6.375%, due 6/30/10 125,000 126,861
Security Capital Group
7.95%, due 5/15/08 100,000 102,899
Simon Property Group, L.P.
3.75%, due 1/30/09 50,000 48,384
5.375%, due 8/28/08 100,000 99,829
SLM Corp.
5.625%, due 8/1/33 250,000 241,351
Synovus Financial Corp.
4.875%, due 2/15/13 50,000 48,954
------------
10,955,083
------------
GAS (0.1%)
AGL Capital Corp.
4.45%, due 4/15/13 100,000 93,763
Anadarko Petroleum Corp.
6.45%, due 9/15/36 100,000 103,652
KeySpan Corp.
4.65%, due 4/1/13 100,000 95,413
NiSource Finance Corp.
6.15%, due 3/1/13 100,000 102,212
ONEOK, Inc.
5.51%, due 2/16/08 100,000 100,077
------------
495,117
------------
INDEPENDENT (1.5%)
American General Finance Corp.
Series H
4.00%, due 3/15/11 250,000 237,000
Series I
5.40%, due 12/1/15 250,000 248,233
Ameriprise Financial, Inc.
5.35%, due 11/15/10 100,000 100,485
</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, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
INDEPENDENT (CONTINUED)
CIT Group, Inc.
5.75%, due 9/25/07 $ 250,000 $ 250,533
7.75%, due 4/2/12 250,000 277,154
CitiFinancial Credit Co.
8.70%, due 6/15/10 227,000 252,883
General Electric Capital Corp.
4.875%, due 10/21/10 200,000 198,490
5.00%, due 1/8/16 375,000 367,577
6.00%, due 6/15/12 1,125,000 1,170,222
Series A
6.75%, due 3/15/32 500,000 577,339
HSBC Finance Corp.
5.00%, due 6/30/15 250,000 242,814
5.50%, due 1/19/16 500,000 502,433
5.75%, due 1/30/07 250,000 250,222
6.375%, due 10/15/11 550,000 577,118
6.40%, due 6/17/08 250,000 254,679
International Lease Finance Corp.
Series O
4.375%, due 11/1/09 250,000 244,348
Toll Brothers Finance Corp.
5.15%, due 5/15/15 50,000 45,447
------------
5,796,977
------------
INSURANCE (1.0%)
Aetna, Inc.
6.00%, due 6/15/16 (b) 75,000 77,561
7.875%, due 3/1/11 100,000 109,657
AIG SunAmerica Global Financing VI
6.30%, due 5/10/11 (a) 250,000 261,348
Allstate Corp. (The)
5.00%, due 8/15/14 275,000 268,699
5.95%, due 4/1/36 50,000 51,031
7.20%, due 12/1/09 100,000 105,901
American International Group, Inc.
4.70%, due 10/1/10 100,000 98,587
6.25%, due 5/1/36 50,000 53,494
Aon Corp.
7.375%, due 12/14/12 100,000 109,678
Assurant, Inc.
5.625%, due 2/15/14 100,000 100,320
Berkshire Hathaway Finance Corp.
4.85%, due 1/15/15 400,000 388,587
Chubb Corp.
5.20%, due 4/1/13 100,000 99,514
CIGNA Corp.
7.00%, due 1/15/11 125,000 132,161
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
INSURANCE (CONTINUED)
Genworth Financial, Inc.
Class A
4.95%, due 10/1/15 $ 75,000 $ 72,677
5.75%, due 6/15/14 50,000 51,230
Hartford Financial Services
Group, Inc. (The)
5.55%, due 8/16/08 100,000 100,540
7.90%, due 6/15/10 100,000 107,971
Lincoln National Corp.
4.75%, due 2/15/14 150,000 142,893
Marsh & McLennan Cos., Inc.
5.375%, due 7/15/14 100,000 94,875
MetLife, Inc.
5.00%, due 11/24/13 50,000 48,786
5.00%, due 6/15/15 225,000 218,211
5.70%, due 6/15/35 100,000 98,679
6.125%, due 12/1/11 100,000 103,936
Nationwide Financial Services, Inc.
5.10%, due 10/1/15 25,000 24,031
Progressive Corp. (The)
6.25%, due 12/1/32 50,000 53,850
Protective Life Corp.
4.875%, due 11/1/14 100,000 96,249
Prudential Financial, Inc.
Series B
5.10%, due 9/20/14 100,000 97,936
SAFECO Corp.
4.20%, due 2/1/08 100,000 98,499
Travelers Property Casualty Corp.
5.00%, due 3/15/13 100,000 97,981
UnitedHealth Group, Inc.
5.00%, due 8/15/14 100,000 97,454
5.375%, due 3/15/16 100,000 99,666
WellPoint, Inc.
5.95%, due 12/15/34 150,000 149,177
------------
3,711,179
------------
MANUFACTURING (2.2%)
Alcoa, Inc.
6.00%, due 1/15/12 250,000 258,117
American Standard, Inc.
7.375%, due 2/1/08 50,000 50,829
Black & Decker Corp.
4.75%, due 11/1/14 50,000 46,801
Boeing Co. (The)
6.125%, due 2/15/33 250,000 273,033
Bottling Group LLC
5.50%, due 4/1/16 100,000 100,798
Caterpillar, Inc.
5.30%, due 9/15/35 313,000 299,184
</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>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
MANUFACTURING (CONTINUED)
Centex Corp.
6.50%, due 5/1/16 $ 50,000 $ 51,244
7.50%, due 1/15/12 100,000 107,313
Computer Sciences Corp.
5.00%, due 2/15/13 100,000 95,885
CRH America, Inc.
5.30%, due 10/15/13 100,000 97,455
6.00%, due 9/30/16 100,000 100,730
DaimlerChrysler NA Holding Corp.
4.05%, due 6/4/08 250,000 244,447
4.875%, due 6/15/10 100,000 97,634
8.50%, due 1/18/31 300,000 360,496
Deere & Co.
6.95%, due 4/25/14 50,000 55,024
Dover Corp.
5.375%, due 10/15/35 50,000 48,257
Dow Chemical Co. (The)
6.00%, due 10/1/12 200,000 206,998
8.55%, due 10/15/09 50,000 54,503
E.I. du Pont de Nemours & Co.
4.75%, due 11/15/12 250,000 242,958
Eastman Chemical Co.
7.25%, due 1/15/24 100,000 105,868
Electronic Data Systems Corp.
Series B
6.50%, due 8/1/13 100,000 101,662
Emerson Electric Co.
7.125%, due 8/15/10 250,000 266,941
First Data Corp.
4.70%, due 8/1/13 100,000 96,174
General Dynamics Corp.
4.25%, due 5/15/13 100,000 94,919
Goodrich Corp.
7.00%, due 4/15/38 50,000 54,254
Hewlett-Packard Co.
3.625%, due 3/15/08 250,000 244,134
Honeywell International, Inc.
5.40%, due 3/15/16 50,000 50,362
7.50%, due 3/1/10 100,000 107,145
ICI Wilmington, Inc.
4.375%, due 12/1/08 100,000 97,839
International Business Machines Corp.
4.25%, due 9/15/09 150,000 146,924
6.50%, due 1/15/28 100,000 110,416
7.50%, due 6/15/13 100,000 112,499
International Paper Co.
5.25%, due 4/1/16 100,000 95,560
5.85%, due 10/30/12 100,000 102,740
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
MANUFACTURING (CONTINUED)
John Deere Capital Corp.
7.00%, due 3/15/12 $ 250,000 $ 270,107
Johnson Controls, Inc.
5.50%, due 1/15/16 50,000 49,077
6.00%, due 1/15/36 50,000 48,719
Lennar Corp.
Series B
5.125%, due 10/1/10 100,000 97,908
Series B
5.60%, due 5/31/15 50,000 48,096
Litton Industries, Inc.
8.00%, due 10/15/09 100,000 107,376
Lockheed Martin Corp.
6.15%, due 9/1/36 (a) 50,000 53,129
7.65%, due 5/1/16 250,000 290,649
Lubrizol Corp.
5.50%, due 10/1/14 100,000 97,942
Masco Corp.
4.80%, due 6/15/15 200,000 183,199
MDC Holdings, Inc.
5.375%, due 7/1/15 50,000 46,221
MeadWestvaco Corp.
6.85%, due 4/1/12 100,000 104,661
Medtronic, Inc.
Series B
4.75%, due 9/15/15 50,000 47,663
Monsanto Co.
7.375%, due 8/15/12 100,000 109,874
Motorola, Inc.
7.50%, due 5/15/25 100,000 116,639
Newmont Mining Corp.
8.625%, due 5/15/11 50,000 56,255
Northrop Grumman Corp.
7.125%, due 2/15/11 100,000 107,084
7.75%, due 2/15/31 50,000 62,709
7.875%, due 3/1/26 100,000 124,230
Praxair, Inc.
3.95%, due 6/1/13 100,000 92,734
Pulte Homes, Inc.
7.875%, due 8/1/11 100,000 108,378
Raytheon Co.
5.50%, due 11/15/12 100,000 101,036
6.40%, due 12/15/18 350,000 376,086
Rohm & Haas Co.
7.85%, due 7/15/29 100,000 122,762
Textron Financial Corp.
4.125%, due 3/3/08 125,000 123,001
Toyota Motor Credit Corp.
4.25%, due 3/15/10 100,000 97,371
</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
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
MANUFACTURING (CONTINUED)
United Technologies Corp.
5.40%, due 5/1/35 $ 100,000 $ 98,286
6.35%, due 3/1/11 250,000 261,287
Weyerhaeuser Co.
6.75%, due 3/15/12 200,000 209,432
7.375%, due 3/15/32 100,000 105,065
------------
8,296,119
------------
SERVICE (2.8%)
Abbott Laboratories
5.875%, due 5/15/16 200,000 207,908
Allergan, Inc.
5.75%, due 4/1/16 (a) 50,000 50,723
Amgen, Inc.
4.85%, due 11/18/14 100,000 97,209
Baxter International, Inc.
4.625%, due 3/15/15 50,000 47,255
Belo Corp.
8.00%, due 11/1/08 100,000 104,375
Boston Scientific Corp.
6.25%, due 11/15/15 50,000 50,238
Bristol-Myers Squibb Co.
5.75%, due 10/1/11 250,000 255,012
7.15%, due 6/15/23 50,000 57,191
Cardinal Health, Inc.
5.85%, due 12/15/17 100,000 100,236
6.25%, due 7/15/08 100,000 101,248
Cisco Systems, Inc.
5.50%, due 2/22/16 225,000 227,593
Clear Channel Communications, Inc.
5.50%, due 9/15/14 100,000 84,726
6.00%, due 11/1/06 200,000 200,000
6.875%, due 6/15/18 100,000 87,418
Comcast Cable Communications Holdings, Inc.
8.375%, due 3/15/13 250,000 285,578
Comcast Cable Communications, Inc.
7.125%, due 6/15/13 400,000 432,208
Comcast Corp.
4.95%, due 6/15/16 100,000 93,739
5.65%, due 6/15/35 200,000 183,587
6.45%, due 3/15/37 250,000 253,323
Cox Communications, Inc.
3.875%, due 10/1/08 40,000 38,815
5.45%, due 12/15/14 100,000 97,689
7.125%, due 10/1/12 200,000 213,792
CVS Corp.
4.875%, due 9/15/14 50,000 47,697
Eli Lilly & Co.
4.50%, due 3/15/18 100,000 92,569
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SERVICE (CONTINUED)
Federated Department Stores, Inc.
6.625%, due 9/1/08 $ 100,000 $ 101,841
FedEx Corp.
2.65%, due 4/1/07 50,000 49,427
Gannett Co., Inc.
5.75%, due 6/1/11 100,000 100,914
Genentech, Inc.
4.75%, due 7/15/15 100,000 96,198
GlaxoSmithKline Capital, Inc.
4.375%, due 4/15/14 100,000 94,874
Harrah's Operating Co., Inc.
5.375%, due 12/15/13 100,000 86,082
5.625%, due 6/1/15 50,000 42,148
Hillenbrand Industries, Inc.
4.50%, due 6/15/09 130,000 127,529
Historic TW, Inc.
6.625%, due 5/15/29 250,000 254,257
IAC/InterActiveCorp.
7.00%, due 1/15/13 100,000 102,986
Johnson & Johnson
6.95%, due 9/1/29 100,000 121,086
Kroger Co. (The)
5.50%, due 2/1/13 250,000 247,281
Lowe's Cos., Inc.
6.875%, due 2/15/28 100,000 113,660
Marriott International, Inc.
4.625%, due 6/15/12 50,000 47,531
May Department Stores Co. (The)
5.95%, due 11/1/08 50,000 50,373
6.65%, due 7/15/24 50,000 49,890
6.70%, due 9/15/28 100,000 98,636
McKesson Corp.
7.75%, due 2/1/12 50,000 54,904
Merck & Co., Inc.
4.75%, due 3/1/15 250,000 239,415
News America, Inc.
5.30%, due 12/15/14 300,000 295,881
7.25%, due 5/18/18 100,000 110,523
Oracle Corp.
5.00%, due 1/15/11 200,000 198,641
5.25%, due 1/15/16 50,000 49,315
Pfizer, Inc.
4.65%, due 3/1/18 300,000 284,265
Quest Diagnostics, Inc.
5.125%, due 11/1/10 50,000 49,441
7.50%, due 7/12/11 50,000 54,016
R.R. Donnelley & Sons Co.
5.50%, due 5/15/15 100,000 92,171
Republic Services, Inc.
6.75%, due 8/15/11 50,000 52,764
</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.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
SERVICE (CONTINUED)
Safeway, Inc.
5.80%, due 8/15/12 $ 200,000 $ 201,242
Schering-Plough Corp.
6.75%, due 12/1/33 100,000 111,416
Science Applications International Corp.
6.25%, due 7/1/12 100,000 103,172
Target Corp.
5.875%, due 3/1/12 250,000 258,096
Teva Pharmaceutical Finance LLC
6.15%, due 2/1/36 50,000 48,932
Time Warner, Inc.
6.75%, due 4/15/11 250,000 262,198
6.875%, due 5/1/12 125,000 132,703
7.625%, due 4/15/31 150,000 169,120
Viacom, Inc.
5.50%, due 5/15/33 100,000 85,453
5.625%, due 8/15/12 350,000 347,614
6.875%, due 4/30/36 250,000 251,735
Wal-Mart Stores, Inc.
4.75%, due 8/15/10 150,000 148,500
5.25%, due 9/1/35 250,000 235,156
6.875%, due 8/10/09 250,000 261,599
Walt Disney Co. (The)
Series B
5.875%, due 12/15/17 125,000 128,707
6.375%, due 3/1/12 250,000 263,336
Waste Management, Inc.
5.00%, due 3/15/14 50,000 48,349
7.125%, due 12/15/17 100,000 110,997
WellPoint, Inc.
6.80%, due 8/1/12 100,000 106,837
Wyeth
5.50%, due 3/15/13 250,000 251,700
5.50%, due 2/1/14 50,000 50,299
6.00%, due 2/15/36 50,000 51,396
6.45%, due 2/1/24 100,000 107,468
Yum! Brands, Inc.
8.875%, due 4/15/11 100,000 113,116
------------
10,525,319
------------
TELECOM (1.2%)
ALLTEL Corp.
7.00%, due 7/1/12 250,000 264,053
BellSouth Corp.
5.20%, due 9/15/14 100,000 97,426
6.00%, due 11/15/34 100,000 96,838
6.875%, due 10/15/31 250,000 267,622
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
TELECOM (CONTINUED)
CenturyTel, Inc.
Series F
6.30%, due 1/15/08 $ 100,000 $ 100,910
Series H
8.375%, due 10/15/10 100,000 108,904
Cingular Wireless LLC
6.50%, due 12/15/11 100,000 105,044
Embarq Corp.
7.995%, due 6/1/36 100,000 106,340
Harris Corp.
5.00%, due 10/1/15 50,000 47,211
New Cingular Wireless Services, Inc.
8.125%, due 5/1/12 100,000 112,868
8.75%, due 3/1/31 100,000 131,035
SBC Communications, Inc.
5.10%, due 9/15/14 700,000 681,918
5.875%, due 2/1/12 100,000 102,144
6.15%, due 9/15/34 250,000 249,977
Sprint Capital Corp.
6.875%, due 11/15/28 300,000 307,388
7.625%, due 1/30/11 100,000 107,781
8.375%, due 3/15/12 500,000 562,318
8.75%, due 3/15/32 100,000 123,546
Verizon Global Funding Corp.
5.85%, due 9/15/35 200,000 191,924
6.125%, due 6/15/07 250,000 251,147
7.75%, due 12/1/30 350,000 409,043
Verizon Pennsylvania, Inc.
Series A
5.65%, due 11/15/11 250,000 251,536
------------
4,676,973
------------
TRANSPORTATION (0.4%)
Burlington Northern Santa Fe Corp.
6.20%, due 8/15/36 50,000 52,595
6.75%, due 7/15/11 100,000 106,166
7.125%, due 12/15/10 100,000 106,929
CSX Corp.
6.30%, due 3/15/12 100,000 104,314
CSX Transportation, Inc.
7.875%, due 5/15/43 100,000 126,032
Norfolk Southern Corp.
6.00%, due 4/30/08 100,000 100,920
7.05%, due 5/1/37 100,000 117,459
7.25%, due 2/15/31 100,000 119,002
TTX Co.
5.00%, due 4/1/12 (a) 100,000 98,301
</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
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
TRANSPORTATION (CONTINUED)
Union Pacific Corp.
5.375%, due 5/1/14 $ 250,000 $ 249,847
6.125%, due 1/15/12 100,000 103,642
6.65%, due 1/15/11 100,000 105,076
7.00%, due 2/1/16 50,000 55,334
------------
1,445,617
------------
Total Corporate Bonds
(Cost $72,719,303) 72,583,794
------------
FOREIGN BONDS (3.0%)
- ------------------------------------------------------------------------------
BANKS (0.5%)
Abbey National PLC
7.95%, due 10/26/29 100,000 126,803
Bank of Tokyo-Mitsubishi, Ltd. (The)
8.40%, due 4/15/10 100,000 109,693
HSBC Holdings PLC
7.50%, due 7/15/09 250,000 265,133
International Bank of Reconstruction & Development
(zero coupon), due 3/11/31 504,000 141,598
Korea Development Bank
4.25%, due 11/13/07 100,000 98,886
Kreditanstalt fuer Wiederaufbau
3.375%, due 1/23/08 550,000 537,485
Landwirtschaftliche Rentenbank
Series 5
3.25%, due 6/16/08 250,000 243,171
Royal Bank of Scotland Group PLC
5.00%, due 11/12/13 100,000 98,076
5.05%, due 1/8/15 100,000 97,770
UFJ Finance Aruba AEC
6.75%, due 7/15/13 100,000 107,140
------------
1,825,755
------------
CONSUMER (0.1%)
Diageo Capital PLC
3.375%, due 3/20/08 250,000 243,718
5.875%, due 9/30/36 150,000 147,859
------------
391,577
------------
ELECTRIC (0.0%)++
Scottish Power PLC
5.375%, due 3/15/15 100,000 98,192
------------
ENERGY (0.0%)++
Transocean, Inc.
7.375%, due 4/15/18 100,000 111,146
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FOREIGN SOVEREIGN (1.1%)
Canadian Government
5.25%, due 11/5/08 $ 500,000 $ 504,091
Malaysian Government
7.50%, due 7/15/11 100,000 109,175
Republic of Chile
5.50%, due 1/15/13 100,000 101,110
Republic of Finland
4.75%, due 3/6/07 250,000 249,349
Republic of Italy
5.625%, due 6/15/12 750,000 773,477
Republic of Korea
8.875%, due 4/15/08 250,000 264,106
Republic of Poland
5.25%, due 1/15/14 100,000 100,134
Republic of South Africa
7.375%, due 4/25/12 100,000 108,250
United Mexican States
Series A
5.875%, due 1/15/14 750,000 768,750
6.375%, due 1/16/13 550,000 578,050
6.75%, due 9/27/34 (b) 150,000 161,625
7.50%, due 1/14/12 250,000 274,625
------------
3,992,742
------------
GAS (0.0%)++
Weatherford International, Inc.
5.50%, due 2/15/16 50,000 49,176
------------
INDEPENDENT (0.1%)
CIT Group Co. of Canada
5.20%, due 6/1/15 300,000 291,587
------------
INSURANCE (0.0%)++
Axa
8.60%, due 12/15/30 105,000 137,918
XL Capital, Ltd.
5.25%, due 9/15/14 50,000 49,164
------------
187,082
------------
MANUFACTURING (0.1%)
Alcan, Inc.
5.00%, due 6/1/15 100,000 95,428
BHP Billiton Finance USA, Ltd.
4.80%, due 4/15/13 100,000 97,149
5.25%, due 12/15/15 100,000 99,023
Celulosa Arauco y Constitucion S.A.
5.625%, due 4/20/15 50,000 49,067
Lafarge S.A.
6.50%, due 7/15/16 50,000 52,081
7.125%, due 7/15/36 50,000 54,502
</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.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FOREIGN BONDS (CONTINUED)
- ------------------------------------------------------------------------------
MANUFACTURING (CONTINUED)
Tyco International Group S.A.
6.00%, due 11/15/13 $ 100,000 $ 103,818
------------
551,068
------------
REGIONAL GOVERNMENT (0.1%)
Hydro-Quebec
Series JL
6.30%, due 5/11/11 250,000 262,305
Province of British Columbia
5.375%, due 10/29/08 250,000 252,355
------------
514,660
------------
SERVICE (0.0%)++
Thomson Corp. (The)
6.20%, due 1/5/12 100,000 103,341
------------
TELECOM (1.0%)
America Movil S.A. de C.V.
5.75%, due 1/15/15 125,000 124,038
British Telecommunications PLC
8.375%, due 12/15/10 (a) 200,000 224,627
8.875%, due 12/15/30 100,000 135,484
Deutsche Telekom International Finance B.V.
5.25%, due 7/22/13 100,000 97,846
8.00%, due 6/15/10 350,000 382,046
9.25%, due 6/1/32 100,000 132,667
France Telecom S.A.
8.50%, due 3/1/31 250,000 332,167
Koninklijke (Royal) KPN N.V.
8.00%, due 10/1/10 100,000 108,435
Telecom Italia Capital S.A.
4.875%, due 10/1/10 300,000 292,358
4.95%, due 9/30/14 150,000 139,136
6.00%, due 9/30/34 100,000 91,557
6.375%, due 11/15/33 100,000 95,127
Telefonica Emisones SAU
7.045%, due 6/20/36 100,000 107,668
Telefonica Europe B.V.
7.75%, due 9/15/10 250,000 270,521
8.25%, due 9/15/30 100,000 121,200
Telefonos de Mexico S.A. de C.V.
4.50%, due 11/19/08 100,000 98,132
Vodafone Group PLC
7.75%, due 2/15/10 750,000 804,899
7.875%, due 2/15/30 100,000 119,364
------------
3,677,272
------------
Total Foreign Bonds
(Cost $11,807,946) 11,793,598
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
MORTGAGE-BACKED SECURITY (0.1%)
- ------------------------------------------------------------------------------
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE OBLIGATIONS) (0.1%)
Bear Stearns Commercial
Mortgage Securities
Series 2006-PW13, Class A3
5.518%, due 9/11/41 $ 500,000 $ 507,141
------------
Total Mortgage-Backed Security
(Cost $502,727) 507,141
------------
U.S. GOVERNMENT & FEDERAL AGENCIES (74.0%)
- ------------------------------------------------------------------------------
FEDERAL HOME LOAN BANK (0.9%)
3.375%, due 9/14/07 1,500,000 1,477,817
4.25%, due 5/15/09 2,000,000 1,972,016
------------
3,449,833
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (2.7%)
4.00%, due 12/15/09 3,250,000 3,169,787
4.125%, due 7/12/10 1,085,000 1,058,103
4.50%, due 7/15/13 1,000,000 975,176
4.50%, due 1/15/15 2,000,000 1,939,502
5.00%, due 7/15/14 1,000,000 1,003,097
5.50%, due 9/25/13 250,000 250,200
6.25%, due 7/15/32 (b) 1,500,000 1,739,949
------------
10,135,814
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(MORTGAGE PASS-THROUGH SECURITIES) (13.1%)
4.00%, due 10/1/20 1,973,367 1,866,233
4.00%, due 2/1/21 987,198 933,375
4.50%, due 8/1/20 3,335,979 3,225,005
4.50%, due 11/1/20 933,878 902,326
4.50%, due 1/1/21 929,557 898,150
4.50%, due 2/1/21 1,855,458 1,792,768
4.50%, due 3/1/21 1,331,429 1,286,445
4.50%, due 6/1/21 499,999 483,106
4.50%, due 11/1/21 TBA (c) 500,000 482,969
4.50%, due 8/1/33 392,901 369,885
4.50%, due 6/1/34 480,077 451,220
4.50%, due 5/1/35 912,738 856,702
4.50%, due 6/1/35 929,888 872,799
4.50%, due 8/1/35 917,876 861,524
5.00%, due 11/1/20 1,759,504 1,732,221
5.00%, due 12/1/20 2,808,615 2,765,063
5.00%, due 4/1/21 3,352,564 3,300,577
5.00%, due 7/1/21 500,000 492,114
5.00%, due 11/1/21 TBA (c) 500,000 492,031
5.00%, due 7/1/35 798,112 771,485
5.00%, due 8/1/35 906,103 875,874
5.00%, due 11/1/35 1,999,802 1,933,084
5.00%, due 6/1/36 36,495 35,261
</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 129
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
U.S. GOVERNMENT & FEDERAL AGENCIES (CONTINUED)
- ------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(MORTGAGE PASS-THROUGH SECURITIES) (CONTINUED)
V 5.00%, due 10/1/36 $11,998,809 $ 11,593,146
5.50%, due 2/1/18 715,236 717,695
5.50%, due 8/1/21 980,153 980,786
5.50%, due 9/1/36 87,049 86,103
5.50%, due 12/1/36 TBA (c) 5,000,000 4,940,625
6.00%, due 8/1/17 583,366 592,199
6.00%, due 6/1/21 976,851 990,913
6.00%, due 3/1/29 23,809 24,095
6.00%, due 12/1/35 24,357 24,529
6.00%, due 9/1/36 698,165 702,924
6.50%, due 4/1/11 5,729 5,837
6.50%, due 5/1/11 5,415 5,521
6.50%, due 10/1/11 4,312 4,394
6.50%, due 6/1/14 43,536 44,442
6.50%, due 4/1/17 25,020 25,556
6.50%, due 5/1/17 74,895 76,465
6.50%, due 12/1/24 83,900 86,067
6.50%, due 11/1/25 54,689 56,119
6.50%, due 5/1/26 10,105 10,354
6.50%, due 3/1/27 17,880 18,380
6.50%, due 5/1/31 36,678 37,612
6.50%, due 8/1/31 32,216 33,036
6.50%, due 1/1/32 155,291 159,242
6.50%, due 3/1/32 163,805 167,901
6.50%, due 4/1/32 52,064 53,359
6.50%, due 7/1/32 39,854 40,845
6.50%, due 1/1/34 240,889 245,960
7.00%, due 6/1/11 10,762 11,030
7.00%, due 11/1/11 3,194 3,277
7.00%, due 4/1/26 16,029 16,595
7.00%, due 7/1/26 2,018 2,089
7.00%, due 12/1/27 30,097 31,168
7.00%, due 1/1/30 14,959 15,453
7.00%, due 3/1/31 59,946 61,857
7.00%, due 10/1/31 39,183 40,432
7.00%, due 3/1/32 135,816 140,144
7.50%, due 1/1/16 16,779 17,429
7.50%, due 1/1/26 4,628 4,836
7.50%, due 11/1/26 1,305 1,364
7.50%, due 3/1/27 1,630 1,703
7.50%, due 2/1/30 3,372 3,511
7.50%, due 2/1/32 81,981 85,292
8.00%, due 7/1/26 10,719 11,299
------------
49,851,801
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (1.4%)
3.25%, due 11/15/07 1,000,000 981,078
3.25%, due 8/15/08 2,000,000 1,943,286
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FEDERAL NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
4.625%, due 10/15/13 $ 2,000,000 $ 1,961,192
6.21%, due 8/6/38 475,000 551,619
------------
5,437,175
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (20.2%)
4.50%, due 1/1/20 1,115,164 1,079,964
4.50%, due 12/1/20 260,281 251,843
5.00%, due 6/1/20 389,968 384,132
5.00%, due 3/1/21 983,592 968,695
5.00%, due 5/1/21 24,425 24,055
5.00%, due 7/1/35 86,572 83,611
V 5.00%, due 4/1/36 10,735,725 10,364,692
5.00%, due 5/1/36 1,500,000 1,448,159
5.00%, due 11/1/36 TBA (c) 500,000 482,656
5.50%, due 6/1/16 5,611 5,634
5.50%, due 11/1/16 194,893 195,660
5.50%, due 2/1/17 17,213 17,278
5.50%, due 6/1/17 68,512 68,740
5.50%, due 8/1/17 141,918 142,389
5.50%, due 10/1/19 256,748 257,313
5.50%, due 4/1/21 479,795 480,325
5.50%, due 5/1/21 942,110 943,151
5.50%, due 2/1/35 27,367 27,061
5.50%, due 5/1/35 826,568 817,308
5.50%, due 6/1/35 476,458 471,120
5.50%, due 7/1/35 2,395,063 2,368,231
5.50%, due 8/1/35 1,270,023 1,255,796
5.50%, due 9/1/35 888,064 878,115
5.50%, due 11/1/35 4,596,428 4,544,935
5.50%, due 12/1/35 3,884,765 3,841,244
5.50%, due 1/1/36 969,201 958,343
5.50%, due 2/1/36 950,981 940,327
5.50%, due 4/1/36 1,774,299 1,754,090
5.50%, due 5/1/36 4,958,170 4,900,551
5.50%, due 6/1/36 4,478,184 4,426,142
5.50%, due 7/1/36 498,382 492,590
5.50%, due 10/1/36 1,500,000 1,482,568
5.50%, due 11/1/36 TBA (c) 1,500,000 1,482,188
5.959%, due 7/1/36 (d) 489,828 492,733
6.00%, due 6/1/16 120,080 122,064
6.00%, due 7/1/16 43,348 44,064
6.00%, due 9/1/16 63,459 64,508
6.00%, due 9/1/17 82,354 83,717
6.00%, due 1/1/36 43,013 43,290
V 6.00%, due 7/1/36 8,901,704 8,956,817
6.00%, due 8/1/36 4,944,013 4,974,624
6.00%, due 9/1/36 2,499,999 2,515,477
6.00%, due 10/1/36 1,498,803 1,508,082
6.00%, due 10/15/36 999,900 1,013,727
6.00%, due 11/1/36 TBA (c) 1,000,000 1,005,938
</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.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
U.S. GOVERNMENT & FEDERAL AGENCIES (CONTINUED)
- ------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (CONTINUED)
6.50%, due 3/1/11 $ 662 $ 672
6.50%, due 4/1/11 5,374 5,470
6.50%, due 6/1/11 864 880
6.50%, due 9/1/11 10,527 10,733
6.50%, due 10/1/11 79,773 81,337
6.50%, due 11/1/11 7,766 7,921
6.50%, due 6/1/15 132,968 135,662
6.50%, due 4/1/27 14,698 15,104
6.50%, due 2/1/28 23,640 24,292
6.50%, due 7/1/32 20,259 20,754
6.50%, due 8/1/32 433,624 444,208
6.50%, due 9/1/32 4,236 4,339
6.50%, due 1/1/35 752,462 767,186
6.50%, due 8/1/35 769,011 784,058
6.50%, due 9/1/35 53,098 54,137
6.50%, due 4/1/36 1,564,950 1,595,179
6.50%, due 11/1/36 TBA (c) 3,000,000 3,057,186
7.00%, due 2/1/09 51,398 51,733
7.00%, due 5/1/11 2,352 2,415
7.00%, due 6/1/11 8,224 8,423
7.00%, due 10/1/11 411 421
7.00%, due 11/1/11 14,317 14,720
7.00%, due 4/1/26 7,890 8,165
7.00%, due 5/1/26 22,387 23,166
7.00%, due 11/1/26 2,649 2,742
7.00%, due 1/1/28 469 484
7.00%, due 6/1/29 24,262 25,134
7.00%, due 8/1/29 175,080 181,330
7.00%, due 2/1/31 144,560 149,467
7.00%, due 8/1/31 15,914 16,465
7.00%, due 9/1/31 34,307 35,450
7.00%, due 11/1/31 3,216 3,321
7.00%, due 4/1/32 33,999 35,143
7.00%, due 5/1/32 91,357 94,358
7.50%, due 3/1/30 4,065 4,235
7.50%, due 7/1/30 17,623 18,361
7.50%, due 7/1/31 68,772 71,600
7.50%, due 8/1/31 1,803 1,877
8.00%, due 8/1/10 1,152 1,176
8.00%, due 9/1/11 2,140 2,202
8.00%, due 11/1/11 6,253 6,472
8.00%, due 1/1/25 256 271
8.00%, due 6/1/25 554 586
8.00%, due 9/1/25 1,932 2,045
8.00%, due 2/1/26 1,233 1,305
8.00%, due 9/1/26 11,907 12,613
8.00%, due 10/1/26 1,961 2,077
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (CONTINUED)
8.00%, due 11/1/26 $ 4,426 $ 4,689
8.00%, due 4/1/27 4,841 5,132
8.00%, due 6/1/27 22,034 23,354
8.00%, due 12/1/27 10,381 10,822
8.00%, due 1/1/28 34,419 36,481
9.50%, due 3/1/16 24,351 25,105
9.50%, due 9/1/17 27,841 28,583
9.50%, due 9/1/19 5,283 5,785
------------
76,590,773
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (3.3%)
5.00%, due 4/20/33 398,136 386,579
5.00%, due 2/15/36 582,565 568,115
5.00%, due 4/15/36 992,889 968,260
5.00%, due 6/20/36 990,236 960,098
5.50%, due 7/15/34 493,119 491,383
5.50%, due 7/20/34 377,211 374,818
5.50%, due 4/15/35 829,873 826,623
5.50%, due 9/15/35 906,725 903,174
5.50%, due 10/15/35 928,086 924,452
5.50%, due 12/20/35 954,002 947,289
5.50%, due 5/15/36 995,698 991,536
6.00%, due 3/20/29 99,524 100,853
6.00%, due 1/15/32 140,167 142,325
6.00%, due 12/15/32 86,009 87,332
6.00%, due 2/15/34 450,253 456,831
6.00%, due 1/20/35 326,708 330,243
6.00%, due 6/15/35 402,381 407,989
6.00%, due 5/15/36 994,738 1,008,493
6.50%, due 3/20/31 72,027 73,960
6.50%, due 1/15/32 92,544 95,293
6.50%, due 6/15/35 6,626 6,814
6.50%, due 1/15/36 945,765 971,256
7.00%, due 3/15/07 733 733
7.00%, due 11/15/11 17,964 18,338
7.00%, due 2/15/26 6,317 6,539
7.00%, due 4/15/26 2,310 2,391
7.00%, due 6/15/29 653 676
7.00%, due 12/15/29 9,521 9,848
7.00%, due 5/15/31 2,916 3,016
7.00%, due 8/15/31 53,690 55,536
7.00%, due 8/20/31 89,470 92,267
7.00%, due 8/15/32 131,896 136,438
7.50%, due 1/15/09 592 603
7.50%, due 9/15/11 39,015 40,288
7.50%, due 3/15/26 5,800 6,058
7.50%, due 10/15/26 11,586 12,102
7.50%, due 11/15/26 5,503 5,748
7.50%, due 1/15/30 16,607 17,316
</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
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
U.S. GOVERNMENT & FEDERAL AGENCIES (CONTINUED)
- ------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (CONTINUED)
7.50%, due 10/15/30 $ 12,290 $ 12,815
7.50%, due 3/15/32 70,004 72,995
8.00%, due 6/15/26 527 559
8.00%, due 9/15/26 1,822 1,931
8.00%, due 10/15/26 747 792
8.00%, due 11/15/26 2,861 3,033
8.00%, due 5/15/27 693 735
8.00%, due 7/15/27 1,668 1,768
8.00%, due 9/15/27 1,027 1,088
8.00%, due 11/15/30 74,683 79,153
8.50%, due 7/15/26 1,628 1,747
8.50%, due 11/15/26 10,202 10,946
------------
12,619,175
------------
UNITED STATES TREASURY BONDS (3.7%)
4.50%, due 2/15/36 (b) 5,766,000 5,565,090
5.375%, due 2/15/31 (b) 1,007,000 1,093,303
6.00%, due 2/15/26 (b) 2,500,000 2,869,140
6.25%, due 8/15/23 2,600,000 3,025,750
7.50%, due 11/15/16 403,000 494,557
8.75%, due 5/15/17 252,000 337,011
8.875%, due 2/15/19 302,000 417,491
9.875%, due 11/15/15 302,000 418,352
------------
14,220,694
------------
UNITED STATES TREASURY NOTES (28.7%)
3.125%, due 9/15/08 3,500,000 3,402,518
V 3.375%, due 2/15/08 18,545,000 18,213,935
V 3.375%, due 10/15/09 (b) 8,220,000 7,943,857
3.875%, due 5/15/09 2,500,000 2,455,273
4.00%, due 8/31/07 (b) 2,050,000 2,033,744
4.00%, due 2/15/14 2,295,000 2,210,909
4.25%, due 10/31/07 (b) 900,000 894,164
V 4.25%, due 11/30/07 8,350,000 8,293,896
4.25%, due 11/15/14 825,000 805,890
V 4.375%, due 11/15/08 (b) 13,385,000 13,302,910
V 4.50%, due 2/15/09 (b) 7,230,000 7,205,432
V 4.50%, due 2/28/11 (b) 5,770,000 5,753,319
4.625%, due 8/31/11 3,610,000 3,617,050
4.75%, due 10/31/11 50,000 50,125
4.75%, due 5/15/14 4,600,000 4,646,000
4.875%, due 5/15/09 3,250,000 3,268,535
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
UNITED STATES TREASURY NOTES (CONTINUED)
V 4.875%, due 8/15/16 (b) $22,980,000 $ 23,457,547
5.00%, due 7/31/08 (b) 1,500,000 1,506,329
------------
109,061,433
------------
Total U.S. Government & Federal Agencies
(Cost $280,349,749) 281,366,698(k)
------------
YANKEE BONDS (1.2%) (E)
- ------------------------------------------------------------------------------
BANKS (0.3%)
HSBC Bank PLC
6.95%, due 3/15/11 200,000 213,122
Inter-American Development Bank
6.80%, due 10/15/25 604,000 723,683
Santander Financial Issuances
6.375%, due 2/15/11 100,000 104,205
------------
1,041,010
------------
CONSUMER (0.1%)
Molson Coors Capital Finance ULC
4.85%, due 9/22/10 200,000 196,767
------------
ELECTRIC (0.0%)++
United Utilities PLC
5.375%, due 2/1/19 100,000 93,816
------------
ENERGY (0.2%)
Canadian Natural Resources, Ltd.
5.45%, due 10/1/12 100,000 99,606
EnCana Corp.
4.75%, due 10/15/13 100,000 95,170
6.30%, due 11/1/11 100,000 103,770
Nexen, Inc.
5.20%, due 3/10/15 100,000 96,719
Petro-Canada
4.00%, due 7/15/13 100,000 91,115
Talisman Energy, Inc.
5.125%, due 5/15/15 50,000 47,726
TransCanada Pipelines, Ltd.
4.00%, due 6/15/13 100,000 92,513
5.85%, due 3/15/36 100,000 99,713
------------
726,332
------------
INSURANCE (0.0%)++
ACE, Ltd.
6.00%, due 4/1/07 175,000 175,303
------------
MANUFACTURING (0.2%)
Alcan, Inc.
6.45%, due 3/15/11 100,000 104,028
</Table>
132 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)
- ------------------------------------------------------------------------------
MANUFACTURING (CONTINUED)
Falconbridge, Ltd.
8.375%, due 2/15/11 $ 75,000 $ 82,585
Inco, Ltd.
5.70%, due 10/15/15 100,000 97,672
Potash Corp. of Saskatchewan
7.125%, due 6/15/07 100,000 101,056
Teck Cominco, Ltd.
5.375%, due 10/1/15 50,000 48,847
Tyco International Group S.A.
6.375%, due 10/15/11 250,000 262,445
------------
696,633
------------
REGIONAL GOVERNMENT (0.2%)
Province of Manitoba
5.50%, due 10/1/08 250,000 252,521
Province of Quebec
Series NJ
7.50%, due 7/15/23 302,000 374,223
------------
626,744
------------
TELECOM (0.1%)
TELUS Corp.
7.50%, due 6/1/07 100,000 101,146
8.00%, due 6/1/11 100,000 110,296
------------
211,442
------------
TRANSPORTATION (0.1%)
Canadian National Railway Co.
6.375%, due 10/15/11 100,000 105,076
Canadian Pacific Railway Co.
6.25%, due 10/15/11 125,000 129,898
------------
234,974
------------
Total Yankee Bonds
(Cost $3,875,063) 4,003,021
------------
Total Long-Term Bonds
(Cost $373,652,018) 374,622,118
------------
SHORT-TERM INVESTMENTS (15.6%)
- ------------------------------------------------------------------------------
COMMERCIAL PAPER (1.3%)
Fairway Finance Corp.
5.289%, due 11/20/06 (f) 2,676,699 2,676,699
Greyhawk Funding
5.286%, due 11/13/06 (f) 1,115,291 1,115,291
Jupiter Securitization Corp.
5.303%, due 11/14/06 (f) 1,115,291 1,115,291
------------
Total Commercial Paper
(Cost $4,907,281) 4,907,281
------------
<Caption>
SHARES VALUE
INVESTMENT COMPANY (3.5%)
BGI Institutional Money Market Fund (f) 13,319,187 $ 13,319,187
------------
Total Investment Company
(Cost $13,319,187) 13,319,187
------------
<Caption>
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT (0.8%)
Morgan Stanley & Co.
5.42%, dated 10/31/06
due 11/1/06
Proceeds at Maturity $2,913,134
(Collateralized by various Corporate Bonds, with
rates between 0% - 8.40% and
maturity dates between 1/30/07 - 6/15/34,
with a Principal Amount of
$2,946,097 and a Market Value
of $3,028,490) (f) $ 2,912,696 2,912,696
------------
Total Repurchase Agreement
(Cost $2,912,696) 2,912,696
------------
TIME DEPOSITS (7.7%)
Banco Bilbao Vizcaya Argentaria S.A.
5.30%, due 1/9/07 (f) 2,230,583 2,230,583
Bank of America
5.27%, due 11/21/06 (d)(f) 2,230,583 2,230,583
Bank of Montreal
5.28%, due 11/27/06 (f) 2,230,583 2,230,583
Bank of Nova Scotia
5.30%, due 11/10/06 (f) 2,230,583 2,230,583
Barclays
5.32%, due 1/18/07 (f) 2,230,583 2,230,583
Deutsche Bank AG
5.27%, due 11/9/06 (f) 1,561,408 1,561,408
Fortis Bank
5.27%, due 11/6/06 (f) 4,461,165 4,461,165
Halifax Bank of Scotland
5.30%, due 1/10/07 (f) 2,230,583 2,230,583
Lloyds TSB Bank PLC
5.30%, due 12/21/06 (f) 2,230,583 2,230,583
Royal Bank of Canada
5.30%, due 12/22/06 (f) 2,230,583 2,230,583
Royal Bank of Scotland
5.29%, due 12/12/06 (f) 2,230,583 2,230,583
Skandinaviska Enskilda Banken AB
5.31%, due 11/3/06 (f) 2,230,583 2,230,583
UBS AG
5.28%, due 12/5/06 (f) 1,115,291 1,115,291
------------
Total Time Deposits
(Cost $29,443,694) 29,443,694
------------
</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 133
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONTINUED)
- ------------------------------------------------------------------------------
U.S. GOVERNMENT & FEDERAL AGENCY (2.3%)
Federal Agricultural Mortgage Corp.
(Discount Note)
4.98%, due 11/1/06 $ 8,495,000 $ 8,495,000
------------
United States Treasury Bill
5.01%, due 11/30/06 (g) 300,000 298,779
------------
Total U.S. Government & Federal Agency
(Cost $8,793,808) 8,793,779
------------
Total Short-Term Investments
(Cost $59,376,666) 59,376,637
------------
Total Investments
(Cost $433,028,684) (h) 114.2% 433,998,755(i)
------------
Liabilities in Excess of
Cash and Other Assets (14.2) (53,798,942)
----------- ------------
Net Assets 100.0% $380,199,813
=========== ============
</Table>
<Table>
<Caption>
CONTRACTS UNREALIZED
LONG APPRECIATION(J)
FUTURES CONTRACTS (0.0%)++
- --------------------------------------------------------------------------------
UNITED STATES (0.0%)++
United States Treasury Note
December 2006 (5 Year) 15 $ 11,953
---------------
Total Futures Contracts
(Settlement Value $1,583,438) (k) $ 11,953
===============
</Table>
<Table>
++ Less than one tenth of a percent.
+++ Fifty percent of the Fund's assets are maintained to cover "senior
securities transactions" which may include, but are not limited to,
forwards, TBA's, options and futures. This percentage is marked-to-market
daily against the value of the Fund's "senior securities" holdings to
ensure proper coverage for these transactions.
(a) May be sold to institutional investors only under Rule 144a or securities
offered pursuant to Section 4(2) of the Securities Act of 1933, as amended.
(b) Represents a security, or a portion thereof, which is out on loan.
(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, 2006 is $11,943,593.
(d) Floating rate. Rate shown is the rate in effect at October 31, 2006.
(e) Yankee Bond--dollar-denominated bond issued in the United States by a
foreign bank or corporation.
(f) Represents a security, or a portion thereof, purchased with cash collateral
received for securities on loan.
(g) Segregated as collateral for futures contracts.
(h) The cost for federal income tax purposes is $433,109,196.
(i) At October 31, 2006, net unrealized appreciation was $889,559 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 $3,782,219 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $2,892,660.
(j) Represents the difference between the value of the contracts at the time
they were opened and the value at October 31, 2006.
(k) The combined market value of U.S. Government & Federal Agencies investments
and settlement value of U.S. Treasury Note futures contracts approximately
represents 74.4% of net assets.
</Table>
134 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 ASSETS AND LIABILITIES AS OF OCTOBER 31, 2006
<Table>
ASSETS:
Investment in securities, at value (identified
cost
$433,028,684) including $49,515,897 market
value of securities loaned $433,998,755
Cash 3,255
Receivables:
Investment securities sold 4,981,443
Dividends and interest 3,586,485
Fund shares sold 484,480
Variation margin on futures contracts 4,453
Other assets 11,300
-------------
Total assets 443,070,171
-------------
LIABILITIES:
Securities lending collateral 50,582,858
Payables:
Investment securities purchased 11,980,237
Manager (See Note 3) 118,917
Professional fees 44,758
Shareholder communication 30,920
Custodian 27,348
Fund shares redeemed 21,564
Portfolio pricing 18,845
Transfer agent (See Note 3) 14,372
NYLIFE Distributors (See Note 3) 11,427
Directors 4,887
Accrued expenses 4,056
Dividend payable 10,169
-------------
Total liabilities 62,870,358
-------------
Net assets $380,199,813
=============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
500 million shares authorized:
Class A $ 4,860
Class I 30,701
Additional paid-in capital 386,963,778
Accumulated undistributed net investment
income 109,034
Accumulated net realized loss on investments
and futures transactions (7,890,584)
Net unrealized appreciation on investments 982,024
-------------
Net assets $380,199,813
=============
CLASS A
Net assets applicable to outstanding shares $ 51,941,215
=============
Shares of capital stock outstanding 4,860,315
=============
Net asset value per share outstanding $ 10.69
Maximum sales charge (3.00% of offering price) 0.33
-------------
Maximum offering price per share outstanding $ 11.02
=============
CLASS I
Net assets applicable to outstanding shares $328,258,598
=============
Shares of capital stock outstanding 30,701,322
=============
Net asset value and offering price per share
outstanding $ 10.69
=============
</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 135
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2006
<Table>
INVESTMENT INCOME:
INCOME:
Interest $17,038,735
Income from securities loaned--net 224,047
------------
Total income 17,262,782
------------
EXPENSES:
Manager (See Note 3) 1,222,747
Distribution/Service--Class A (See Note 3) 131,249
Custodian 126,740
Professional fees 110,870
Transfer agent--Class A (See Note 3) 75,403
Transfer agent--Class I (See Note 3) 5,627
Shareholder communication 59,267
Registration 37,175
Directors 24,827
Miscellaneous 36,896
------------
Total expenses before waiver 1,830,801
Expense waiver from Manager (See Note 3) (123,157)
------------
Net expenses 1,707,644
------------
Net investment income 15,555,138
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on:
Security transactions (4,383,764)
Futures transactions (63,608)
------------
Net realized loss on investments and futures
transactions (4,447,372)
------------
Net change in unrealized depreciation on:
Security transactions 4,918,865
Futures contracts 39,759
------------
Net change in unrealized depreciation on
investments and futures contracts 4,958,624
------------
Net realized and unrealized gain on investments
and futures transactions 511,252
------------
Net increase in net assets resulting from
operations $16,066,390
============
</Table>
136 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 CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2006 AND OCTOBER 31, 2005
<Table>
<Caption>
2006 2005
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 15,555,138 $ 10,615,785
Net realized gain (loss) on
investments and futures
transactions (4,447,372) 676,522
Net change in unrealized
appreciation (depreciation) on
investments and futures contracts 4,958,624 (9,357,812)
----------------------------
Net increase in net assets
resulting from operations 16,066,390 1,934,495
----------------------------
Dividends to shareholders:
From net investment income:
Class A (2,151,178) (2,273,573)
Class I (13,434,452) (10,119,396)
----------------------------
Total dividends to shareholders (15,585,630) (12,392,969)
----------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 23,951,096 36,547,875
Class I 114,514,122 104,346,947
Net asset value of shares issued to
shareholders in reinvestment of dividends:
Class A 2,060,568 2,249,789
Class I 13,401,382 10,087,468
----------------------------
153,927,168 153,232,079
Cost of shares redeemed:
Class A (38,451,786) (20,487,442)
Class I (65,203,421) (49,109,245)
----------------------------
(103,655,207) (69,596,687)
Increase in net assets derived
from capital share transactions 50,271,961 83,635,392
----------------------------
Net increase in net assets 50,752,721 73,176,918
NET ASSETS:
Beginning of year 329,447,092 256,270,174
----------------------------
End of year $ 380,199,813 $329,447,092
============================
Accumulated undistributed
(distributions in excess of) net
investment income $ 109,034 $ (5,795)
============================
</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
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A
---------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
Net asset value at beginning
of period $ 10.68 $ 11.07 $ 10.95
-------- -------- -----------
Net investment income 0.44 0.36 0.33
Net realized and unrealized
gain (loss) on investments 0.01 (0.32) 0.13
-------- -------- -----------
Total from investment
operations 0.45 0.04 0.46
-------- -------- -----------
Less dividends:
From net investment income (0.44) (0.43) (0.34)
-------- -------- -----------
Net asset value at end of
period $ 10.69 $ 10.68 $ 11.07
======== ======== ===========
Total investment return (c) 4.29% 0.39% 3.65%(d)
Ratios (to average net
assets)/Supplemental Data:
Net investment income 4.10% 3.45% 3.16%+
Net expenses 0.82% 0.80% 0.78%+
Expenses (before waiver) 0.86% 0.98% 0.94%+
Portfolio turnover rate 105%(e) 156%(e) 104%
Net assets at end of period
(in 000's) $51,941 $64,351 $48,062
</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.
(e) The portfolio turnover rate not including mortgage dollar rolls is 85% and 62% for the
years ended October 31, 2006 and October 31, 2005, respectively.
</Table>
138 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>
CLASS I
- ---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2006 2005 2004 2003 2002
$ 10.69 $ 11.07 $ 10.89 $ 10.86 $ 11.21
-------- -------- -------- -------- --------
0.48 0.40 0.34 0.39 0.52(a)
0.00(b) (0.31) 0.19 0.04 0.08
-------- -------- -------- -------- --------
0.48 0.09 0.53 0.43 0.60
-------- -------- -------- -------- --------
(0.48) (0.47) (0.35) (0.40) (0.95)
-------- -------- -------- -------- --------
$ 10.69 $ 10.69 $ 11.07 $ 10.89 $ 10.86
======== ======== ======== ======== ========
4.60% 0.82% 5.01% 3.97% 5.92%
4.49% 3.79% 3.43% 3.39% 4.83%
0.43% 0.46% 0.50% 0.50% 0.50%
0.47% 0.64% 0.66% 0.68% 0.74%
105%(e) 156%(e) 104% 110% 56%
$328,259 $265,096 $208,208 $184,051 $125,169
</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
MAINSTAY INTERMEDIATE TERM BOND FUND
INVESTMENT AND PERFORMANCE COMPARISON (UNAUDITED)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE 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 CALL 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM. PERFORMANCE DATA SHOWN EXCLUDING SALES CHARGES DOES NOT
REFLECT THE DEDUCTION OF ANY SALES LOAD, WHICH IF REFLECTED, WOULD REDUCE
PERFORMANCE QUOTED.
CLASS A SHARES--MAXIMUM 4.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges -0.55% 2.36% 4.57%
Excluding sales charges 4.14 3.31 5.05
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY INTERMEDIATE TERM LEHMAN BROTHERS AGGREGATE
BOND FUND BOND INDEX
-------------------------- -------------------------
10/31/96 9550 10000
10286 10889
11158 11906
11012 11969
11667 12843
13280 14713
13475 15579
14208 16343
14913 17247
15007 17443
10/31/06 15628 18348
</Table>
CLASS B SHARES--MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges -1.54% 2.24% 4.29%
Excluding sales charges 3.46 2.59 4.29
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY INTERMEDIATE TERM LEHMAN BROTHERS AGGREGATE
BOND FUND BOND INDEX
-------------------------- -------------------------
10/31/96 10000 10000
10691 10889
11509 11906
11282 11969
11861 12843
13401 14713
13496 15579
14126 16343
14732 17247
14716 17443
10/31/06 15226 18348
</Table>
CLASS C SHARES--MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
With sales charges 2.46% 2.59% 4.29%
Excluding sales charges 3.46 2.59 4.29
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY INTERMEDIATE TERM LEHMAN BROTHERS AGGREGATE
BOND FUND BOND INDEX
-------------------------- -------------------------
10/31/96 10000 10000
10691 10889
11509 11906
11282 11969
11861 12843
13401 14713
13496 15579
14126 16343
14732 17247
14717 17443
10/31/06 15226 18348
</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 as 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 1.00% 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. These fee waivers and/or expense limitations are
contractual and may be modified or terminated only with the approval of the
Board of Directors/Trustees. The Manager may recoup the amount of any management
fee waivers or expense reimbursements from the Fund pursuant to this agreement
if such action does not cause the Fund to exceed existing expense limitations
and the recoupment is made within three years after the year in which the
Manager incurred the expense. From inception (1/2/91) through 12/31/03,
performance for Class A, B, and C shares (each first offered 1/2/04) includes
the historical performance of Class I shares 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 THE TABLES
AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
140 MainStay Intermediate Term Bond Fund
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
4.70% 3.66% 5.35%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY INTERMEDIATE TERM LEHMAN BROTHERS AGGREGATE
BOND FUND BOND INDEX
-------------------------- -------------------------
10/31/96 10000 10000
10796 10889
11738 11906
11615 11969
12336 12843
14070 14713
14313 15579
15127 16343
15929 17247
16083 17443
10/31/06 16839 18348
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
- -------------------------------------------------------------------------------
Lehman Brothers(R) Aggregate Bond Index(1) 5.19% 4.51% 6.26%
Average Lipper intermediate investment grade fund(2) 4.62 3.96 5.53
</Table>
1. The Lehman Brothers(R) Aggregate Bond Index is an unmanaged index that
consists of the following other unmanaged Lehman Brothers(R) indices: the
Government Index, Corporate Index, Mortgage-Backed Securities Index, and
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 in 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 THE
TABLES AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
www.mainstayfunds.com 141
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY INTERMEDIATE TERM BOND FUND
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from May 1, 2006, to October 31, 2006,
and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, if applicable, exchange fees, and sales
charges (loads) on purchases, and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds. The example is based on an investment of $1,000 made at the
beginning of the six-month period and held for the entire period from May 1,
2006, to October 31, 2006.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested to estimate the expenses that you
paid during the six-months ended October 31, 2006. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
- - HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The fourth and fifth data columns in the table below provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balances or
expenses you paid for the six-month period shown. You may use this information
to compare the ongoing costs of investing in the Fund with the ongoing costs of
investing in other Funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
Funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees, if applicable, exchange fees, or sales charges (loads).
Therefore, the fourth and fifth data columns of the table are useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT
ENDING ACCOUNT VALUE (BASED
VALUE (BASED ON HYPOTHETICAL
BEGINNING ON ACTUAL EXPENSES 5% ANNUALIZED EXPENSES
ACCOUNT RETURNS AND PAID RETURN AND PAID
VALUE EXPENSES) DURING ACTUAL EXPENSES) DURING
SHARE CLASS 5/1/06 10/31/06 PERIOD(1) 10/31/06 PERIOD(1)
CLASS A SHARES $1,000.00 $1,041.20 $5.66 $1,019.50 $5.60
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $1,037.35 $9.50 $1,015.75 $9.40
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $1,037.35 $9.50 $1,015.75 $9.40
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,043.10 $3.60 $1,021.50 $3.57
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio of each class
(1.10% for Class A, 1.85% for Class B and Class C, and 0.70% for Class I)
multiplied by the average account value over the divided by 365 and
multiplied by 184 (to reflect the one-half year period). In the absence of
waivers and/or reimbursements, expenses would have been higher.
142 MainStay Intermediate Term Bond Fund
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2006
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
U.S. Government & Federal Agencies 64.7
Corporate Bonds 13.8
Short-Term Investments (collateral from securities lending 12.9
is 4.2%)
Foreign Corporate Bonds 7.2
Mortgage-Backed Securities 7.0
Asset-Backed Securities 3.3
Yankee Bonds 0.4
Municipal Bond 0.3
Preferred Stock 0.1
Convertible Bonds 0.0*
Convertible Preferred Stock 0.0*
Warrants 0.0*
Liabilities in Excess of Cash and Other Assets (9.7)
</Table>
* Less than one-tenth of a percent.
See Portfolio of Investments on page 146 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2006 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. United States Treasury Note, 4.50%, due 2/15/09
2. Federal National Mortgage Association (Mortgage
Pass-Through Security), 5.00%, due 12/1/36 TBA
3. Federal National Mortgage Association, 4.00%,
due 9/2/08
4. Federal National Mortgage Association (Mortgage
Pass-Through Security), 5.00%, due 12/1/21 TBA
5. United States Treasury Bond, 6.25%, due 8/15/23
6. Federal National Mortgage Association (Mortgage
Pass-Through Security), 5.50%, due 6/1/21
7. United States Treasury Note, 3.125%, due 1/31/07
8. Federal Home Loan Mortgage Corporation, 5.125%,
due 4/18/08
9. Freddie Mac Reference REMIC (Collateralized
Mortgage Obligation), 4.375%, due 4/15/15
10. Federal National Mortgage Association (Mortgage
Pass-Through Security), 4.50%, due 11/1/18
</Table>
www.mainstayfunds.com 143
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio manager Gary Goodenough of MacKay Shields LLC
HOW DID MAINSTAY INTERMEDIATE TERM BOND FUND PERFORM RELATIVE TO ITS PEERS AND
ITS BENCHMARK DURING THE 12 MONTHS ENDED OCTOBER 31, 2006?
Excluding all sales charges, MainStay Intermediate Term Bond Fund returned 4.14%
for Class A shares, 3.46% for Class B shares, and 3.46% for Class C shares for
the 12 months ended October 31, 2006. Over the same period, the Fund's Class I
shares returned 4.70%. All share classes underperformed the 5.19% return of the
Lehman Brothers(R) Aggregate Bond Index,(1) the Fund's broad-based securities-
market index, for the 12-month period. Class I shares outperformed--and Class A,
Class B, and Class C shares underperformed--the 4.62% return of the average
Lipper(2) intermediate investment grade debt fund for the 12 months ended
October 31, 2006.
WHAT KEY FACTORS DROVE THE FUND'S PERFORMANCE DURING THE REPORTING PERIOD?
The Fund remained overweighted relative to the benchmark in securitized
holdings. We expected solid performance from mortgage-backed and asset-backed
securities and were not disappointed. We felt that slower price appreciation in
the housing market would help residential mortgage-backed securities, since
borrowers would have fewer refinancing options and underlying future cash flows
would tend to stabilize. Most of our sector views were correct, but the Fund's
overweighted Ginnie Mae position detracted from performance when the securities
weakened on declining foreign demand. To help manage risk, we decreased the
Fund's Ginnie Mae exposure.
During the reporting period, the Fund maintained a bias toward a flatter yield
curve, an expanded allocation to securitized product, a modest allocation to
high-grade corporate bonds, an overweighted position in emerging-market debt,
and a tactical and nimble allocation to high-yield credit. This profile probably
led to a more conservative risk posture than the average peer fund.
Unfortunately, spreads(3) failed to widen materially during the reporting
period, and this conservative posture may have contributed to the Fund's muted
performance.
HOW DID THE FUND'S DURATION AND YIELD-CURVE STRATEGIES AFFECT THE FUND'S
PERFORMANCE?
Our short-duration posture left the Fund less exposed than its benchmark to
higher interest rates. The Fund's yield-curve positioning benefited performance
when the Treasury yield curve flattened, with 30-year rates rising less than
two-year rates. Toward the middle of the reporting period, we moved the Fund's
duration closer to that of the benchmark by purchasing Treasurys and agency
debentures.
Rate adjustments were not synchronized across the entire yield curve and
occasional dislocations arose. Our efforts to capitalize on these anomalies were
relatively successful. We added value by purchasing older Treasury bonds whose
terms-to-maturity were approaching 10 years and by purchasing off-the-run bonds,
or the nearest neighbors to the new 30-year benchmark.
HOW DID YOU POSITION THE FUND'S PORTFOLIO AMONG THE VARIOUS CORPORATE BOND
SECTORS?
With corporate-bond spreads caught in various crosscurrents, total returns for
corporate bonds were dominated by coupon income rather than capital gains. In
light of relatively tight corporate spreads, we began the reporting period with
only modest high-yield exposure, and we reduced the Fund's investment-grade
corporate exposure to an underweighted position relative to the benchmark.
During the reporting period, however, we took advantage of attractive entry
points and gradually moved the Fund closer to a neutral weighting in
investment-grade debt and a higher weighting in high-yield securities.
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. High-yield debt securities
("junk bonds") are generally considered speculative because they present a
greater risk of loss than higher-quality debt securities and may be subject to
greater price volatility. Funds that invest in bonds are subject to credit,
inflation, and interest-rate risk and can lose principal value when interest
rates rise. The Fund may experience a portfolio turnover rate of more than 100%
and may generate taxable short-term capital gains. The Fund's use of securities
lending presents the risk of default by the borrower, which may result in a loss
to the Fund. See additional securities-lending disclosure in the Notes to
Financial Statements (Note 2).
1. See footnote on page 141 for more information on the Lehman Brothers(R)
Aggregate Bond Index.
2. See footnote on page 141 for more information on Lipper Inc.
3. The terms "spread" and "yield spread" may refer to the difference in yield
between a security or type of security and comparable U.S. Treasury issues.
The terms may also refer to the difference in yield between two specific
securities or types of securities at a given time.
144 MainStay Intermediate Term Bond Fund
WHAT OTHER FACTORS AFFECTED PERFORMANCE DURING THE REPORTING PERIOD?
The Fund actively sought opportunities in emerging-market debt. During the
reporting period, emerging-market holdings were among the strongest contributors
to the Fund's total return.
The opinions expressed are those of the portfolio manager as of the date of this
report and are subject to change. There is no guarantee that any forecasts will
come to pass. This material does not constitute investment advice and is not
intended as an endorsement of any specific investment.
INFORMATION ABOUT MAINSTAY INTERMEDIATE TERM BOND FUND ON THIS PAGE AND THE
PRECEDING PAGES HAS NOT BEEN AUDITED.
www.mainstayfunds.com 145
PORTFOLIO OF INVESTMENTS+++ OCTOBER 31, 2006
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
LONG-TERM BONDS (96.7%)+
ASSET-BACKED SECURITIES (3.3%)
- ----------------------------------------------------------------------------
COMMERCIAL BANKS (0.3%)
Structured Asset Investment Loan Trust
Series 2006-3, Class A4
5.42%, due 6/25/36 (a) $ 355,000 $ 355,332
------------
CONSUMER FINANCE (1.0%)
Harley-Davidson Motorcycle Trust
Series 2004-1, Class A2
2.53%, due 11/15/11 1,488,941 1,449,988
------------
CONSUMER LOANS (0.5%)
Atlantic City Electric Transition Funding LLC
Series 2002-1, Class A4
5.55%, due 10/20/23 675,000 692,160
------------
DIVERSIFIED FINANCIAL SERVICES (0.8%)
Bank of America Credit Card Trust
Series 2006-C4, Class C4
5.55%, due 11/15/11 (a) 465,000 464,882
Dunkin Securitization
Series 2006-1, Class A2
5.779%, due 6/20/31 (b) 395,000 401,642
Murcie Lago International, Ltd.
Series 2006-1X, Class A
5.556%, due 3/27/11 (a) 285,000 285,334
------------
1,151,858
------------
ELECTRIC (0.4%)
AES Eastern Energy, L.P.
Series 1999-A
9.00%, due 1/2/17 49,309 53,993
Public Service New Hampshire Funding LLC
Pass-Through Certificates
Series 2002-1, Class A
4.58%, due 2/1/10 455,907 453,767
------------
507,760
------------
HOME EQUITY (0.3%)
Citicorp Residential Mortgage Securities, Inc.
Series 2006-1, Class A3
5.706%, due 7/25/36 (a) 450,000 452,510
------------
Total Asset-Backed Securities
(Cost $4,625,682) 4,609,608
------------
CONVERTIBLE BONDS (0.0%)++
- ----------------------------------------------------------------------------
INSURANCE (0.0%)++
Conseco, Inc.
(zero coupon), beginning 9/30/10
3.50%, due 9/30/35 10,000 10,187
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
TELECOMMUNICATIONS (0.0%)++
Nortel Networks Corp.
4.25%, due 9/1/08 $ 20,000 $ 19,300
------------
Total Convertible Bonds
(Cost $29,314) 29,487
------------
CORPORATE BONDS (13.8%)
- ----------------------------------------------------------------------------
ADVERTISING (0.0%)++
Lamar Media Corp.
7.25%, due 1/1/13 20,000 20,100
------------
AEROSPACE & DEFENSE (0.0%)++
Sequa Corp.
9.00%, due 8/1/09 25,000 26,375
------------
AGRICULTURE (0.2%)
Cargill, Inc.
4.375%, due 6/1/13 (b) 245,000 232,053
Reynolds American, Inc.
7.625%, due 6/1/16 (b) 15,000 15,927
7.75%, due 6/1/18 (b) 10,000 10,679
------------
258,659
------------
AIRLINES (0.3%)
Delta Air Lines, Inc.
8.30%, due 12/15/29 (c) 40,000 14,600
Southwest Airlines Co.
5.125%, due 3/1/17 425,000 404,176
------------
418,776
------------
APPAREL (0.0%)++
Unifi, Inc.
11.50%, due 5/15/14 (b) 10,000 9,400
------------
AUTO PARTS & EQUIPMENT (0.3%)
Collins & Aikman Products Co.
12.875%, due 8/15/12 (b)(c) 25,000 31
FleetPride Corp.
11.50%, due 10/1/14 (b) 25,000 25,062
Goodyear Tire & Rubber Co. (The)
6.625%, due 12/1/06 15,000 15,000
11.25%, due 3/1/11 20,000 22,000
Johnson Controls, Inc.
5.50%, due 1/15/16 400,000 392,615
Tenneco Automotive, Inc.
8.625%, due 11/15/14 (d) 10,000 10,075
------------
464,783
------------
</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.
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.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ----------------------------------------------------------------------------
BANKS (0.8%)
HSBC Bank USA N.A.
4.625%, due 4/1/14 $ 685,000 $ 656,665
USB Capital IX
6.189%, due 4/15/49 (a) 470,000 479,878
------------
1,136,543
------------
BEVERAGES (0.0%)++
Constellation Brands, Inc.
7.25%, due 9/1/16 15,000 15,244
------------
BUILDING MATERIALS (0.0%)++
Compression Polymers Corp.
12.39%, due 7/1/12 (a) 10,000 10,200
Dayton Superior Corp.
10.75%, due 9/15/08 20,000 20,700
U.S. Concrete, Inc.
8.375%, due 4/1/14 (d) 5,000 4,800
------------
35,700
------------
CHEMICALS (0.1%)
Equistar Chemicals, L.P.
10.125%, due 9/1/08 10,000 10,600
10.625%, due 5/1/11 25,000 26,750
IMC Global, Inc.
Series B
10.875%, due 6/1/08 15,000 16,181
Reichhold Industries, Inc.
9.00%, due 8/15/14 (b) 5,000 4,975
Terra Capital, Inc.
12.875%, due 10/15/08 20,000 22,350
Tronox Worldwide LLC/Tronox Finance Corp.
9.50%, due 12/1/12 5,000 5,162
------------
86,018
------------
COAL (0.0%)++
Peabody Energy Corp.
7.375%, due 11/1/16 10,000 10,400
7.875%, due 11/1/26 5,000 5,187
------------
15,587
------------
COMMERCIAL SERVICES (0.0%)++
iPayment, Inc.
9.75%, due 5/15/14 (b) 10,000 10,275
Service Corp. International
7.375%, due 10/1/14 (b) 10,000 10,275
7.625%, due 10/1/18 (b)(d) 10,000 10,275
------------
30,825
------------
COMPUTERS (0.0%)++
SunGard Data Systems, Inc.
3.75%, due 1/15/09 15,000 13,987
4.875%, due 1/15/14 10,000 8,600
9.125%, due 8/15/13 (d) 10,000 10,375
------------
32,962
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
DIVERSIFIED FINANCIAL SERVICES (1.7%)
American Real Estate Partners, L.P./ American Real
Estate Finance Corp.
8.125%, due 6/1/12 $ 45,000 $ 46,012
Bear Stearns Cos., Inc. (The)
2.875%, due 7/2/08 450,000 433,714
Ford Motor Credit Co.
7.375%, due 10/28/09 10,000 9,734
General Motors Acceptance Corp.
5.125%, due 5/9/08 400,000 392,851
6.75%, due 12/1/14 (d) 20,000 19,829
8.00%, due 11/1/31 47,000 50,359
LaBranche & Co., Inc.
11.00%, due 5/15/12 15,000 16,200
OMX Timber Finance Investments LLC
Series 1
5.42%, due 1/29/20 (b) 255,000 247,483
Rainbow National Services LLC
8.75%, due 9/1/12 (b) 15,000 15,769
Residential Capital Corp.
6.375%, due 6/30/10 860,000 872,801
6.50%, due 4/17/13 200,000 203,529
Vanguard Health Holding Co. II LLC
9.00%, due 10/1/14 15,000 14,512
------------
2,322,793
------------
ELECTRIC (1.3%)
AES Corp. (The)
9.00%, due 5/15/15 (b) 20,000 21,525
American Electric Power Co., Inc.
Series C
5.375%, due 3/15/10 215,000 215,490
DPL, Inc.
8.25%, due 3/1/07 5,000 5,036
Kiowa Power Partners LLC
Series B
5.737%, due 3/30/21 (b) 725,000 702,184
NRG Energy, Inc.
7.25%, due 2/1/14 5,000 5,056
7.375%, due 2/1/16 10,000 10,112
PSE&G Energy Holdings LLC
8.625%, due 2/15/08 8,000 8,300
Tenaska Virginia Partners, L.P.
6.119%, due 3/30/24 (b) 847,155 860,701
------------
1,828,404
------------
ELECTRONICS (0.1%)
Fisher Scientific International, Inc.
6.75%, due 8/15/14 55,000 56,031
------------
ENTERTAINMENT (0.1%)
Gaylord Entertainment Co.
8.00%, due 11/15/13 20,000 20,350
Jacobs Entertainment, Inc.
9.75%, due 6/15/14 (b) 15,000 14,887
</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
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ----------------------------------------------------------------------------
ENTERTAINMENT (CONTINUED)
Mohegan Tribal Gaming Authority
6.375%, due 7/15/09 $ 30,000 $ 29,925
8.00%, due 4/1/12 5,000 5,212
------------
70,374
------------
ENVIRONMENTAL CONTROL (0.0%)++
Geo Sub Corp.
11.00%, due 5/15/12 20,000 20,700
------------
FOOD (0.3%)
Chiquita Brands International, Inc.
7.50%, due 11/1/14 10,000 8,650
Kroger Co. (The)
6.75%, due 4/15/12 355,000 373,071
Pinnacle Foods Holding Corp.
8.25%, due 12/1/13 6,000 6,015
------------
387,736
------------
FOREST PRODUCTS & PAPER (0.1%)
Bowater, Inc.
9.375%, due 12/15/21 (d) 25,000 24,375
Georgia-Pacific Corp.
8.875%, due 5/15/31 50,000 52,875
------------
77,250
------------
HEALTH CARE--PRODUCTS (0.0%)++
Hanger Orthopedic Group, Inc.
10.25%, due 6/1/14 15,000 15,300
------------
HEALTH CARE--SERVICES (0.9%)
Alliance Imaging, Inc.
7.25%, due 12/15/12 (d) 5,000 4,675
Ameripath, Inc.
10.50%, due 4/1/13 20,000 21,500
HCA, Inc.
6.30%, due 10/1/12 10,000 8,525
8.75%, due 9/1/10 5,000 5,050
Highmark, Inc.
6.80%, due 8/15/13 (b) 920,000 971,463
Quest Diagnostics, Inc.
5.45%, due 11/1/15 190,000 184,613
Triad Hospitals, Inc.
7.00%, due 5/15/12 20,000 19,850
------------
1,215,676
------------
HOLDING COMPANIES--DIVERSIFIED (0.0%)++
Kansas City Southern Railway
9.50%, due 10/1/08 10,000 10,512
------------
HOME BUILDERS (0.2%)
D.R. Horton, Inc.
6.50%, due 4/15/16 225,000 224,206
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
HOUSEHOLD PRODUCTS & WARES (0.0%)++
ACCO Brands Corp.
7.625%, due 8/15/15 $ 10,000 $ 9,762
------------
INSURANCE (0.5%)
Allstate Corp. (The)
5.95%, due 4/1/36 405,000 413,353
Crum & Forster Holdings Corp.
10.375%, due 6/15/13 20,000 20,750
Fund American Cos., Inc.
5.875%, due 5/15/13 270,000 269,932
------------
704,035
------------
IRON & STEEL (0.0%)++
United States Steel Corp.
9.75%, due 5/15/10 15,000 15,956
------------
LEISURE TIME (0.0%)++
Town Sports International, Inc.
9.625%, due 4/15/11 15,000 15,825
------------
LODGING (0.1%)
Boyd Gaming Corp.
7.75%, due 12/15/12 25,000 25,687
MGM Mirage, Inc.
8.50%, due 9/15/10 10,000 10,587
MTR Gaming Group, Inc.
9.00%, due 6/1/12 (b) 10,000 10,137
Park Place Entertainment Corp.
9.375%, due 2/15/07 30,000 30,225
Starwood Hotels & Resorts Worldwide, Inc.
7.375%, due 5/1/07 10,000 10,062
------------
86,698
------------
MACHINERY--CONSTRUCTION & MINING (0.4%)
Caterpillar, Inc.
6.05%, due 8/15/36 555,000 581,800
------------
MACHINERY--DIVERSIFIED (0.0%)++
Cummins, Inc.
9.50%, due 12/1/10 10,000 10,498
------------
MEDIA (1.3%)
Morris Publishing Group LLC
7.00%, due 8/1/13 15,000 14,269
Nielsen Finance LLC/Nielsen Finance Co.
10.00%, due 8/1/14 (b) 5,000 5,212
Paxson Communications Corp.
8.624%, due 1/15/12 (a)(b) 10,000 10,113
11.624%, due 1/15/13 (a)(b) 10,000 10,013
Time Warner Entertainment Co., L.P.
10.15%, due 5/1/12 1,081,000 1,290,699
Viacom, Inc.
6.25%, due 4/30/16 400,000 400,620
</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.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ----------------------------------------------------------------------------
MEDIA (CONTINUED)
Ziff Davis Media, Inc.
11.489%, due 5/1/12 (a) $ 30,000 $ 28,725
------------
1,759,651
------------
METAL FABRICATE & HARDWARE (0.0%)++
Jarden Corp.
9.75%, due 5/1/12 (d) 5,000 5,288
Neenah Foundary Co.
11.00%, due 9/30/10 (b)(e) 10,000 10,989
------------
16,277
------------
MISCELLANEOUS--MANUFACTURING (0.0%)++
RBS Global, Inc./Rexnord Corp.
9.50%, due 8/1/14 (b) 15,000 15,525
------------
OFFICE & BUSINESS EQUIPMENT (0.4%)
Xerox Corp.
6.40%, due 3/15/16 570,000 571,425
------------
OIL & GAS (1.1%)
Chaparral Energy, Inc.
8.50%, due 12/1/15 25,000 24,938
Chesapeake Energy Corp.
6.50%, due 8/15/17 20,000 18,850
Enterprise Products Operating, L.P.
Series B
6.65%, due 10/15/34 170,000 174,146
Forest Oil Corp.
8.00%, due 12/15/11 10,000 10,350
Hilcorp Energy I, L.P./Hilcorp Finance Co.
9.00%, due 6/1/16 (b)(d) 10,000 10,350
Mariner Energy, Inc.
7.50%, due 4/15/13 (b) 20,000 19,200
Parker Drilling Co.
9.625%, due 10/1/13 15,000 16,313
Pemex Project Funding Master Trust
6.625%, due 6/15/35 405,000 408,645
PetroHawk Energy Corp.
9.125%, due 7/15/13 (b) 5,000 5,100
Plains Exploration & Production Co.
7.125%, due 6/15/14 15,000 16,088
Pogo Producing Co.
6.625%, due 3/15/15 10,000 9,525
6.875%, due 10/1/17 30,000 28,575
Sunoco Logistics Partners Operations, L.P.
6.125%, due 5/15/16 800,000 812,376
Whiting Petroleum Corp.
7.00%, due 2/1/14 20,000 19,700
------------
1,574,156
------------
OIL & GAS SERVICES (0.0%)++
Allis-Chalmers Energy, Inc.
9.00%, due 1/15/14 (b) 10,000 9,975
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
PACKAGING & CONTAINERS (0.0%)++
Berry Plastics Holding Corp.
8.875%, due 9/15/14 (b) $ 10,000 $ 10,100
Owens-Brockway Glass Container, Inc.
8.75%, due 11/15/12 15,000 15,825
Owens-Illinois, Inc.
8.10%, due 5/15/07 20,000 20,150
------------
46,075
------------
PHARMACEUTICALS (0.8%)
Medco Health Solutions, Inc.
7.25%, due 8/15/13 155,000 168,399
Teva Pharmaceutical Finance LLC
6.15%, due 2/1/36 335,000 327,846
Wyeth
6.00%, due 2/15/36 635,000 652,725
------------
1,148,970
------------
PIPELINES (0.6%)
ANR Pipeline Co.
8.875%, due 3/15/10 15,000 15,757
Copano Energy LLC
8.125%, due 3/1/16 10,000 10,175
El Paso Natural Gas Co.
7.50%, due 11/15/26 5,000 5,284
El Paso Production Holding Co.
7.75%, due 6/1/13 30,000 30,750
Kern River Funding Corp.
4.893%, due 4/30/18 (b) 788,640 767,386
MarkWest Energy Partners, L.P./ MarkWest Energy
Finance Corp.
Series B
6.875%, due 11/1/14 20,000 18,800
Pacific Energy Partners, L.P./Pacific Energy
Finance Corp.
7.125%, due 6/15/14 20,000 20,225
------------
868,377
------------
REAL ESTATE (0.0%)++
CB Richard Ellis Services, Inc.
9.75%, due 5/15/10 46,000 48,990
------------
REAL ESTATE INVESTMENT TRUSTS (0.1%)
Crescent Real Estate Equities, L.P.
7.50%, due 9/15/07 15,000 15,056
Host Hotels & Resorts, L.P.
6.875%, due 11/1/14 (b) 10,000 10,038
Omega Healthcare Investors, Inc.
7.00%, due 4/1/14 30,000 30,038
Trustreet Properties, Inc.
7.50%, due 4/1/15 25,000 27,250
------------
82,382
------------
RETAIL (0.5%)
CVS Corp.
5.789%, due 1/10/26 (b) 107,073 105,497
Harry & David Holdings, Inc.
9.00%, due 3/1/13 5,000 4,750
</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
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ----------------------------------------------------------------------------
RETAIL (CONTINUED)
Michaels Stores, Inc.
10.00%, due 11/1/14 (b) $ 15,000 $ 15,019
Rite Aid Corp.
7.50%, due 1/15/15 15,000 14,269
Star Gas Partners, L.P./Star Gas Finance Co.
Series B
10.25%, due 2/15/13 18,000 18,675
Toys "R" Us, Inc.
7.625%, due 8/1/11 15,000 12,975
Wal-Mart Stores, Inc.
5.25%, due 9/1/35 495,000 465,608
------------
636,793
------------
SAVINGS & LOANS (0.4%)
Washington Mutual Bank
5.95%, due 5/20/13 535,000 546,991
------------
SOFTWARE (0.4%)
Computer Associates International, Inc.
5.25%, due 12/1/09 (b) 620,000 603,827
Serena Software, Inc.
10.375%, due 3/15/16 (d) 5,000 5,313
------------
609,140
------------
TELECOMMUNICATIONS (0.3%)
Ameritech Capital Funding Corp.
6.25%, due 5/18/09 185,000 187,782
Centennial Cellular Operating Co./ Centennial
Communications Corp.
10.125%, due 6/15/13 5,000 5,363
Dobson Cellular Systems, Inc.
8.375%, due 11/1/11 10,000 10,388
8.375%, due 11/1/11 (b) 10,000 10,388
GCI, Inc.
7.25%, due 2/15/14 15,000 14,550
Lucent Technologies, Inc.
5.50%, due 11/15/08 20,000 19,725
6.45%, due 3/15/29 45,000 40,275
PanAmSat Corp.
9.00%, due 8/15/14 12,000 12,540
9.00%, due 6/15/16 (b) 15,000 15,675
Qwest Communications International, Inc.
7.25%, due 2/15/11 10,000 10,150
Qwest Corp.
7.50%, due 10/1/14 (b) 10,000 10,475
8.875%, due 3/15/12 20,000 22,000
8.875%, due 6/1/31 5,000 5,213
------------
364,524
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
TEXTILES (0.3%)
INVISTA
9.25%, due 5/1/12 (b) $ 30,000 $ 31,875
Mohawk Industries, Inc.
6.125%, due 1/15/16 335,000 333,452
------------
365,327
------------
TRANSPORTATION (0.2%)
Gulfmark Offshore, Inc.
7.75%, due 7/15/14 20,000 20,100
Union Pacific Corp.
3.625%, due 6/1/10 329,000 311,517
------------
331,617
------------
Total Corporate Bonds
(Cost $19,129,535) 19,200,723
------------
FOREIGN CORPORATE BONDS (7.2%)
- ----------------------------------------------------------------------------
AUSTRALIA (0.0%)++
FMG Finance Property, Ltd.
10.00%, due 9/1/13 (b)(d) 5,000 4,838
10.625%, due 9/1/16 (b)(d) 5,000 4,925
------------
9,763
------------
BRAZIL (0.7%)
CIA Brasileira de Bebidas
10.50%, due 12/15/11 800,000 964,000
------------
CANADA (0.3%)
Ainsworth Lumber Co., Ltd.
9.367%, due 4/1/13 (a) 10,000 7,600
Alcan, Inc.
5.00%, due 6/1/15 400,000 381,714
CanWest Media, Inc.
8.00%, due 9/15/12 13,000 13,146
Nortel Networks, Ltd.
10.75%, due 7/15/16 (b) 10,000 10,700
Nova Chemicals Corp.
8.405%, due 11/15/13 (a) 5,000 5,088
Quebecor Media, Inc.
7.75%, due 3/15/16 10,000 10,100
Rogers Cantel, Inc.
9.625%, due 5/1/11 10,000 11,325
Videotron, Ltee
6.375%, due 12/15/15 15,000 14,325
------------
453,998
------------
CAYMAN ISLANDS (0.3%)
Vale Overseas, Ltd.
8.25%, due 1/17/34 365,000 421,758
------------
CHILE (0.3%)
Corporacion Nacional del Cobre-Codelco, Inc.
5.50%, due 10/15/13 (b) 330,000 329,274
------------
</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.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FOREIGN CORPORATE BONDS (CONTINUED)
- ----------------------------------------------------------------------------
JAPAN (0.2%)
Nippon Life Insurance Co.
4.875%, due 8/9/10 (b) $ 250,000 $ 245,410
------------
LIBERIA (0.4%)
Royal Caribbean Cruises, Ltd.
6.875%, due 12/1/13 500,000 503,769
------------
LUXEMBOURG (0.5%)
Gazprom International S.A.
7.201%, due 2/1/20 (b) 420,000 441,210
Millicom International Cellular S.A.
10.00%, due 12/1/13 25,000 26,906
Tengizchevroil Finance Co. S.A.R.L.
6.124%, due 11/15/14 (b) 235,000 233,825
------------
701,941
------------
MEXICO (0.9%)
Telefonos de Mexico S.A. de C.V.
5.50%, due 1/27/15 665,000 647,866
United Mexican States
7.50%, due 1/14/12 240,000 263,640
8.125%, due 12/30/19 300,000 364,500
------------
1,276,006
------------
NETHERLANDS (0.4%)
NXP BV/NXP Funding LLC
7.875%, due 10/15/14 (b) 15,000 15,225
9.50%, due 10/15/15 (b)(d) 25,000 25,219
Siemens Financieringsmaatschappij N.V.
6.125%, due 8/17/26 (b) 540,000 561,737
------------
602,181
------------
PANAMA (0.6%)
Republic of Panama
6.70%, due 1/26/36 780,000 786,630
------------
QATAR (0.4%)
Ras Laffan Liquefied Natural Gas Co., Ltd. III
6.332%, due 9/30/27 (b) 580,000 600,271
------------
RUSSIA (0.4%)
TNK-BP Finance S.A.
7.50%, due 7/18/16 (b) 545,000 570,211
------------
SINGAPORE (0.2%)
SP PowerAssets, Ltd.
5.00%, due 10/22/13 (b) 305,000 300,103
------------
UNITED KINGDOM (1.6%)
BSKYB Finance UK PLC
5.625%, due 10/15/15 (b) 455,000 448,613
6.50%, due 10/15/35 (b) 230,000 229,691
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
UNITED KINGDOM (CONTINUED)
NTL Cable PLC
9.125%, due 8/15/16 $ 10,000 $ 10,513
SABMiller PLC
6.50%, due 7/1/16 (b) 875,000 913,815
Vodafone Group PLC
5.75%, due 3/15/16 670,000 671,967
------------
2,274,599
------------
Total Foreign Corporate Bonds
(Cost $9,710,595) 10,039,914
------------
MORTGAGE-BACKED SECURITIES (7.0%)
- ----------------------------------------------------------------------------
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE OBLIGATIONS) (7.0%)
Banc of America Commercial Mortgage, Inc.
Series 2005-5, Class A2
5.001%, due 10/10/45 750,000 746,232
Bayview Commercial Asset Trust
Series 2006-4A, Class A1
5.55%, due 12/25/36 (a) 290,000 290,000
Citigroup Commercial Mortgage Trust
Series 2004-C2, Class A5
4.733%, due 10/15/41 760,000 734,265
Citigroup/Deutsche Bank Commercial Mortgage Trust
Series 2005-CD1, Class A4
5.40%, due 7/15/44 (a) 540,000 540,405
Commercial Mortgage
Pass-Through Certificates
Series 2006-C7, Class A4
5.962%, due 6/10/46 (a) 435,000 451,724
Credit Suisse Mortgage
Capital Certificates
Series 2006-C4, Class AJ
5.538%, due 9/15/39 (a) 1,040,000 1,050,752
Greenwich Capital Commercial Funding Corp.
Series 2006-GG7, Class A4
6.11%, due 7/10/38 (a) 265,000 278,300
LB-UBS Commercial Mortgage Trust
Series 2004-C2, Class A2
3.246%, due 3/15/29 600,000 576,608
Series 2004-C7, Class A1
3.625%, due 10/15/29 727,528 710,959
Series 2005-C7, Class A4
5.197%, due 11/15/30 (a) 565,000 561,837
Series 2006-C4, Class A4
6.098%, due 6/15/38 (a) 400,000 420,109
Merrill Lynch Mortgage Trust
Series 2004-MKB1, Class A1
3.563%, due 2/12/42 664,117 649,010
Series 2004-BPC1, Class A5
4.855%, due 10/12/41 (a) 1,415,000 1,375,877
</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 151
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
MORTGAGE-BACKED SECURITIES (CONTINUED)
- ----------------------------------------------------------------------------
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE OBLIGATIONS) (CONTINUED)
National RMBS Trust
Series 2006-3, Class A1
5.444%, due 10/20/37 (a)(b) $1,040,000 $ 1,040,000
Timberstar Trust
Series 2006-1, Class A
5.668%, due 10/15/36 (b) 160,000 163,138
Wachovia Bank Commercial Mortgage Trust
Series 2004-C14, Class A1
3.477%, due 8/15/41 253,417 247,413
------------
Total Mortgage-Backed Securities
(Cost $9,912,794) 9,836,629
------------
MUNICIPAL BOND (0.3%)
- ----------------------------------------------------------------------------
TEXAS (0.3%)
Harris County Texas Industrial Development Corp.
Solid Waste Deer Park
5.683%, due 3/1/23 (a) 390,000 390,924
------------
Total Municipal Bond
(Cost $390,000) 390,924
------------
U.S. GOVERNMENT & FEDERAL AGENCIES (64.7%)
- ----------------------------------------------------------------------------
FANNIE MAE (COLLATERALIZED MORTGAGE OBLIGATION) (0.5%)
Series 2006-B1, Class AB
6.00%, due 6/25/16 641,574 646,774
------------
FANNIE MAE GRANTOR TRUST
(COLLATERALIZED MORTGAGE OBLIGATION) (0.2%)
Series 1998-M6, Class A2
6.32%, due 8/15/08 (f) 325,029 329,581
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (2.4%)
V 5.125%, due 4/18/08 2,965,000 2,971,950
5.625%, due 11/23/35 400,000 390,653
------------
3,362,603
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(MORTGAGE PASS-THROUGH SECURITIES) (9.0%)
3.00%, due 8/1/10 353,550 334,889
5.00%, due 8/1/33 2,322,547 2,249,811
5.50%, due 1/1/21 1,111,357 1,112,488
5.50%, due 2/1/33 1,696,141 1,682,505
5.50%, due 7/1/34 2,376,667 2,357,074
5.50%, due 1/1/36 2,230,273 2,207,083
5.50%, due 9/1/36 1,108,627 1,096,578
6.00%, due 3/1/36 1,509,656 1,520,310
------------
12,560,738
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FEDERAL NATIONAL MORTGAGE ASSOCIATION (6.6%)
V 4.00%, due 9/2/08 (d) $3,800,000 $ 3,731,984
4.625%, due 5/1/13 670,000 650,597
5.125%, due 1/2/14 550,000 548,718
5.25%, due 8/1/12 1,440,000 1,450,346
6.25%, due 2/1/11 255,000 266,648
6.625%, due 9/15/09 2,455,000 2,569,177
------------
9,217,470
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (25.1%)
4.50%, due 4/1/18 650,598 630,774
4.50%, due 7/1/18 1,921,546 1,862,994
V 4.50%, due 11/1/18 2,734,882 2,651,546
5.00%, due 9/1/17 1,157,997 1,143,368
V 5.00%, due 12/1/21 TBA (g) 3,705,000 3,647,109
5.00%, due 7/1/35 1,985,922 1,918,001
5.00%, due 1/1/36 1,615,678 1,560,420
5.00%, due 6/1/36 1,754,766 1,694,121
V 5.00%, due 12/1/36 TBA (g) 5,205,000 5,022,825
5.50%, due 2/1/17 855,632 858,470
V 5.50%, due 6/1/21 3,333,215 3,336,896
5.50%, due 6/1/33 2,248,141 2,227,652
5.50%, due 11/1/33 1,866,271 1,849,262
5.50%, due 12/1/33 1,301,934 1,290,068
6.00%, due 8/1/17 135,167 137,404
6.00%, due 1/1/33 660,261 666,233
6.00%, due 3/1/33 855,607 862,837
6.00%, due 9/1/35 1,388,912 1,397,840
6.00%, due 6/1/36 1,660,299 1,670,579
6.50%, due 6/1/31 180,391 184,911
6.50%, due 8/1/31 143,496 147,092
6.50%, due 10/1/31 98,816 101,292
6.50%, due 6/1/32 130,084 133,259
------------
34,994,953
------------
FREDDIE MAC (COLLATERALIZED MORTGAGE OBLIGATION) (0.5%)
Series 2632, Class NH
3.50%, due 6/15/13 670,605 637,567
------------
FREDDIE MAC REFERENCE REMIC
(COLLATERALIZED MORTGAGE OBLIGATION) (1.9%)
V Series R001, Class AE
4.375%, due 4/15/15 2,750,894 2,682,134
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (1.2%)
6.00%, due 2/15/29 81,536 82,880
6.00%, due 4/15/29 417,884 424,751
6.00%, due 8/15/32 950,279 965,017
6.50%, due 7/15/28 104,433 107,693
6.50%, due 5/15/29 53,180 54,831
------------
1,635,172
------------
</Table>
152 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
U.S. GOVERNMENT & FEDERAL AGENCIES (CONTINUED)
- ----------------------------------------------------------------------------
UNITED STATES TREASURY BONDS (4.6%)
V 6.25%, due 8/15/23 $2,880,000 $ 3,351,600
6.25%, due 5/15/30 755,000 911,663
6.875%, due 8/15/25 (d) 1,070,000 1,340,175
8.75%, due 8/15/20 (d) 620,000 866,643
------------
6,470,081
------------
UNITED STATES TREASURY NOTES (12.7%)
V 3.125%, due 1/31/07 3,260,000 3,244,336
3.375%, due 2/15/08 620,000 608,932
3.875%, due 9/15/10 2,255,000 2,199,329
3.875%, due 2/15/13 (d) 1,560,000 1,500,708
V 4.50%, due 2/15/09 (d) 6,640,000 6,617,433
4.875%, due 7/31/11 2,180,000 2,207,080
4.875%, due 8/15/16 1,260,000 1,286,184
------------
17,664,002
------------
Total U.S. Government & Federal Agencies
(Cost $90,250,820) 90,201,075
------------
YANKEE BONDS (0.4%) (h)
- ----------------------------------------------------------------------------
FOREST PRODUCTS & PAPER (0.0%)++
Smurfit Capital Funding PLC
7.50%, due 11/20/25 20,000 18,700
------------
INSURANCE (0.0%)++
Fairfax Financial Holdings, Ltd.
7.375%, due 4/15/18 (d) 20,000 16,900
8.30%, due 4/15/26 (d) 20,000 17,300
------------
34,200
------------
LEISURE TIME (0.4%)
Royal Caribbean Cruises, Ltd.
7.00%, due 6/15/13 450,000 457,123
------------
Total Yankee Bonds
(Cost $502,667) 510,023
------------
Total Long-Term Bonds
(Cost $134,551,407) 134,818,383
------------
<Caption>
SHARES
CONVERTIBLE PREFERRED STOCK (0.0%)++
- ----------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES (0.0%)++
QuadraMed Corp.
5.50% (b)(e)(i) 100 2,200
------------
Total Convertible Preferred Stock
(Cost $1,800) 2,200
------------
</Table>
<Table>
<Caption>
SHARES VALUE
PREFERRED STOCK (0.1%)
- ----------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (0.1%)
Sovereign Real Estate Investment Corp. 12.00% (b) 50 $ 70,125
------------
Total Preferred Stock
(Cost $76,875) 70,125
------------
<Caption>
NUMBER OF
WARRANTS
WARRANTS (0.0%)++
- ----------------------------------------------------------------------------
INTERNET (0.0%)++
Ziff Davis Holdings, Inc.
Strike Price $0.001
Expire 8/12/12 (i)(j) 1,210 12
------------
Total Warrants
(Cost $11) 12
------------
<Caption>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS (12.9%)
- ----------------------------------------------------------------------------
COMMERCIAL PAPER (6.9%)
Fairway Finance Corp.
5.289%, due 11/20/06 (k) $ 309,570 309,570
Goldman Sachs Group, Inc.
5.25%, due 11/2/06 3,595,000 3,594,476
Greyhawk Funding
5.286%, due 11/13/06 (k) 128,987 128,987
Jupiter Securitization Corp.
5.303%, due 11/14/06 (k) 128,987 128,987
Prudential Funding Corp.
5.23%, due 11/6/06 3,165,000 3,162,701
Societe Generale North America, Inc.
5.29%, due 11/1/06 2,295,000 2,295,000
------------
Total Commercial Paper
(Cost $9,619,721) 9,619,721
------------
<Caption>
SHARES
INVESTMENT COMPANIES (3.3%)
BGI Institutional Money Market Fund (k) 1,540,411 1,540,411
Merrill Lynch Funds--Premier Institutional Money
Market Fund 3,083,412 3,083,412
------------
Total Investment Companies
(Cost $4,623,823) 4,623,823
------------
</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 153
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONTINUED)
- ----------------------------------------------------------------------------
REPURCHASE AGREEMENT (0.2%)
Morgan Stanley & Co.
5.42%, dated 10/31/06
due 11/1/06
Proceeds at Maturity $336,914
(Collateralized by various Corporate Bonds, with
rates between 0% - 8.40% and maturity dates
between 1/30/07 - 6/15/34, with a Principal
Amount of $340,726 and a Market Value
of $350,255) (k) $ 336,863 $ 336,863
------------
Total Repurchase Agreement
(Cost $336,863) 336,863
------------
TIME DEPOSITS (2.5%)
Banco Bilbao Vizcaya Argentaria S.A.
5.30%, due 1/9/07 (k) 257,975 257,975
Bank of America
5.27%, due 11/21/06 (a)(k) 257,975 257,975
Bank of Montreal
5.28%, due 11/27/06 (k) 257,975 257,975
Bank of Nova Scotia
5.30%, due 11/10/06 (k) 257,975 257,975
Barclays
5.32%, due 1/18/07 (k) 257,975 257,975
Deutsche Bank AG
5.27%, due 11/9/06 (k) 180,582 180,582
Fortis Bank
5.27%, due 11/6/06 (k) 515,949 515,949
Halifax Bank of Scotland
5.30%, due 1/10/07 (k) 257,975 257,975
Lloyds TSB Bank PLC
5.30%, due 12/21/06 (k) 257,975 257,975
Royal Bank of Canada
5.30%, due 12/22/06 (k) 257,975 257,975
Royal Bank of Scotland
5.29%, due 12/12/06 (k) 257,976 257,976
Skandinaviska Enskilda Banken AB
5.31%, due 11/3/06 (k) 257,975 257,975
UBS AG
5.28%, due 12/5/06 (k) 128,987 128,987
------------
Total Time Deposits
(Cost $3,405,269) 3,405,269
------------
Total Short-Term Investments
(Cost $17,985,676) 17,985,676
------------
Total Investments
(Cost $152,615,769) (l) 109.7% 152,876,396(m)
Liabilities in Excess of
Cash and Other Assets (9.7) (13,507,830)
--------- ------------
Net Assets 100.0% $139,368,566
========= ============
</Table>
<Table>
++ Less than one tenth of a percent.
+++ Fifty percent of the Fund's liquid assets are maintained to
cover "senior securities transactions" which may include,
but are not limited to, forwards, TBA's, options and
futures. This percentage is marked-to-market daily against
the value of the Fund's "senior securities" holdings to
ensure proper coverage for these transactions.
(a) Floating rate. Rate shown is the rate in effect at October
31, 2006.
(b) May be sold to institutional investors only under Rule 144a
or securities offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
(c) Issue in default.
(d) Represents a security, or a portion thereof, which is out on
loan.
(e) Illiquid security. The total market value of these
securities at October 31, 2006 is $13,189, which represents
0.0% of the Fund's net assets.
(f) ACES--Alternative Credit Enhancement Structure.
(g) TBA: Securities purchased on a forward commitment basis with
an approximate principal amount and maturity date. The
actual principal amount and maturity date will be determined
upon settlement. The market value of these securities at
October 31, 2006 is $8,669,934.
(h) Yankee Bond--dollar-denominated bond issued in the United
States by a foreign bank or corporation.
(i) Non-income producing security.
(j) Fair valued security. The total market value of these
securities at October 31, 2006 is $12, which reflects 0.0%
of the Fund's net assets.
(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 $152,617,153.
(m) At October 31, 2006, net unrealized appreciation was
$259,243 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 $1,322,693 and aggregate gross unrealized
depreciation for all investments on which there was an
excess of cost over market value of $1,063,450.
</Table>
154 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, 2006
<Table>
ASSETS:
Investment in securities, at value (identified
cost
$152,615,769) including $5,731,915 market
value of securities loaned $152,876,396
Cash denominated in foreign currencies
(identified cost $1,887) 1,891
Cash 40,486
Receivables:
Investment securities sold 4,433,267
Dividends and interest 1,099,990
Fund shares sold 65,660
Other assets 12,224
-------------
Total assets 158,529,914
-------------
LIABILITIES:
Securities lending collateral 5,850,087
Payables:
Investment securities purchased 13,078,023
Manager (See Note 3) 70,549
Professional fees 26,653
Shareholder communication 11,868
Custodian 9,790
NYLIFE Distributors (See Note 3) 5,793
Transfer agent (See Note 3) 5,107
Directors 1,929
Accrued expenses 7,572
Dividend payable 93,977
-------------
Total liabilities 19,161,348
-------------
Net assets $139,368,566
=============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
1 billion shares authorized:
Class A $ 972
Class B 299
Class C 150
Class I 12,880
Additional paid-in capital 148,749,454
Accumulated undistributed net investment
income 324,100
Accumulated net realized loss on investments
and foreign currency transactions (9,979,920)
Net unrealized appreciation on investments 260,627
Net unrealized appreciation on translation of
other assets and liabilities in foreign
currencies 4
-------------
Net assets $139,368,566
=============
CLASS A
Net assets applicable to outstanding shares $ 9,467,689
=============
Shares of capital stock outstanding 971,615
=============
Net asset value per share outstanding $ 9.74
Maximum sales charge (4.50% of offering price) 0.46
-------------
Maximum offering price per share outstanding $ 10.20
=============
CLASS B
Net assets applicable to outstanding shares $ 2,912,446
=============
Shares of capital stock outstanding 298,545
=============
Net asset value and offering price per share
outstanding $ 9.76
=============
CLASS C
Net assets applicable to outstanding shares $ 1,463,744
=============
Shares of capital stock outstanding 149,942
=============
Net asset value and offering price per share
outstanding $ 9.76
=============
CLASS I
Net assets applicable to outstanding shares $125,524,687
=============
Shares of capital stock outstanding 12,879,507
=============
Net asset value and offering price per share
outstanding $ 9.75
=============
</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
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2006
<Table>
INVESTMENT INCOME:
INCOME:
Interest $ 6,833,014
Income from securities loaned--net 16,741
Dividends 9,000
-----------
Total income 6,858,755
-----------
EXPENSES:
Manager (See Note 3) 817,397
Professional fees 61,219
Registration 53,784
Transfer agent--Classes A, B and C (See Note
3) 42,533
Transfer agent--Class I (See Note 3) 1,093
Custodian 40,953
Distribution--Class B (See Note 3) 24,624
Distribution--Class C (See Note 3) 10,440
Distribution/Service--Class A (See Note 3) 22,276
Service--Class B (See Note 3) 8,208
Service--Class C (See Note 3) 3,480
Shareholder communication 27,431
Directors 9,956
Miscellaneous 19,465
-----------
Total expenses before waiver/reimbursement 1,142,859
Expense waiver/reimbursement from Manager
(See Note 3) (99,825)
-----------
Net expenses 1,043,034
-----------
Net investment income 5,815,721
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized loss on:
Security transactions (1,336,459)
Foreign currency transactions (424)
-----------
Net realized loss on investments and foreign
currency transactions (1,336,883)
-----------
Net change in unrealized depreciation on:
Security transactions 1,645,311
Translation of other assets and liabilities
in foreign currencies and foreign currency
forward contracts 27
-----------
Net change in unrealized depreciation on
investments and foreign currency transactions 1,645,338
-----------
Net realized and unrealized gain on investments
and foreign currency transactions 308,455
-----------
Net increase in net assets resulting from
operations $ 6,124,176
===========
</Table>
156 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, 2006 AND OCTOBER 31, 2005
<Table>
<Caption>
2006 2005
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 5,815,721 $ 5,404,429
Net realized gain (loss) on
investments and foreign
currency transactions (1,336,883) 958,313
Net change in unrealized
appreciation (depreciation)
on investments and foreign
currency transactions 1,645,338 (4,581,797)
---------------------------
Net increase in net assets
resulting from operations 6,124,176 1,780,945
---------------------------
Dividends to shareholders:
From net investment income:
Class A (343,441) (255,680)
Class B (101,160) (93,542)
Class C (41,743) (36,913)
Class I (5,267,060) (4,971,489)
---------------------------
Total dividends to
shareholders (5,753,404) (5,357,624)
---------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 2,796,743 3,766,852
Class B 670,677 2,728,587
Class C 603,014 1,376,846
Class I 21,423,532 19,210,142
Net asset value of shares issued to
shareholders in reinvestment of dividends:
Class A 307,644 229,745
Class B 77,836 75,781
Class C 29,895 29,403
Class I 4,170,440 3,972,650
---------------------------
30,079,781 31,390,006
Cost of shares redeemed:
Class A (2,703,261) (3,788,902)
Class B (1,222,241) (1,077,851)
Class C (883,532) (598,670)
Class I (15,549,122) (59,445,099)
---------------------------
(20,358,156) (64,910,522)
Net asset value of shares converted (See
Note 1):
Class A 983,273 --
Class B (983,273) --
Increase (decrease) in net
assets derived from
capital share transactions 9,721,625 (33,520,516)
---------------------------
Net increase (decrease) in
net assets 10,092,397 (37,097,195)
</Table>
<Table>
<Caption>
2006 2005
NET ASSETS:
Beginning of year $129,276,169 $166,373,364
---------------------------
End of year $139,368,566 $129,276,169
===========================
Accumulated undistributed net
investment income at end of
year $ 324,100 $ 225,712
===========================
</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
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A
---------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
Net asset value at beginning of period $ 9.72 $ 9.98 $ 9.86
-------- -------- -----------
Net investment income 0.39 0.34 0.25
Net realized and unrealized gain (loss) on
investments 0.00(a) (0.28) 0.12
Net realized and unrealized loss on foreign currency
transactions (0.00)(a) -- --
-------- -------- -----------
Total from investment operations 0.39 0.06 0.37
-------- -------- -----------
Less dividends:
From net investment income (0.37) (0.32) (0.25)
-------- -------- -----------
Net asset value at end of period $ 9.74 $ 9.72 $ 9.98
======== ======== ===========
Total investment return (b) 4.14% 0.63% 3.79%(c)
Ratios (to average net assets)/Supplemental Data:
Net investment income 3.94% 3.45% 2.89%+
Net expenses 1.10% 1.08% 1.19%+
Expenses (before waiver/reimbursement) 1.32% 1.41% 1.37%+
Portfolio turnover rate 146%(d) 192%(d) 193%
Net assets at end of period (in 000's) $9,468 $8,062 $8,084
</Table>
<Table>
<Caption>
CLASS C
---------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
Net asset value at beginning of period $ 9.73 $ 9.99 $ 9.86
-------- -------- -----------
Net investment income 0.32 0.26 0.19
Net realized and unrealized gain (loss) on
investments 0.01 (0.27) 0.13
Net realized and unrealized loss on foreign currency
transactions (0.00)(a) -- --
-------- -------- -----------
Total from investment operations 0.33 (0.01) 0.32
-------- -------- -----------
Less dividends:
From net investment income (0.30) (0.25) (0.19)
-------- -------- -----------
Net asset value at end of period $ 9.76 $ 9.73 $ 9.99
======== ======== ===========
Total investment return (b) 3.46% (0.11%) 3.25%(c)
Ratios (to average net assets)/Supplemental Data:
Net investment income 3.19% 2.70% 2.14%+
Net expenses 1.85% 1.83% 1.94%+
Expenses (before waiver/reimbursement) 2.07% 2.16% 2.12%+
Portfolio turnover rate 146%(d) 192%(d) 193%
Net assets at end of period (in 000's) $1,464 $1,708 $ 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) The portfolio turnover rate not including mortgage dollar rolls was 64% and 76% for the
years ended October 31, 2006 and 2005, respectively.
(e) Per share data based on average shares outstanding during the period.
</Table>
158 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 B
- ------------------------------------------------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
$ 9.73 $ 9.99 $ 9.86
------ ------ -----------
0.32 0.26 0.19
0.01 (0.27) 0.13
(0.00)(a) -- --
------ ------ -----------
0.33 (0.01) 0.32
------ ------ -----------
(0.30) (0.25) (0.19)
------ ------ -----------
$ 9.76 $ 9.73 $ 9.99
====== ====== ===========
3.46% (0.11%) 3.25%(c)
3.19% 2.70% 2.14%+
1.85% 1.83% 1.94%+
2.07% 2.16% 2.12%+
146%(d) 192%(d) 193%
$2,912 $4,359 $2,732
</Table>
<Table>
<Caption>
CLASS I
- --------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2006 2005 2004 2003 2002
$ 9.72 $ 10.00 $ 9.83 $ 9.66 $ 10.32
-------- -------- -------- -------- --------
0.41 0.38 0.34 0.36(e) 0.45(e)
0.03 (0.28) 0.17 0.18 (0.30)
(0.00)(a) -- -- -- --
-------- -------- -------- -------- --------
0.44 0.10 0.51 0.54 0.15
-------- -------- -------- -------- --------
(0.41) (0.38) (0.34) (0.37) (0.81)
-------- -------- -------- -------- --------
$ 9.75 $ 9.72 $ 10.00 $ 9.83 $ 9.66
======== ======== ======== ======== ========
4.70% 0.97% 5.30% 5.69% 1.73%
4.34% 3.81% 3.33% 3.66% 4.62%
0.70% 0.72% 0.75% 0.75% 0.75%
0.76% 0.86% 0.93% 0.90% 0.91%
146%(d) 192%(d) 193% 153% 159%
$125,525 $115,147 $154,620 $133,041 $130,813
</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
MAINSTAY SHORT TERM BOND FUND
INVESTMENT AND PERFORMANCE COMPARISON (UNAUDITED)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE 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 CALL 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM. PERFORMANCE DATA SHOWN EXCLUDING SALES CHARGES DOES NOT
REFLECT THE DEDUCTION OF ANY SALES LOAD, WHICH IF REFLECTED, WOULD REDUCE
PERFORMANCE QUOTED.
CLASS A SHARES--MAXIMUM 3% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ---------------------------------------------
With sales charges 0.45% 1.25% 3.67%
Excluding sales charges 3.55 1.86 3.99
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY SHORT TERM CITIGROUP 1-3 YEAR CITIGROUP 1-3 YEAR U.S.
BOND FUND TREASURY INDEX TREASURY AGENCY INDEX
------------------- ------------------ -----------------------
10/31/96 9700 10000 10000
10264 10644 10644
10949 11464 11459
11196 11805 11804
11844 12520 12544
13080 13875 13931
13466 14557 14641
13694 14848 14958
13841 15104 15240
13854 15200 15352
10/31/06 14346 15829 16007
</Table>
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
3.83% 2.21% 4.28%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY SHORT TERM CITIGROUP 1-3 YEAR CITIGROUP 1-3 YEAR U.S.
BOND FUND TREASURY INDEX TREASURY AGENCY INDEX
------------------- ------------------ -----------------------
10/31/96 10000 10000 10000
10606 10644 10644
11330 11464 11459
11614 11805 11804
12317 12520 12544
13633 13875 13931
14070 14557 14641
14344 14848 14958
14558 15104 15240
14644 15200 15352
10/31/06 15205 15829 16007
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
- -----------------------------------------------------------------------------
Citigroup 1-3 Year Treasury Index(1) 4.13% 2.67% 4.70%
Citigroup 1-3 Year U.S. Treasury Agency Index(2) 4.27 2.82 4.82
Average Lipper short U.S. government fund(3) 3.85 2.35 4.26
</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 as 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 3.00%
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. These fee waivers
and/or expense limitations are contractual and may be modified or terminated
only with the approval of the Board of Directors/Trustees. The Manager may
recoup the amount of any management fee waivers or expense reimbursements from
the Fund pursuant to this agreement if such action does not cause the Fund to
exceed existing expense limitations and the recoupment is made within three
years after the year in which the Manager incurred the expense. From inception
(1/2/91) through 12/31/03, performance for Class A shares (first offered 1/2/04)
includes the historical performance of Class I shares 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 that consists 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. An investment
cannot be made directly in an index.
2. The Citigroup 1-3 Year U.S. Treasury Agency Index is an unmanaged index that
consists of U.S. Treasury notes (minimum amount outstanding is $1 billion per
issue) and agency securities (minimum amount outstanding is $200 million per
issue) with maturities of one year or greater, but less than three years.
Results assume reinvestment of all income and capital gains. The Citigroup
1-3 Year U.S. Treasury Agency Index is considered to be the Fund's
broad-based securities market index for comparison purposes. An investment
cannot be made directly in an index.
3. Lipper Inc. is an independent fund performance monitor. Results are based on
total returns with all dividend and capital-gain distributions reinvested.
160 MainStay Short Term Bond Fund
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY SHORT TERM BOND FUND
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from May 1, 2006, to October 31, 2006,
and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, if applicable, exchange fees, and sales
charges (loads) on purchases, and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds. The example is based on an investment of $1,000 made at the
beginning of the six-month period and held for the entire period from May 1,
2006, to October 31, 2006.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested to estimate the expenses that you
paid during the six-months ended October 31, 2006. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
- - HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The fourth and fifth data columns in the table below provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balances or
expenses you paid for the six-month period shown. You may use this information
to compare the ongoing costs of investing in the Fund with the ongoing costs of
investing in other Funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
Funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees, if applicable, exchange fees, or sales charges (loads).
Therefore, the fourth and fifth data columns of the table are useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT
ENDING ACCOUNT VALUE (BASED
VALUE (BASED ON HYPOTHETICAL
BEGINNING ON ACTUAL EXPENSES 5% ANNUALIZED EXPENSES
ACCOUNT RETURNS AND PAID RETURN AND PAID
VALUE EXPENSES) DURING ACTUAL EXPENSES) DURING
SHARE CLASS 5/1/06 10/31/06 PERIOD(1) 10/31/06 PERIOD(1)
CLASS A SHARES $1,000.00 $1,023.70 $4.59 $1,020.50 $4.58
- ----------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,025.20 $3.06 $1,022.00 $3.06
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio of each class
(0.90% for Class A and 0.60% for Class I) multiplied by the average account
value over the period, divided by 365 and multiplied by 184 (to reflect the
one-half year period). In the absence of waivers and/or reimbursements,
expenses would have been higher.
www.mainstayfunds.com 161
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2006
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
U.S. Government & Federal Agencies 86.8
Short-Term Investments (collateral from securities lending 5.6
is 3.6%)
Mortgage-Backed Securities 5.1
Asset-Backed Securities 0.7
Cash and Other Assets, Less Liabilities 1.8
</Table>
See Portfolio of Investments on page 165 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2006 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. United States Treasury Note, 3.00%, due 11/15/07
2. United States Treasury Note, 4.50%, due 2/15/09
3. United States Treasury Note, 4.875%, due 5/31/08
4. Federal National Mortgage Association, 4.00%,
due 9/2/08
5. Federal Home Loan Mortgage Corporation, 4.00%,
due 8/17/07
6. United States Treasury Note, 3.375%, due 9/15/09
7. United States Treasury Note, 3.875%, due 9/15/10
8. Federal National Mortgage Association, 4.75%,
due 1/2/07
9. Federal National Mortgage Association, 6.625%,
due 9/15/09
10. Fannie Mae (Collateralized Mortgage Obligation),
Series 2006-B1, Class AB, 6.00%, due 6/25/16
</Table>
162 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
HOW DID MAINSTAY SHORT TERM BOND FUND PERFORM RELATIVE TO ITS PEERS AND ITS
BENCHMARK DURING THE 12 MONTHS ENDED OCTOBER 31, 2006?
Excluding all sales charges, MainStay Short Term Bond Fund returned 3.55% for
Class A shares for the 12 months ended October 31, 2006. Over the same period,
Class I shares returned 3.83%. Both share classes underperformed the 4.27%
return of Citigroup 1-3 Year U.S. Treasury Agency Index,(1) the Fund's
broad-based securities-market index, for the 12-month reporting period. Both
share classes also underperformed the 3.85% return of the average Lipper(2)
short U.S. government fund for the 12 months ended October 31, 2006.
WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE DURING THE REPORTING PERIOD?
According to preliminary estimates by the Bureau of Economic Analysis, real
gross domestic product (GDP) increased by 3.05% during the four quarters ended
September 30, 2006. The economy grew at a robust 5.6% seasonally adjusted
annualized rate in the first quarter of 2006. Since then, growth has moderated,
in part, because of the slowdown in the housing sector. Real gross domestic
product increased at a 2.6% seasonally adjusted annualized rate in the second
quarter and by 2.2% in the third quarter. Residential investment declined at an
18.0% seasonally adjusted annualized rate in the third quarter, the fourth
consecutive quarter in which the sector made a negative contribution to GDP
growth.
At the end of October 2005, the targeted federal funds rate was 3.75%. The
Federal Open Market Committee (FOMC) met nine times during the 12 months ended
October 31, 2006, and it raised the targeted federal funds rate by 25 basis
points at each of the first six meetings. (A basis point is one-hundredth of a
percentage point.) That brought the federal funds target rate to 5.25% in June
2006. Since then, the FOMC has opted to leave the federal funds target
unchanged. Another significant Federal
Reserve development came in February 2006, when Dr. Bernanke succeeded Dr.
Greenspan as chairman of the Federal Reserve Board of Governors.
Robust economic growth in the first quarter of 2006 and a string of
higher-than-expected monthly inflation data contributed to a rise in Treasury
yields across the maturity spectrum. Yields climbed above 5% in the spring of
2006. The yield on the two-year Treasury note peaked at 5.28% in late June. The
deceleration in economic growth during the summer then prompted a sharp decline
in yields. The two-year Treasury-note yield fell as low as 4.59% in early
October. At the end of October 2006, the yield on the two-year Treasury note was
4.70%, or 31 basis points higher than a year earlier. The yield curve inverted
during the year, as the yields available from two-year Treasurys exceeded their
10-year Treasury counterparts. At the end of October 2005, the con-
stant maturity three-year Treasury rate was 10 basis points higher than the
one-year rate. A year later, the relationship had reversed, and the one-year
rate was 37 basis points higher than the three-year rate.
HOW DID THESE DYNAMICS AFFECT THE FUND'S PERFORMANCE DURING THE REPORTING
PERIOD?
The Fund benefited from the inversion of the yield curve. Unfortunately, our
short-duration stance during the summer had a negative impact on returns.
Declining yields during the reporting period more than offset our earlier gains
from the Fund's short-duration posture. We have taken advantage of the recent
increase in Treasury yields to raise the Fund's duration to 1.7 years, the same
level as the Citigroup 1-3 year Treasury Agency Index.
Over the last six months, we reduced the Fund's holdings in agency securities
from 37.5% to 24.2%. Over the same period, we raised the Fund's allocation in
agency collateralized mortgage obligations from 5.1% to 10.9%, and the Fund's
holdings in Treasurys from 42.4% to 51.6%.
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. The Fund may experience a portfolio
turnover of more than 100% and may generate taxable short-term capital gains.
The Fund's use of securities lending presents the risk of default by the
borrower, which may result in a loss to the Fund. See additional securities
lending disclosure in the Notes to Financial Statements (Note 2).
1. See footnote on page 160 for more information on the Citigroup 1-3 Year U.S.
Treasury Agency Index.
2. See footnote on page 160 for more information on Lipper Inc.
www.mainstayfunds.com 163
WHAT OTHER EVENTS AFFECTED THE SHORT-TERM MARKET?
As the pace of economic growth slowed during the summer, investors began to
anticipate interest rate cuts. These expectations were reflected in the futures
markets, but have receded following the release of the October 2006 Labor
Department report, which indicated that job creation remained strong and that
unemployment was declining.
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.
164 MainStay Short Term Bond Fund
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
LONG-TERM BONDS (92.6%)+
ASSET-BACKED SECURITIES (0.7%)
- -----------------------------------------------------------------------------
CONSUMER FINANCE (0.1%)
Harley-Davidson Motorcycle Trust
Series 2002-1, Class A2
4.50%, due 1/15/10 $ 131,731 $ 131,662
-----------
CONSUMER LOANS (0.6%)
Atlantic City Electric Transition Funding LLC
Series 2002-1, Class A1
2.89%, due 7/20/10 459,651 449,973
-----------
Total Asset-Backed Securities
(Cost $591,671) 581,635
-----------
MORTGAGE-BACKED SECURITIES (5.1%)
- -----------------------------------------------------------------------------
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE OBLIGATIONS) (5.1%)
Citigroup Commercial Mortgage Trust
Series 2005-EMG, Class A1
4.154%, due 9/20/51 (a) 366,154 359,826
JP Morgan Chase Commercial Mortgage Securities
Corp.
Series 2004-CB9, Class A1
3.475%, due 6/12/41 1,106,671 1,076,803
LB-UBS Commercial Mortgage Trust
Series 2004-C2, Class A2
3.246%, due 3/15/29 470,000 451,676
Series 2004-C7, Class A1
3.625%, due 10/15/29 483,906 472,886
Merrill Lynch Mortgage Trust
Series 2004-MKB1, Class A1
3.563%, due 2/12/42 977,727 955,487
Wachovia Bank Commercial Mortgage Trust
Series 2004-C14, Class A1
3.477%, due 8/15/41 708,965 692,169
-----------
Total Mortgage-Backed Securities
(Cost $4,100,450) 4,008,847
-----------
U.S. GOVERNMENT & FEDERAL AGENCIES (86.8%)
- -----------------------------------------------------------------------------
V FANNIE MAE (COLLATERALIZED MORTGAGE OBLIGATION) (3.0%)
Series 2006-B1, Class AB
6.00%, due 6/25/16 2,307,820 2,326,527
-----------
FANNIE MAE GRANTOR TRUST
(COLLATERALIZED MORTGAGE OBLIGATION) (0.9%)
Series 1998-M6, Class A2
6.32%, due 8/15/08 (b) 662,721 672,003
-----------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FEDERAL HOME LOAN MORTGAGE CORPORATION (7.8%)
V 4.00%, due 8/17/07 $ 6,240,000 $ 6,181,619
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(MORTGAGE PASS-THROUGH SECURITY) (0.0%)++
5.00%, due 1/1/07 24,337 24,258
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (16.2%)
3.15%, due 5/28/08 330,000 321,167
V 4.00%, due 9/2/08 (c) 6,480,000 6,364,015
V 4.75%, due 1/2/07 3,145,000 3,141,012
V 6.625%, due 9/15/09 2,845,000 2,977,315
-----------
12,803,509
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITY) (0.8%)
4.50%, due 11/1/18 615,515 596,759
-----------
FREDDIE MAC (COLLATERALIZED MORTGAGE OBLIGATIONS) (5.0%)
Series 2632, Class NH
3.50%, due 6/15/13 1,757,711 1,671,115
Series 2982, Class LC
4.50%, due 1/15/25 2,304,879 2,274,225
-----------
3,945,340
-----------
FREDDIE MAC REFERENCE REMIC
(COLLATERALIZED MORTGAGE OBLIGATION) (2.0%)
Series R001, Class AE
4.375%, due 4/15/15 1,655,631 1,614,247
-----------
UNITED STATES TREASURY NOTES (51.1%)
V 3.00%, due 11/15/07 13,400,000 13,144,569
V 3.375%, due 9/15/09 4,780,000 4,623,159
3.625%, due 4/30/07 900,000 893,742
V 3.875%, due 9/15/10 4,115,000 4,013,409
V 4.50%, due 2/15/09 (c) 9,955,000 9,921,173
V 4.875%, due 5/31/08 7,815,000 7,828,129
-----------
40,424,181
-----------
Total U.S. Government & Federal Agencies
(Cost $68,674,230) 68,588,443
-----------
Total Long-Term Bonds
(Cost $73,366,351) 73,178,925
-----------
</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 165
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS (5.6%)
- -----------------------------------------------------------------------------
COMMERCIAL PAPER (2.4%)
AIG Funding, Inc.
5.24%, due 11/7/06 $ 1,620,000 $ 1,618,585
Fairway Finance Corp.
5.289%, due 11/20/06 (d) 149,382 149,382
Greyhawk Funding
5.286%, due 11/13/06 (d) 62,243 62,243
Jupiter Securitization Corp.
5.303%, due 11/14/06 (d) 62,243 62,243
-----------
Total Commercial Paper
(Cost $1,892,453) 1,892,453
-----------
<Caption>
SHARES
INVESTMENT COMPANY (0.9%)
BGI Institutional Money Market Fund (d) 743,320 743,320
-----------
Total Investment Company
(Cost $743,320) 743,320
-----------
<Caption>
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT (0.2%)
Morgan Stanley & Co.
5.42%, dated 10/31/06
due 11/1/06
Proceeds at Maturity $162,576 (Collateralized by
various Corporate Bonds, with rates between
0% - 8.40% and maturity dates between
1/30/07 - 6/15/34, with a Principal Amount of
$164,417 and a Market Value
of $169,015) (d) $ 162,552 162,552
-----------
Total Repurchase Agreement
(Cost $162,552) 162,552
-----------
TIME DEPOSITS (2.1%)
Banco Bilbao Vizcaya Argentaria S.A.
5.30%, due 1/9/07 (d) 124,485 124,485
Bank of America
5.27%, due 11/21/06 (d)(e) 124,485 124,485
Bank of Montreal
5.28%, due 11/27/06 (d) 124,485 124,485
Bank of Nova Scotia
5.30%, due 11/10/06 (d) 124,485 124,485
Barclays
5.32%, due 1/18/07 (d) 124,485 124,485
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
TIME DEPOSITS (CONTINUED)
Deutsche Bank AG
5.27%, due 11/9/06 (d) $ 87,139 $ 87,139
Fortis Bank
5.27%, due 11/6/06 (d) 248,970 248,970
Halifax Bank of Scotland
5.30%, due 1/10/07 (d) 124,485 124,485
Lloyds TSB Bank PLC
5.30%, due 12/21/06 (d) 124,485 124,485
Royal Bank of Canada
5.30%, due 12/22/06 (d) 124,485 124,485
Royal Bank of Scotland
5.29%, due 12/12/06 (d) 124,485 124,485
Skandinaviska Enskilda Banken AB
5.31%, due 11/3/06 (d) 124,485 124,485
UBS AG
5.28%, due 12/5/06 (d) 62,242 62,242
-----------
Total Time Deposits
(Cost $1,643,201) 1,643,201
-----------
Total Short-Term Investments
(Cost $4,441,526) 4,441,526
-----------
Total Investments
(Cost $77,807,877) (f) 98.2% 77,620,451(g)
Cash and Other Assets,
Less Liabilities 1.8 1,450,348
----------- -----------
Net Assets 100.0% $79,070,799
=========== ===========
</Table>
<Table>
++ Less than one tenth of a percent.
(a) May be sold to institutional investors only under Rule 144a
or securities offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
(b) ACES--Alternative Credit Enhancement Structure.
(c) Represents a security, or a portion thereof, which is out on
loan.
(d) Represents a security, or a portion thereof, purchased with
cash collateral received for securities on loan.
(e) Floating rate. Rate shown is the rate in effect at October
31, 2006.
(f) The cost for federal income tax purposes is $77,807,877.
(g) At October 31, 2006, net unrealized depreciation was
$187,426 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 $169,518 and aggregate gross unrealized
depreciation for all investments on which there was an
excess of cost over market value of $356,944.
</Table>
166 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, 2006
<Table>
ASSETS:
Investment in securities, at value (identified
cost
$77,807,877) including $2,766,584 market
value of securities loaned $77,620,451
Cash 496
Receivables:
Investment securities sold 3,711,384
Dividends and interest 703,990
Fund shares sold 105,282
Other assets 8,370
------------
Total assets 82,149,973
------------
LIABILITIES:
Securities lending collateral 2,822,941
Payables:
Manager (See Note 3) 36,525
Professional fees 23,643
Fund shares redeemed 13,917
Shareholder communication 7,411
Custodian 3,224
Transfer agent (See Note 3) 2,547
Directors 1,076
NYLIFE Distributors (See Note 3) 1,052
Accrued expenses 3,836
Dividend payable 163,002
------------
Total liabilities 3,079,174
------------
Net assets $79,070,799
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
500 million shares authorized:
Class A $ 534
Class I 8,174
Additional paid-in capital 83,132,571
Accumulated distributions in excess of net
investment income (63,510)
Accumulated net realized loss on investments (3,819,544)
Net unrealized depreciation on investments (187,426)
------------
Net assets $79,070,799
============
CLASS A
Net assets applicable to outstanding shares $ 4,850,126
============
Shares of capital stock outstanding 534,193
============
Net asset value per share outstanding $ 9.08
Maximum sales charge (3.00% of offering price) 0.28
------------
Maximum offering price per share outstanding $ 9.36
============
CLASS I
Net assets applicable to outstanding shares $74,220,673
============
Shares of capital stock outstanding 8,174,353
============
Net asset value and offering price per share
outstanding $ 9.08
============
</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 167
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2006
<Table>
INVESTMENT INCOME:
INCOME:
Interest $3,603,603
Income from securities loaned--net 14,514
-----------
Total income 3,618,117
-----------
EXPENSES:
Manager (See Note 3) 512,748
Professional fees 48,585
Transfer agent--Class A (See Note 3) 29,422
Transfer agent--Class I (See Note 3) 3,394
Registration 30,814
Shareholder communication 17,192
Custodian 13,488
Distribution/Service--Class A (See Note 3) 12,213
Directors 6,452
Miscellaneous 14,269
-----------
Total expenses before waiver/reimbursement 688,577
Expense waiver/reimbursement from Manager (See
Note 3) (161,173)
-----------
Net expenses 527,404
-----------
Net investment income 3,090,713
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (781,246)
Net change in unrealized depreciation on
investments 834,362
-----------
Net realized and unrealized gain on investments 53,116
-----------
Net increase in net assets resulting from
operations $3,143,829
===========
</Table>
168 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, 2006 AND OCTOBER 31, 2005
<Table>
<Caption>
2006 2005
DECREASE IN NET ASSETS:
Operations:
Net investment income $ 3,090,713 $ 2,476,024
Net realized loss on investments (781,246) (1,158,947)
Net change in unrealized
depreciation on investments 834,362 (859,250)
---------------------------
Net increase in net assets
resulting from operations 3,143,829 457,827
---------------------------
Dividends to shareholders:
From net investment income:
Class A (157,577) (124,005)
Class I (2,922,802) (2,367,842)
---------------------------
Total dividends to shareholders (3,080,379) (2,491,847)
---------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 1,503,332 3,212,541
Class I 10,312,958 8,051,111
Net asset value of shares issued to
shareholders in reinvestment of dividends:
Class A 133,174 108,119
Class I 1,086,323 1,003,989
---------------------------
13,035,787 12,375,760
Cost of shares redeemed:
Class A (2,884,793) (2,321,279)
Class I (23,395,865) (16,362,058)
---------------------------
(26,280,658) (18,683,337)
Decrease in net assets derived
from capital share transactions (13,244,871) (6,307,577)
---------------------------
Net decrease in net assets (13,181,421) (8,341,597)
NET ASSETS:
Beginning of year 92,252,220 100,593,817
---------------------------
End of year $ 79,070,799 $ 92,252,220
===========================
Accumulated distributions in excess
of net investment income at end of
year $ (63,510) $ (92,884)
===========================
</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 169
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A
---------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
Net asset value at beginning of period $ 9.06 $ 9.24 $ 9.32
-------- -------- -----------
Net investment income 0.30 0.20 0.06
Net realized and unrealized gain (loss) on
investments 0.02 (0.19) (0.01)
-------- -------- -----------
Total from investment operations 0.32 0.01 0.05
-------- -------- -----------
Less dividends and distributions:
From net investment income (0.30) (0.19) (0.12)
Return of capital -- -- (0.01)
-------- -------- -----------
Total dividends and distributions (0.30) (0.19) (0.13)
-------- -------- -----------
Net asset value at end of period $ 9.08 $ 9.06 $ 9.24
======== ======== ===========
Total investment return (b) 3.55% 0.09% 0.57%(c)
Ratios (to average net assets)/Supplemental Data:
Net investment income 3.33% 2.16% 1.43%+
Net expenses 0.90% 1.07% 1.00%+
Expenses (before waiver/reimbursement) 1.61% 1.36% 1.18%+
Portfolio turnover rate 95%(e) 151% 151%
Net assets at end of period (in 000's) $4,850 $6,085 $5,192
</Table>
<Table>
* Commencement of operations.
+ Annualized.
(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) Less than one cent per share.
(e) The portfolio turnover rate not including mortgage dollar rolls is 93% for the year ended
October 31, 2006.
</Table>
170 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>
CLASS I
- -------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2006 2005 2004
$ 9.07 $ 9.26 $ 9.31
------- ------- -------
0.33 0.24 0.17
0.01 (0.19) (0.03)
------- ------- -------
0.34 0.05 0.14
------- ------- -------
(0.33) (0.24) (0.18)
-- -- (0.01)
------- ------- -------
(0.33) (0.24) (0.19)
------- ------- -------
$ 9.08 $ 9.07 $ 9.26
======= ======= =======
3.83% 0.59% 1.50%
3.63% 2.63% 1.83%
0.60% 0.60% 0.60%
0.76% 0.77% 0.78%
95%(e) 151% 151%
$74,221 $86,167 $95,402
<Caption>
CLASS I
- --- ---------------------------------------
YEAR ENDED OCTOBER 31,
2003 2002
$ 9.34 $ 9.57
------- -------
0.19 0.29 (a)
(0.01) 0.00 (d)
------- -------
0.18 0.29
------- -------
(0.21) (0.52)
-- --
------- -------
(0.21) (0.52)
------- -------
$ 9.31 $ 9.34
======= =======
1.94% 3.21%
2.02% 3.13%
0.60% 0.60%
0.98% 0.96%
173% 228%
$35,532 $37,201
</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
MAINSTAY BALANCED FUND
INVESTMENT AND PERFORMANCE COMPARISON (UNAUDITED)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE 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 CALL 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM. PERFORMANCE DATA SHOWN EXCLUDING SALES CHARGES DOES NOT
REFLECT THE DEDUCTION OF ANY SALES LOAD, WHICH IF REFLECTED, WOULD REDUCE
PERFORMANCE QUOTED.
CLASS A SHARES--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 4.28% 8.44% 8.72%
Excluding sales charges 10.35 9.67 9.34
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MERRILL LYNCH
CORPORATE &
BALANCED GOVERNMENT
MAINSTAY COMPOSITE 1-10 YEARS RUSSELL
BALANCED FUND INDEX BOND INDEX MIDCAP INDEX S&P 500 INDEX
------------- --------- ------------- ------------ -------------
10/31/96 9450 10000 10000 10000 10000
11800 12212 10761 12877 13211
12699 13154 11750 13452 16117
12705 13676 11857 15755 20253
13820 15044 12630 19493 21487
14548 15785 14428 15980 16136
14828 15952 15286 14698 13698
17767 19422 16078 19972 16548
19197 22018 16756 22985 18107
20916 24586 16817 27143 19686
10/31/06 23081 28024 17601 31868 22903
<Caption>
LIPPER
BALANCED FUND
INDEX
-------------
10/31/96 10000
12025
13319
14992
16174
14759
13634
15844
17144
18372
10/31/06 20632
</Table>
CLASS B SHARES--MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 4.49% 8.59% 8.54%
Excluding sales charges 9.49 8.87 8.54
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MERRILL LYNCH
CORPORATE &
BALANCED GOVERNMENT
MAINSTAY COMPOSITE 1-10 YEARS RUSSELL
BALANCED FUND INDEX BOND INDEX MIDCAP INDEX S&P 500 INDEX
------------- --------- ------------- ------------ -------------
10/31/96 10000 10000 10000 10000 10000
12395 12212 10761 12877 13211
13246 13154 11750 13452 16117
13154 13676 11857 15755 20253
14205 15044 12630 19493 21487
14837 15785 14428 15980 16136
15009 15952 15286 14698 13698
17854 19422 16078 19972 16548
19161 22018 16756 22985 18107
20730 24586 16817 27143 19686
10/31/06 22698 28024 17601 31868 22903
<Caption>
LIPPER
BALANCED FUND
INDEX
-------------
10/31/96 10000
12025
13319
14992
16174
14759
13634
15844
17144
18372
10/31/06 20632
</Table>
CLASS C SHARES--MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 8.49% 8.87% 8.55%
Excluding sales charges 9.49 8.87 8.55
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MERRILL LYNCH
CORPORATE &
BALANCED GOVERNMENT
MAINSTAY COMPOSITE 1-10 YEARS RUSSELL
BALANCED FUND INDEX BOND INDEX MIDCAP INDEX S&P 500 INDEX
------------- --------- ------------- ------------ -------------
10/31/96 10000 10000 10000 10000 10000
12398 12212 10761 12877 13211
13251 13154 11750 13452 16117
13158 13676 11857 15755 20253
14211 15044 12630 19493 21487
14845 15785 14428 15980 16136
15014 15952 15286 14698 13698
17871 19422 16078 19972 16548
19175 22018 16756 22985 18107
20737 24586 16817 27143 19686
10/31/06 22706 28024 17601 31868 22903
<Caption>
LIPPER
BALANCED FUND
INDEX
-------------
10/31/96 10000
12025
13319
14992
16174
14759
13634
15844
17144
18372
10/31/06 20632
</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 as 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
THE DISCLOSURE AND FOOTNOTES ON THE NEXT TWO PAGES ARE AN INTEGRAL PART OF THE
TABLES AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
172 MainStay Balanced Fund
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
10.84% 10.06% 9.67%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MERRILL LYNCH
CORPORATE &
BALANCED GOVERNMENT
MAINSTAY COMPOSITE 1-10 YEARS RUSSELL
BALANCED FUND INDEX BOND INDEX MIDCAP INDEX S&P 500 INDEX
------------- --------- ------------- ------------ -------------
10/31/96 10000 10000 10000 10000 10000
12517 12212 10761 12877 13211
13504 13154 11750 13452 16117
13540 13676 11857 15755 20253
14768 15044 12630 19493 21487
15583 15785 14428 15980 16136
15923 15952 15286 14698 13698
19128 19422 16078 19972 16548
20744 22018 16756 22985 18107
22707 24586 16817 27143 19686
10/31/06 25170 28024 17601 31868 22903
<Caption>
LIPPER
BALANCED FUND
INDEX
-------------
10/31/96 10000
12025
13319
14992
16174
14759
13634
15844
17144
18372
10/31/06 20632
</Table>
CLASS R1 SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
10.70% 9.94% 9.55%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MERRILL LYNCH
CORPORATE &
BALANCED GOVERNMENT
MAINSTAY COMPOSITE 1-10 YEARS RUSSELL
BALANCED FUND INDEX BOND INDEX MIDCAP INDEX S&P 500 INDEX
------------- --------- ------------- ------------ -------------
10/31/96 10000 10000 10000 10000 10000
12504 12212 10761 12877 13211
13476 13154 11750 13452 16117
13498 13676 11857 15755 20253
14706 15044 12630 19493 21487
15502 15785 14428 15980 16136
15825 15952 15286 14698 13698
18990 19422 16078 19972 16548
20574 22018 16756 22985 18107
22494 24586 16817 27143 19686
10/31/06 24901 28024 17601 31868 22903
<Caption>
LIPPER
BALANCED FUND
INDEX
-------------
10/31/96 10000
12025
13319
14992
16174
14759
13634
15844
17144
18372
10/31/06 20632
</Table>
CLASS R2 SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
10.44% 9.66% 9.28%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MERRILL LYNCH
CORPORATE &
BALANCED GOVERNMENT
MAINSTAY COMPOSITE 1-10 YEARS RUSSELL
BALANCED FUND INDEX BOND INDEX MIDCAP INDEX S&P 500 INDEX
------------- --------- ------------- ------------ -------------
10/31/96 10000 10000 10000 10000 10000
12475 12212 10761 12877 13211
13412 13154 11750 13452 16117
13398 13676 11857 15755 20253
14566 15044 12630 19493 21487
15318 15785 14428 15980 16136
15597 15952 15286 14698 13698
18671 19422 16078 19972 16548
20169 22018 16756 22985 18107
21995 24586 16817 27143 19686
10/31/06 24292 28024 17601 31868 22903
<Caption>
LIPPER
BALANCED FUND
INDEX
-------------
10/31/96 10000
12025
13319
14992
16174
14759
13634
15844
17144
18372
10/31/06 20632
</Table>
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 1.00% 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. 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. Class R3 shares are sold with no initial sales
charge or CDSC, have an annual 12b-1 fee of .50%, and are available in certain
individual retirement accounts or in certain retirement plans.
Performance figures reflect certain fee waivers and/or expense limitations,
without which total returns may have been lower. These fee waivers and/or
expense limitations are contractual and may be modified or terminated only with
the approval of the Board of Directors/Trustees. The Manager may recoup the
amount of any management fee waivers or expense reimbursements from the Fund
pursuant to this agreement if such action does not cause the Fund to exceed
existing expense limitations and the recoupment is made within three years after
the year in which the Manager incurred the expense. From inception (5/1/89)
through 12/31/03, performance for Class A, B, R1, and R2 shares (each first
offered 1/2/04) includes the historical performance of Class I shares adjusted
to reflect the applicable sales charge (or CDSC) and fees and expenses for Class
A, B, R1, and R2 shares. Prior to 4/28/06, the performance for Class R3
THE DISCLOSURE AND FOOTNOTES ON THE PRECEDING PAGE AND THE FOLLOWING PAGE ARE AN
INTEGRAL PART OF THE TABLES AND GRAPHS AND SHOULD BE CAREFULLY READ IN
CONJUNCTION WITH THEM.
www.mainstayfunds.com 173
CLASS R3 SHARES--NO SALES CHARGES
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
10.17% 9.40% 9.01%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MERRILL LYNCH
CORPORATE &
BALANCED GOVERNMENT
MAINSTAY COMPOSITE 1-10 YEARS RUSSELL
BALANCED FUND INDEX BOND INDEX MIDCAP INDEX S&P 500 INDEX
------------- --------- ------------- ------------ -------------
10/31/96 10000 10000 10000 10000 10000
12442 12212 10761 12877 13211
13343 13154 11750 13452 16117
13299 13676 11857 15755 20253
14417 15044 12630 19493 21487
15122 15785 14428 15980 16136
15360 15952 15286 14698 13698
18341 19422 16078 19972 16548
19771 22018 16756 22985 18107
21513 24586 16817 27143 19686
10/31/06 23701 28024 17601 31868 22903
<Caption>
LIPPER
BALANCED FUND
INDEX
-------------
10/31/96 10000
12025
13319
14992
16174
14759
13634
15844
17144
18372
10/31/06 20632
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
- -------------------------------------------------------------------------------
Balanced Composite Index(1) 13.98% 12.17% 10.85%
Merrill Lynch Corporate & Government 1-10 Years Bond
Index(2) 4.66 4.06 5.82
Russell Midcap Index(3) 17.41 14.80 12.29
S&P 500(R) Index(4) 16.34 7.26 8.64
Lipper Balanced Fund Index(5) 12.30 6.93 7.51
Average Lipper mixed-asset target allocation growth
fund(6) 12.47 6.59 7.21
</Table>
shares includes the historical performance of Class I shares adjusted to reflect
the fees and expenses for Class R3 shares. Prior to 1/2/04, the Fund offered
Class L shares, which were subject to a 1.00% sales charge and a 1.00% CDSC on
redemptions within one year of purchase. From inception through 12/29/02,
performance for Class L shares (first offered 12/30/02) includes the historical
performance of Class I shares adjusted to reflect the applicable sales charge,
CDSC, and fees and expenses for Class L shares. Effective 1/02/04, all
outstanding Class L shares of the Fund were converted to Class C shares,
redesignated Class C shares, or both.
1. The Fund's Balanced Composite Index is consists of the Russell Midcap(R)
Value Index and the Merrill Lynch Corporate & Government 1-10 Years Bond
Index weighted 60%/40%. 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. Results assume
that all income and capital gains are reinvested in the index or indices that
produce them. 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 in an index or a composite.
2. The Merrill Lynch Corporate & Government 1-10 Years Bond Index is a
market-capitalization-weighted index that consists of 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 in 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 in 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 in an index.
5. The Lipper Balanced Fund 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 in 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 TABLES AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
174 MainStay Balanced Fund
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY BALANCED FUND
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from May 1, 2006, to October 31, 2006,
and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, if applicable, exchange fees, and sales
charges (loads) on purchases, and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds. The example is based on an investment of $1,000 made at the
beginning of the six-month period and held for the entire period from May 1,
2006, to October 31, 2006.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested to estimate the expenses that you
paid during the six-months ended October 31, 2006. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
- - HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The fourth and fifth data columns in the table below provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balances or
expenses you paid for the six-month period shown. You may use this information
to compare the ongoing costs of investing in the Fund with the ongoing costs of
investing in other Funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
Funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees, if applicable, exchange fees, or sales charges (loads).
Therefore, the fourth and fifth data columns of the table are useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT
ENDING ACCOUNT VALUE (BASED
VALUE (BASED ON HYPOTHETICAL
BEGINNING ON ACTUAL EXPENSES 5% ANNUALIZED EXPENSES
ACCOUNT RETURNS AND PAID RETURN AND PAID
VALUE EXPENSES) DURING ACTUAL EXPENSES) DURING
SHARE CLASS 5/1/06 10/31/06 PERIOD(1) 10/31/06 PERIOD(1)
CLASS A SHARES $1,000.00 $1,032.70 $ 6.76 $1,018.40 $ 6.72
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $1,028.65 $10.58 $1,014.65 $10.51
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $1,028.65 $10.58 $1,014.65 $10.51
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,035.05 $ 4.36 $1,020.75 $ 4.33
- ---------------------------------------------------------------------------------------------------------------------------
CLASS R1 SHARES $1,000.00 $1,034.25 $ 4.87 $1,020.25 $ 4.84
- ---------------------------------------------------------------------------------------------------------------------------
CLASS R2 SHARES $1,000.00 $1,033.00 $ 6.15 $1,019.00 $ 6.11
- ---------------------------------------------------------------------------------------------------------------------------
CLASS R3 SHARES $1,000.00 $1,031.90 $ 7.58 $1,017.60 $ 7.53
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio of each class
(1.32% for Class A, 2.07% for Class B and Class C, 0.85% for Class I, 0.95%
for Class R1, 1.20% for Class R2, and 1.48% for Class R3) multiplied by the
average account value over the period, divided by 365 and multiplied by 184
(to reflect the one-half year period). In the absence of waivers and/or
reimbursements, expenses would have been higher.
www.mainstayfunds.com 175
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2006
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
Common Stocks 59.9
Corporate Bonds 38.7
Short-Term Investments (collateral from securities lending 7.5
is 7.5%)
Federal Agenices 0.5
Yankee Bond 0.0*
Convertible Preferred Stock 0.0*
Convertible Bond 0.0*
Warrants 0.0*
Liabilities in Excess of Cash and Other Assets (6.6)
</Table>
* Less than one-tenth of a percent.
See Portfolio of Investments on page 179 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2006 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. ALLTEL Corp., 7.00%, due 7/1/12
2. CIGNA Corp.
3. Clorox Co. (The)
4. AmerisourceBergen Corp.
5. IAC/InterActiveCorp
6. Mattel, Inc.
7. Entergy Corp.
8. M&T Bank Corp.
9. CenturyTel, Inc.
10. Torchmark Corp.
</Table>
176 MainStay Balanced Fund
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio managers Tony Elavia and Joan M. Sabella of New
York Life Investment Management LLC
HOW DID MAINSTAY BALANCED FUND PERFORM RELATIVE TO ITS PEERS AND ITS BENCHMARK
FOR THE 12-MONTH REPORTING PERIOD?
Excluding all sales charges, MainStay Balanced Fund returned 10.35% for Class A
shares, 9.49% for Class B shares and 9.49% for Class C shares for the 12 months
ended October 31, 2006. Over the same period, Class I shares returned 10.84%,
Class R1 shares returned 10.70%, Class R2 shares returned 10.44%, and Class R3
shares returned 10.17%.(1) All share classes underperformed the 13.98% return of
the Fund's Balanced Composite Index,(2) the Fund's broad-based securities-market
index, for the 12-month reporting period. All share classes also underperformed
the 12.47% return of the average Lipper(3) mixed-asset target allocation growth
fund for the 12 months ended October 31, 2006.
DURING THE REPORTING PERIOD, WHICH EQUITY SECTORS WERE THE STRONGEST
CONTRIBUTORS AND WHICH ONES WERE THE WEAKEST?
The equity portion of the Fund utilizes a proprietary quantitative investment
process that focuses on a combination of valuation, operating, and trading
factors. Sector holdings are a residual of the Fund's investment process and are
not a product of top-down, macroeconomic analysis. The sector that contributed
the most to the Fund's absolute performance during the reporting period was
financials. Consumer discretionary and industrials were also strong. The equity
sectors that contributed the least to the Fund's absolute performance were
utilities, telecommunication services, and materials.
DURING THE REPORTING PERIOD, WHICH STOCKS WERE THE STRONGEST CONTRIBUTORS AND
WHICH STOCKS WERE THE WEAKEST?
The strongest individual contributors to performance in the equity portion of
the Fund's portfolio were Merck, ExxonMobil, and Swift Transportation. The
weakest stocks in the equity portion of the portfolio included Reliant Energy,
Lear, and Progressive.
WERE THERE ANY SIGNIFICANT PURCHASES OR SALES DURING THE REPORTING PERIOD?
The Fund selects securities using a proprietary investment process. Among the
stocks that fit the Fund's purchase criteria during the reporting period were
Nationwide Financial Services and American Financial Group. Among the stocks the
Fund sold because of unattractive relative valuations, weakening operating
results, and deteriorating price trends were Friedman Billings Ramsey and
AmeriCredit.
HOW DID SECTOR WEIGHTINGS CHANGE IN THE EQUITY PORTION OF THE FUND DURING THE
REPORTING PERIOD?
Weighting changes in the equity portion of the Fund are due to the Fund's
proprietary quantitative security-selection process. During the 12-month
reporting period, the equity portion of the Fund increased its exposure to the
industrials and materials sectors relative to the Russell MidCap(R) Value
Index.(4) Over the same period, the Fund's exposure to the energy sector
declined substantially relative to the Index.
As of October 31, 2006, the equity portion of the Fund was overweighted relative
to the Russell MidCap(R) Value Index in the financials and industrials sectors.
On the same date, the Fund was significantly underweighted relative to the Index
in utilities.
The Fund can invest in foreign securities, which 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. The Fund's use
of securities lending presents the risk of default by the borrower, which may
also result in a loss to the Fund. See additional securities lending disclosure
in the Notes to Financial Statements (Note 2). The Fund invests in mid-cap
stocks, which may be more volatile and less liquid than the securities of larger
companies. Funds that invest in bonds are subject to interest-rate risk and can
lose principal value when interest rates rise.
1. Class R3 shares were first offered April 28, 2006.
2. See footnote on page 174 for more information on the Fund's Balanced
Composite Index.
3. See footnote on page 174 for more information on Lipper Inc.
4. See footnote 1 on page 174 for more information on the Russell Midcap(R)
Value Index.
www.mainstayfunds.com 177
WERE THERE ANY SIGNIFICANT CHANGES TO THE BOND PORTION OF THE FUND DURING THE
REPORTING PERIOD?
There were no significant changes to the bond portion of the Fund. The bond
portion of the Fund maintained a duration of three to five years and a laddered
maturity schedule. All bonds held by the Fund were investment grade on the date
of purchase.
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 BALANCED FUND ON THIS PAGE AND THE PRECEDING PAGES
HAS NOT BEEN AUDITED.
178 MainStay Balanced Fund
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
LONG-TERM BONDS (39.2%)+
CONVERTIBLE BOND (0.0%)++
- --------------------------------------------------------------------------------
INTERNET (0.0%)++
At Home Corp.
4.75%, due 12/15/06 (a)(b)(c) $ 177,810 $ 18
--------------
Total Convertible Bond
(Cost $13,325) 18
--------------
CORPORATE BONDS (38.7%)
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE (0.8%)
General Dynamics Corp.
4.50%, due 8/15/10 874,000 855,560
United Technologies Corp.
6.50%, due 6/1/09 5,628,000 5,818,840
7.125%, due 11/15/10 3,380,000 3,622,792
--------------
10,297,192
--------------
AGRICULTURE (0.3%)
Altria Group, Inc.
7.00%, due 11/4/13 2,000,000 2,191,776
Monsanto Co.
7.375%, due 8/15/12 2,000,000 2,197,474
--------------
4,389,250
--------------
AUTO PARTS & EQUIPMENT (0.3%)
Johnson Controls, Inc.
6.30%, due 2/1/08 4,325,000 4,345,444
--------------
BANKS (5.6%)
Bank of America Corp.
7.40%, due 1/15/11 1,000,000 1,082,564
7.80%, due 2/15/10 4,500,000 4,853,093
Bank One Corp.
6.00%, due 8/1/08 5,247,000 5,328,785
7.875%, due 8/1/10 7,000,000 7,626,360
Bank One N.A.
6.25%, due 2/15/08 1,800,000 1,818,317
BankAmerica Corp.
7.125%, due 3/1/09 1,660,000 1,730,643
BankBoston N.A.
6.375%, due 3/25/08 1,000,000 1,014,431
FleetBoston Financial Corp.
6.375%, due 5/15/08 3,000,000 3,049,335
7.375%, due 12/1/09 1,200,000 1,274,972
JPMorgan Chase & Co.
6.75%, due 8/15/08 1,405,000 1,439,720
Mellon Bank N.A.
7.625%, due 9/15/07 1,311,000 1,334,633
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
BANKS (CONTINUED)
Mellon Funding Corp.
6.375%, due 2/15/10 $ 1,960,000 $ 2,038,602
6.70%, due 3/1/08 2,026,000 2,059,457
SunTrust Banks, Inc.
6.25%, due 6/1/08 5,000,000 5,065,870
U.S. Bancorp
3.125%, due 3/15/08 437,000 424,464
6.875%, due 9/15/07 3,000,000 3,027,978
U.S. Bank N.A.
5.70%, due 12/15/08 1,747,000 1,767,585
6.30%, due 7/15/08 3,305,000 3,364,877
6.375%, due 8/1/11 2,500,000 2,625,873
Wachovia Bank N.A.
7.80%, due 8/18/10 7,525,000 8,164,565
Wachovia Corp.
6.15%, due 3/15/09 1,920,000 1,960,479
6.25%, due 8/4/08 2,317,000 2,349,730
6.375%, due 1/15/09 1,736,000 1,781,957
Wells Fargo & Co.
3.50%, due 4/4/08 437,000 427,208
Wells Fargo Bank N.A.
6.45%, due 2/1/11 3,847,000 4,036,034
7.55%, due 6/21/10 5,000,000 5,397,630
--------------
75,045,162
--------------
BEVERAGES (1.0%)
Anheuser-Busch Cos., Inc.
5.375%, due 9/15/08 (d) 900,000 900,689
5.625%, due 10/1/10 1,500,000 1,524,186
5.65%, due 9/15/08 454,000 456,857
5.75%, due 4/1/10 655,000 667,390
6.00%, due 4/15/11 2,110,000 2,176,222
7.50%, due 3/15/12 4,200,000 4,634,032
9.00%, due 12/1/09 1,190,000 1,317,237
PepsiCo., Inc.
5.75%, due 1/15/08 1,747,000 1,759,196
--------------
13,435,809
--------------
CHEMICALS (0.6%)
E.I. du Pont de Nemours & Co.
3.375%, due 11/15/07 805,000 786,483
4.75%, due 11/15/12 2,000,000 1,943,660
6.75%, due 9/1/07 2,000,000 2,020,082
Praxair, Inc.
6.50%, due 3/1/08 2,536,000 2,573,634
--------------
7,323,859
--------------
</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 179
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- --------------------------------------------------------------------------------
COMPUTERS (1.5%)
Computer Sciences Corp.
6.25%, due 3/15/09 $ 1,012,000 $ 1,026,351
Hewlett-Packard Co.
5.50%, due 7/1/07 1,200,000 1,200,749
6.50%, due 7/1/12 3,500,000 3,722,705
International Business Machines Corp.
4.75%, due 11/29/12 1,500,000 1,470,339
5.375%, due 2/1/09 958,000 964,567
5.50%, due 1/15/09 467,000 471,698
6.45%, due 8/1/07 6,664,000 6,704,490
7.50%, due 6/15/13 3,940,000 4,432,476
--------------
19,993,375
--------------
COSMETICS & PERSONAL CARE (0.4%)
Gillette Co. (The)
2.875%, due 3/15/08 437,000 423,211
3.50%, due 10/15/07 1,311,000 1,285,197
Procter & Gamble Co. (The)
6.875%, due 9/15/09 3,877,000 4,060,688
--------------
5,769,096
--------------
DIVERSIFIED FINANCIAL SERVICES (12.5%)
American Express Credit Corp.
3.00%, due 5/16/08 874,000 846,272
Associates Corp. of N.A.
6.25%, due 11/1/08 1,800,000 1,835,381
Bear Stearns Cos., Inc. (The)
4.00%, due 1/31/08 1,092,000 1,076,249
7.625%, due 12/7/09 3,250,000 3,477,354
7.80%, due 8/15/07 2,000,000 2,037,470
Caterpillar Financial Services Corp.
4.875%, due 6/15/07 1,725,000 1,719,685
CIT Group, Inc.
4.75%, due 12/15/10 655,000 642,837
5.50%, due 11/30/07 1,000,000 1,002,593
5.875%, due 10/15/08 1,800,000 1,822,055
6.875%, due 11/1/09 2,500,000 2,612,660
7.375%, due 4/2/07 2,000,000 2,016,530
7.75%, due 4/2/12 5,100,000 5,653,947
Citicorp
6.375%, due 11/15/08 1,500,000 1,535,088
7.20%, due 6/15/07 1,000,000 1,009,962
Citigroup Global Markets Holdings, Inc.
6.50%, due 2/15/08 3,500,000 3,551,786
Citigroup, Inc.
5.00%, due 3/6/07 655,000 654,088
5.85%, due 8/2/16 1,500,000 1,552,160
6.50%, due 1/18/11 1,474,000 1,549,314
7.25%, due 10/1/10 2,000,000 2,146,584
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
DIVERSIFIED FINANCIAL SERVICES (CONTINUED)
Credit Suisse First Boston USA, Inc.
6.125%, due 11/15/11 $ 6,462,000 $ 6,717,327
6.50%, due 6/1/08 4,500,000 4,588,268
General Electric Capital Corp.
4.25%, due 1/15/08 437,000 432,290
5.375%, due 3/15/07 874,000 874,198
6.50%, due 12/10/07 2,000,000 2,024,316
6.875%, due 11/15/10 7,912,000 8,423,938
7.375%, due 1/19/10 5,000,000 5,332,280
Goldman Sachs Group, Inc. (The)
5.70%, due 9/1/12 874,000 890,454
6.65%, due 5/15/09 2,430,000 2,518,447
7.35%, due 10/1/09 7,650,000 8,101,136
Series B
7.80%, due 1/28/10 4,000,000 4,310,120
Heller Financial, Inc.
7.375%, due 11/1/09 5,000,000 5,317,470
HSBC Finance Corp.
5.875%, due 2/1/09 437,000 444,068
6.375%, due 8/1/10 1,657,000 1,723,169
6.375%, due 11/27/12 3,000,000 3,166,668
6.40%, due 6/17/08 3,600,000 3,667,374
6.50%, due 11/15/08 3,000,000 3,073,011
6.75%, due 5/15/11 2,374,000 2,520,595
8.00%, due 7/15/10 6,000,000 6,547,716
International Lease Finance Corp.
4.50%, due 5/1/08 437,000 431,609
5.625%, due 6/1/07 655,000 655,648
6.375%, due 3/15/09 2,000,000 2,050,244
John Deere Capital Corp.
3.90%, due 1/15/08 218,000 214,497
6.00%, due 2/15/09 2,000,000 2,033,312
7.00%, due 3/15/12 200,000 216,085
JP Morgan & Co., Inc.
6.25%, due 2/15/11 262,000 271,675
JPMorgan Chase & Co
5.25%, due 5/1/15 7,000,000 6,896,449
Lehman Brothers Holdings, Inc.
5.06%, due 9/28/07 (e) 2,000,000 1,986,040
6.625%, due 1/18/12 2,491,000 2,646,760
7.00%, due 2/1/08 4,143,000 4,218,958
7.875%, due 8/15/10 4,100,000 4,458,438
8.25%, due 6/15/07 1,000,000 1,017,722
Lehman Brothers, Inc.
6.50%, due 4/15/08 1,600,000 1,625,062
Merrill Lynch & Co., Inc.
4.95%, due 3/12/07 (e) 1,000,000 993,590
5.31%, due 3/2/09 (e) 437,000 422,050
6.00%, due 2/17/09 8,337,000 8,475,886
6.05%, due 5/16/16 6,800,000 7,061,494
6.375%, due 10/15/08 1,112,000 1,135,341
</Table>
180 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)
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (CONTINUED)
Morgan Stanley
5.80%, due 4/1/07 $ 874,000 $ 875,061
6.75%, due 4/15/11 3,811,000 4,032,293
Pitney Bowes Credit Corp.
5.75%, due 8/15/08 874,000 881,842
SLM Corp.
3.625%, due 3/17/08 437,000 426,794
4.00%, due 1/15/09 437,000 426,109
5.625%, due 4/10/07 2,000,000 2,002,266
6.27%, due 1/31/14 (e) 874,000 831,908
Toyota Motor Credit Corp.
5.50%, due 12/15/08 1,477,000 1,486,119
Wells Fargo Financial, Inc.
5.875%, due 8/15/08 2,316,000 2,341,682
6.85%, due 7/15/09 109,000 113,284
--------------
167,643,078
--------------
ELECTRIC (0.5%)
Consolidated Edison Co. of New York
7.50%, due 9/1/10 5,500,000 5,923,913
Interstate Power & Light Co.
6.625%, due 8/1/09 1,311,000 1,348,893
--------------
7,272,806
--------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.6%)
Emerson Electric Co.
5.00%, due 10/15/08 262,000 260,749
5.85%, due 3/15/09 2,386,000 2,425,887
7.125%, due 8/15/10 4,500,000 4,804,943
--------------
7,491,579
--------------
ELECTRONICS (0.2%)
Honeywell, Inc.
7.00%, due 3/15/07 2,376,000 2,387,208
7.125%, due 4/15/08 131,000 134,168
--------------
2,521,376
--------------
FOOD (3.1%)
Campbell Soup Co.
5.50%, due 3/15/07 3,405,000 3,406,549
6.75%, due 2/15/11 3,450,000 3,643,145
Kellogg Co.
Series B
6.60%, due 4/1/11 7,500,000 7,908,705
Kraft Foods, Inc.
6.25%, due 6/1/12 5,150,000 5,366,109
Nabisco, Inc.
7.05%, due 7/15/07 2,028,000 2,043,932
7.55%, due 6/15/15 7,680,000 8,765,276
Sara Lee Corp.
6.00%, due 1/15/08 1,048,000 1,048,243
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FOOD (CONTINUED)
Sysco International Co.
6.10%, due 6/1/12 (d) $ 3,060,000 $ 3,186,583
Unilever Capital Corp.
7.125%, due 11/1/10 5,700,000 6,094,565
--------------
41,463,107
--------------
HEALTH CARE-PRODUCTS (0.2%)
Johnson & Johnson
6.625%, due 9/1/09 2,371,000 2,473,145
--------------
HOUSEHOLD PRODUCTS & WARES (0.2%)
Kimberly-Clark Corp.
7.10%, due 8/1/07 3,245,000 3,288,376
--------------
INSURANCE (0.4%)
Allstate Corp. (The)
7.20%, due 12/1/09 1,900,000 2,012,125
John Hancock Financial Services, Inc.
5.625%, due 12/1/08 2,640,000 2,663,646
--------------
4,675,771
--------------
MACHINERY--CONSTRUCTION & MINING (0.7%)
Caterpillar, Inc.
6.55%, due 5/1/11 3,915,000 4,124,402
7.25%, due 9/15/09 4,347,000 4,594,740
--------------
8,719,142
--------------
MACHINERY--DIVERSIFIED (1.0%)
Deere & Co.
6.95%, due 4/25/14 5,000,000 5,502,375
7.85%, due 5/15/10 7,808,000 8,473,452
--------------
13,975,827
--------------
MEDIA (0.7%)
Gannett Co., Inc.
6.375%, due 4/1/12 2,095,000 2,171,579
Walt Disney Co. (The)
6.375%, due 3/1/12 7,000,000 7,373,415
--------------
9,544,994
--------------
MISCELLANEOUS--MANUFACTURING (0.8%)
Honeywell International, Inc.
7.50%, due 3/1/10 6,985,000 7,484,106
Illinois Tool Works, Inc.
5.75%, due 3/1/09 3,090,000 3,137,141
--------------
10,621,247
--------------
OIL & GAS (0.8%)
Atlantic Richfield Co.
5.90%, due 4/15/09 1,000,000 1,019,645
ChevronTexaco Capital Co.
3.50%, due 9/17/07 706,000 695,687
</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, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- --------------------------------------------------------------------------------
OIL & GAS (CONTINUED)
ConocoPhillips
6.375%, due 3/30/09 $ 2,160,000 $ 2,219,465
8.75%, due 5/25/10 4,440,000 4,952,660
Texaco Capital, Inc.
5.50%, due 1/15/09 2,000,000 2,024,272
--------------
10,911,729
--------------
PHARMACEUTICALS (0.2%)
Pharmacia Corp.
5.875%, due 12/1/08 437,000 443,250
Warner-Lambert Co.
6.00%, due 1/15/08 2,218,000 2,229,722
--------------
2,672,972
--------------
RETAIL (1.4%)
Kohl's Corp.
6.30%, due 3/1/11 612,000 634,858
Target Corp.
5.375%, due 6/15/09 2,706,000 2,730,151
5.40%, due 10/1/08 1,700,000 1,707,319
7.50%, due 8/15/10 3,034,000 3,275,121
Wal-Mart Stores, Inc.
6.875%, due 8/10/09 10,088,000 10,556,053
7.25%, due 6/1/13 349,000 387,228
--------------
19,290,730
--------------
SOFTWARE (0.3%)
First Data Corp.
5.625%, due 11/1/11 661,000 675,547
5.80%, due 12/15/08 1,725,000 1,743,226
6.375%, due 12/15/07 2,133,000 2,146,818
--------------
4,565,591
--------------
TELECOMMUNICATIONS (4.4%)
V ALLTEL Corp.
7.00%, due 7/1/12 12,000,000 12,674,556
Ameritech Capital Funding Corp.
6.15%, due 1/15/08 1,916,000 1,929,435
AT&T Corp.
7.30%, due 11/15/11 7,000,000 7,618,338
BellSouth Capital Funding Corp.
7.75%, due 2/15/10 6,000,000 6,423,534
BellSouth Corp.
6.00%, due 10/15/11 2,000,000 2,054,240
BellSouth Telecommunications, Inc.
5.875%, due 1/15/09 262,000 265,190
GTE North, Inc.
6.375%, due 2/15/10 437,000 447,403
Motorola, Inc.
8.00%, due 11/1/11 6,000,000 6,692,166
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
TELECOMMUNICATIONS (CONTINUED)
New York Telephone Co.
6.125%, due 1/15/10 $ 874,000 $ 885,451
Southwestern Bell Telephone Corp.
6.625%, due 7/15/07 1,100,000 1,109,042
7.00%, due 7/1/15 5,000,000 5,400,645
Verizon Communications, Inc.
6.50%, due 9/15/11 5,000,000 5,152,945
Verizon Global Funding Corp.
7.375%, due 9/1/12 7,000,000 7,690,697
--------------
58,343,642
--------------
TEXTILES (0.2%)
Cintas Corp. No. 2
6.00%, due 6/1/12 3,095,000 3,219,732
--------------
Total Corporate Bonds
(Cost $526,787,577) 519,294,031
--------------
FEDERAL AGENCIES (0.5%)
- --------------------------------------------------------------------------------
FANNIE MAE (COLLATERALIZED MORTGAGE OBLIGATIONS) (0.1%)
Series 2003-17, Class QT
5.00%, due 8/25/27 1,031,000 1,022,212
Series 2003-32, Class PG
5.00%, due 10/25/27 437,000 432,041
--------------
1,454,253
--------------
FEDERAL FARM CREDIT BANK (0.0%)++
3.875%, due 5/7/10 655,000 634,356
--------------
FEDERAL HOME LOAN BANKS (0.1%)
3.75%, due 4/1/10 655,000 632,344
3.875%, due 2/12/10 220,000 213,490
--------------
845,834
--------------
FREDDIE MAC (COLLATERALIZED MORTGAGE OBLIGATIONS) (0.2%)
Series 2734, Class JC
3.50%, due 11/15/23 889,230 868,237
Series 2579, Class PG
4.00%, due 3/15/27 115,685 114,536
Series 2719, Class WB
4.50%, due 8/15/21 1,030,211 981,812
Series 2589, Class GD
5.00%, due 9/15/28 437,000 435,013
Series 2600, Class MJ
5.00%, due 9/15/29 437,000 427,391
--------------
2,826,989
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(COLLATERALIZED MORTGAGE OBLIGATIONS) (0.1%)
Series 2003-19, Class BE
4.50%, due 11/20/28 22,683 22,598
</Table>
182 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
FEDERAL AGENCIES (CONTINUED)
- --------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(COLLATERALIZED MORTGAGE OBLIGATIONS) (CONTINUED)
Series 2003-50, Class PC
5.50%, due 3/16/32 $ 874,000 $ 875,997
--------------
898,595
--------------
Total Federal Agencies
(Cost $6,893,831) 6,660,027
--------------
YANKEE BOND (0.0%) (F)
- --------------------------------------------------------------------------------
CHEMICALS (0.0%)++
Dow Capital B.V.
8.50%, due 6/8/10 495,000 543,998
--------------
Total Yankee Bond
(Cost $559,706) 543,998
--------------
Total Long-Term Bonds
(Cost $534,254,439) 526,498,074
--------------
<Caption>
SHARES
COMMON STOCKS (59.9%)
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE (1.9%)
Northrop Grumman Corp. 124,553 8,269,074
Raytheon Co. 164,419 8,212,729
United Technologies Corp. 131,132 8,617,995
--------------
25,099,798
--------------
AGRICULTURE (1.2%)
North Atlantic Trading Co., Inc. (c)(g)(h)(i) 130 1
Reynolds American, Inc. (d) 88,102 5,564,522
UST, Inc. (d) 184,740 9,894,674
--------------
15,459,197
--------------
APPAREL (0.3%)
Jones Apparel Group, Inc. 108,044 3,608,670
--------------
AUTO MANUFACTURERS (0.5%)
Ford Motor Co. (d) 772,632 6,397,393
--------------
AUTO PARTS & EQUIPMENT (0.6%)
Autoliv, Inc. 143,580 8,165,395
--------------
BANKS (4.5%)
Bank of America Corp. 163,894 8,828,970
Bank of New York Co., Inc. (The) 242,156 8,322,902
Commerce Bancshares, Inc. 179,848 8,904,274
First Citizens BancShares, Inc. Class A 2,781 522,272
V M&T Bank Corp. 90,028 10,966,311
</Table>
<Table>
<Caption>
SHARES VALUE
BANKS (CONTINUED)
National City Corp. 239,427 $ 8,918,656
State Street Corp. 73,592 4,726,814
U.S. Bancorp 255,470 8,645,105
--------------
59,835,304
--------------
BEVERAGES (0.4%)
PepsiAmericas, Inc. 284,019 5,808,188
--------------
BUILDING MATERIALS (0.5%)
Masco Corp. 225,610 6,238,116
--------------
COMMERCIAL SERVICES (0.4%)
Quanta Services, Inc. (d)(g) 132,911 2,432,271
United Rentals, Inc. (d)(g) 115,658 2,739,938
--------------
5,172,209
--------------
COMPUTERS (1.4%)
Hewlett-Packard Co. 229,505 8,891,024
International Business Machines Corp. 102,982 9,508,328
--------------
18,399,352
--------------
COSMETICS & PERSONAL CARE (0.7%)
Colgate-Palmolive Co. 5,138 328,678
Procter & Gamble Co. (The) 136,998 8,684,303
--------------
9,012,981
--------------
DIVERSIFIED FINANCIAL SERVICES (6.3%)
A.G. Edwards, Inc. 148,769 8,487,271
Bear Stearns Cos., Inc. (The) 58,657 8,877,737
CIT Group, Inc. 170,693 8,884,571
Citigroup, Inc. 172,961 8,675,724
Countrywide Financial Corp. 1,484 56,570
Goldman Sachs Group, Inc. (The) 53,032 10,064,943
Janus Capital Group, Inc. 96,228 1,932,258
JPMorgan Chase & Co. 184,163 8,736,693
Lehman Brothers Holdings, Inc. 124,571 9,696,607
Merrill Lynch & Co., Inc. 112,977 9,876,449
Morgan Stanley 123,936 9,472,428
--------------
84,761,251
--------------
ELECTRIC (3.2%)
American Electric Power Co., Inc. 125,305 5,191,386
Duke Energy Corp. 271,167 8,579,724
V Entergy Corp. 128,451 11,024,949
NRG Energy, Inc. (d)(g) 216,065 10,403,530
PG&E Corp. 4,717 203,491
Wisconsin Energy Corp. 168,520 7,741,809
--------------
43,144,889
--------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.6%)
Emerson Electric Co. 98,704 8,330,618
--------------
</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, 2006 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------
ELECTRONICS (0.1%)
Avnet, Inc. (g) 78,007 $ 1,847,206
--------------
ENVIRONMENTAL CONTROL (1.3%)
Republic Services, Inc. 214,862 8,811,491
Waste Management, Inc. 233,340 8,745,583
--------------
17,557,074
--------------
FOOD (1.2%)
General Mills, Inc. 160,449 9,116,712
Kraft Foods, Inc. Class A (d) 201,115 6,918,356
--------------
16,035,068
--------------
FOREST PRODUCTS & PAPER (0.1%)
MeadWestvaco Corp. 68,775 1,892,688
--------------
HEALTH CARE-SERVICES (0.7%)
Aetna, Inc. 214,190 8,828,912
--------------
HOUSEHOLD PRODUCTS & WARES (1.5%)
V Clorox Co. (The) 181,569 11,722,095
Kimberly-Clark Corp. 129,206 8,594,783
--------------
20,316,878
--------------
INSURANCE (11.0%)
Allstate Corp. (The) 142,027 8,714,777
Ambac Financial Group, Inc. 77,188 6,444,426
American Financial Group, Inc. 71,707 3,431,897
AmerUs Group Co. 147,572 10,105,731
Assurant, Inc. (d) 125,454 6,606,408
V CIGNA Corp. 107,628 12,590,323
Genworth Financial, Inc. Class A 234,718 7,848,970
Lincoln National Corp. 136,976 8,671,951
Loews Corp. 170,115 6,620,876
Nationwide Financial Services, Inc. Class A 58,489 2,978,260
Old Republic International Corp. 371,179 8,362,663
PMI Group, Inc. (The) 235,847 10,058,874
Principal Financial Group, Inc. 151,149 8,538,407
Prudential Financial, Inc. 115,856 8,912,802
Radian Group, Inc. 170,896 9,108,757
SAFECO Corp. 133,073 7,743,518
StanCorp Financial Group, Inc. 214,709 9,810,054
V Torchmark Corp. 174,475 10,761,618
--------------
147,310,312
--------------
INTERNET (1.2%)
Expedia, Inc. (g) 263,428 4,280,705
V IAC/InterActiveCorp (d)(g) 365,092 11,310,550
--------------
15,591,255
--------------
</Table>
<Table>
<Caption>
SHARES VALUE
IRON & STEEL (1.8%)
Nucor Corp. 137,936 $ 8,056,842
Reliance Steel & Aluminum Co. 175,509 6,028,734
Steel Dynamics, Inc. 166,827 10,027,971
--------------
24,113,547
--------------
MACHINERY--DIVERSIFIED (0.8%)
Deere & Co. 101,821 8,668,022
Flowserve Corp. (g) 49,538 2,625,514
--------------
11,293,536
--------------
MEDIA (2.0%)
CBS Corp. Class B 288,700 8,354,978
Clear Channel Communications, Inc. 266,832 9,299,095
Gannett Co., Inc. 146,217 8,647,273
--------------
26,301,346
--------------
METAL FABRICATE & HARDWARE (0.5%)
Commercial Metals Co. 262,601 6,987,813
--------------
MISCELLANEOUS--MANUFACTURING (0.4%)
SPX Corp. 98,189 5,647,831
--------------
OFFICE & BUSINESS EQUIPMENT (0.1%)
IKON Office Solutions, Inc. 52,802 787,278
--------------
OIL & GAS (2.6%)
Anadarko Petroleum Corp. 184,694 8,573,495
Devon Energy Corp. 129,959 8,686,460
ExxonMobil Corp. 126,029 9,000,991
Sunoco, Inc. 126,062 8,336,480
W&T Offshore, Inc. 12,938 436,916
--------------
35,034,342
--------------
PHARMACEUTICALS (2.5%)
V AmerisourceBergen Corp. 242,128 11,428,442
King Pharmaceuticals, Inc. (d)(g) 210,189 3,516,462
Merck & Co., Inc. 201,028 9,130,692
Pfizer, Inc. 299,941 7,993,428
Watson Pharmaceuticals, Inc. (g) 74,157 1,995,565
--------------
34,064,589
--------------
REAL ESTATE INVESTMENT TRUSTS (1.2%)
Annaly Capital Management, Inc. (d) 597,946 7,845,051
New Century Financial Corp. (d) 224,747 8,850,537
--------------
16,695,588
--------------
RETAIL (2.8%)
AutoNation, Inc. (d)(g) 388,624 7,791,911
Circuit City Stores, Inc. (d) 317,307 8,560,943
Dillard's, Inc. Class A (d) 309,001 9,322,560
</Table>
184 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)
- --------------------------------------------------------------------------------
RETAIL (CONTINUED)
OfficeMax, Inc. 217,783 $ 10,362,115
United Auto Group, Inc. 60,036 1,379,627
--------------
37,417,156
--------------
SAVINGS & LOANS (0.7%)
Astoria Financial Corp. 328,219 9,521,633
--------------
SEMICONDUCTORS (0.4%)
Rambus, Inc. (d)(g) 324,043 5,366,152
--------------
SOFTWARE (0.5%)
Fair Isaac Corp. 194,429 7,121,934
--------------
TELECOMMUNICATIONS (1.7%)
V CenturyTel, Inc. (d) 269,342 10,838,322
Crown Castle International Corp. (d)(g) 140,702 4,734,622
Leap Wireless International, Inc. (g) 25,921 1,437,579
Polycom, Inc. (g) 233,193 6,389,488
--------------
23,400,011
--------------
TOYS, GAMES & HOBBIES (0.8%)
V Mattel, Inc. 498,588 11,283,046
--------------
TRANSPORTATION (1.3%)
Burlington Northern Santa Fe Corp. 4,432 343,613
CSX Corp. 18,685 666,494
Laidlaw International, Inc. 261,293 7,580,110
Union Pacific Corp. 91,568 8,298,808
--------------
16,889,025
--------------
TRUCKING & LEASING (0.2%)
GATX Corp. 54,910 2,392,429
--------------
Total Common Stocks
(Cost $709,649,584) 803,130,010
--------------
CONVERTIBLE PREFERRED STOCK (0.0%)++
- --------------------------------------------------------------------------------
INTERNET (0.0%)++
Globix Corp.
11.00% (c)(g)(h) 1,182 3,945
--------------
Total Convertible Preferred Stock
(Cost $3,240) 3,945
--------------
</Table>
<Table>
<Caption>
NUMBER OF
WARRANTS VALUE
WARRANTS (0.0%)++
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS (0.0%)++
UbiquiTel, Inc.
Strike Price $22.74
Expire 4/15/10 (g)(h)(j) 65 $ 1
--------------
Total Warrants
(Cost $3,574) 1
--------------
<Caption>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS (7.5%)
- --------------------------------------------------------------------------------
COMMERCIAL PAPER (1.5%)
Fairway Finance Corp.
5.289%, due 11/20/06 (k) $ 2,344,525 2,344,525
Greyhawk Funding
5.286%, due 11/13/06 (k) 2,344,525 2,344,525
Jupiter Securitization Corp.
5.303%, due 11/14/06 (k) 2,344,525 2,344,525
Lexington Parker Capital Co.
5.282%, due 11/8/06 (k) 2,344,526 2,344,526
Liberty Street Funding Co.
5.286%, due 11/27/06 (k) 2,344,525 2,344,525
Old Line Funding LLC
5.287%, due 11/15/06 (k) 2,344,525 2,344,525
Sheffiled Receivables Corp.
5.272%, due 11/8/06 (k) 2,344,525 2,344,525
Yorktown Capital LLC
5.282%, due 11/16/06 (k) 3,516,788 3,516,788
--------------
Total Commercial Paper
(Cost $19,928,464) 19,928,464
--------------
<Caption>
SHARES
INVESTMENT COMPANY (2.1%)
BGI Institutional Money Market Fund (k) 27,961,418 27,961,418
--------------
Total Investment Company
(Cost $27,961,418) 27,961,418
--------------
</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, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (0.8%)
Morgan Stanley & Co.
5.42%, dated 10/31/06
due 11/1/06
Proceeds at Maturity $10,002,620
(Collateralized by various Corporate Bonds,
with rates between 0% - 8.40% and
maturity dates between 1/30/07 - 6/15/34,
with a Principal Amount of
$10,398,708 and a Market Value
of $10,115,801) (k) $10,001,115 $ 10,001,115
--------------
Total Repurchase Agreement
(Cost $10,001,115) 10,001,115
--------------
TIME DEPOSITS (3.1%)
Banco Bilbao Vizcaya Argentaria S.A.
5.30%, due 1/9/07 (k) 2,344,525 2,344,525
Bank of America
5.27%, due 11/21/06 (e)(k) 4,689,051 4,689,051
Bank of Montreal
5.28%, due 11/27/06 (k) 2,344,525 2,344,525
Bank of Nova Scotia
5.30%, due 11/10/06 (k) 2,344,525 2,344,525
Barclays
5.32%, due 1/18/07 (k) 3,516,788 3,516,788
Deutsche Bank AG
5.27%, due 11/9/06 (k) 2,344,525 2,344,525
Fortis Bank
5.27%, due 11/6/06 (k) 4,689,051 4,689,051
Halifax Bank of Scotland
5.30%, due 1/10/07 (k) 2,344,526 2,344,526
Lloyds TSB Bank PLC
5.30%, due 12/21/06 (k) 2,344,525 2,344,525
Royal Bank of Canada
5.30%, due 12/22/06 (k) 2,344,525 2,344,525
Royal Bank of Scotland
5.29%, due 12/12/06 (k) 2,344,525 2,344,525
Skandinaviska Enskilda Banken AB
5.31%, due 11/3/06 (k) 2,344,525 2,344,525
Societe Generale North America, Inc.
5.28%, due 12/6/06 (k) 4,689,051 4,689,051
UBS AG
5.28%, due 12/5/06 (k) 3,516,788 3,516,788
--------------
Total Time Deposits
(Cost $42,201,455) 42,201,455
--------------
Total Short-Term Investments
(Cost $100,092,452) 100,092,452
--------------
</Table>
<Table>
<Caption>
VALUE
Total Investments
(Cost $1,344,003,289) (l) 106.6% $1,429,724,482(m)
Liabilities in Excess of
Cash and Other Assets (6.6) (87,987,301)
----------- --------------
Net Assets 100.0% $1,341,737,181
=========== ==============
</Table>
<Table>
++ Less than one tenth of a percent.
(a) Issue in default.
(b) Issuer in bankruptcy.
(c) Fair valued security. The total market value of these
securities at October 31, 2006 is $3,964, which reflects
0.0% of the Fund's net assets.
(d) Represents a security, or a portion thereof, which is out on
loan.
(e) Floating rate. Rate shown is the rate in effect at October
31, 2006.
(f) Yankee Bond--dollar-denominated bond issued in the United
States by a foreign bank or corporation.
(g) Non-income producing security.
(h) Illiquid security. The total market value of these
securities at October 31, 2006 is $3,947, which represents
0.0% of the Fund's net assets.
(i) Restricted security. (See Note 2 (O))
(j) May be sold to institutional investors only under Rule 144a
or securities offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
(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 $1,345,572,011.
(m) At October 31, 2006 net unrealized appreciation was
$84,152,471, 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 $100,810,100 and aggregate gross
unrealized depreciation for all investments on which there
was an excess of cost over market value of $16,657,629.
</Table>
186 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 ASSETS AND LIABILITIES AS OF OCTOBER 31, 2006
<Table>
ASSETS:
Investment in securities, at value
(identified cost $1,344,003,289) including
$96,257,585 market value of securities
loaned $1,429,724,482
Cash 4,851,744
Receivables:
Dividends and interest 9,956,633
Investment securities sold 2,702,551
Fund shares sold 1,863,139
Other assets 56,610
--------------
Total assets 1,449,155,159
--------------
LIABILITIES:
Securities lending collateral 100,092,452
Payables:
Investment securities purchased 3,829,632
Fund shares redeemed 1,643,932
Manager (See Note 3) 881,290
NYLIFE Distributors (See Note 3) 398,938
Transfer agent (See Note 3) 305,248
Shareholder communication 133,414
Professional fees 88,345
Trustees 17,438
Custodian 13,337
Accrued expenses 13,952
--------------
Total liabilities 107,417,978
--------------
Net assets $1,341,737,181
==============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
1 billion shares authorized:
Class A $ 150,701
Class B 56,139
Class C 60,944
Class I 134,746
Class R1 38,914
Class R2 39,277
Class R3 4
Additional paid-in capital 1,220,125,044
Accumulated undistributed net investment
income 2,268,530
Accumulated net realized gain on investments
and futures transactions 33,141,689
Net unrealized appreciation on investments 85,721,193
--------------
Net assets $1,341,737,181
==============
CLASS A
Net assets applicable to outstanding shares $ 420,694,305
==============
Shares of capital stock outstanding 15,070,106
==============
Net asset value per share outstanding $ 27.92
Maximum sales charge (5.50% of offering
price) 1.62
--------------
Maximum offering price per share outstanding $ 29.54
==============
CLASS B
Net assets applicable to outstanding shares $ 156,283,866
==============
Shares of capital stock outstanding 5,613,873
==============
Net asset value and offering price per share
outstanding $ 27.84
==============
CLASS C
Net assets applicable to outstanding shares $ 169,609,314
==============
Shares of capital stock outstanding 6,094,419
==============
Net asset value and offering price per share
outstanding $ 27.83
==============
CLASS I
Net assets applicable to outstanding shares $ 376,762,509
==============
Shares of capital stock outstanding 13,474,612
==============
Net asset value and offering price per share
outstanding $ 27.96
==============
CLASS R1
Net assets applicable to outstanding shares $ 108,739,443
==============
Shares of capital stock outstanding 3,891,375
==============
Net asset value and offering price per share
outstanding $ 27.94
==============
CLASS R2
Net assets applicable to outstanding shares $ 109,637,428
==============
Shares of capital stock outstanding 3,927,700
==============
Net asset value and offering price per share
outstanding $ 27.91
==============
CLASS R3
Net assets applicable to outstanding shares $ 10,316
==============
Shares of capital stock outstanding 370
==============
Net asset value and offering price per share
outstanding $ 27.91*
==============
</Table>
* Difference in the NAV recalculation and NAV stated is caused by rounding
differences.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
www.mainstayfunds.com 187
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2006
<Table>
INVESTMENT INCOME:
INCOME:
Interest $ 22,037,340
Dividends 14,171,031
Income from securities loaned--net 119,111
-------------
Total income 36,327,482
-------------
EXPENSES:
Manager (See Note 3) 9,129,452
Distribution--Class B (See Note 3) 1,253,215
Distribution--Class C (See Note 3) 1,208,375
Distribution--Class R3 (See Note 3) 13
Distribution/Service--Class A (See Note 3) 966,611
Service--Class B (See Note 3) 417,738
Service--Class C (See Note 3) 402,792
Distribution/Service--Class R2 (See Note 3) 224,841
Distribution/Service--Class R3 (See Note 3) 13
Transfer agent--Classes A, B and C (See Note
3) 1,725,489
Transfer agent--Classes I, R1, R2 and R3
(See Note 3) 120,966
Professional fees 309,224
Shareholder communication 288,259
Registration 227,753
Shareholder service--Class R1 (See Note 3) 98,929
Shareholder service--Class R2 (See Note 3) 89,937
Shareholder service--Class R3 (See Note 3) 5
Trustees 86,204
Custodian 70,572
Miscellaneous 86,430
-------------
Total expenses before waiver 16,706,818
Expense waiver from Manager (See Note 3) (17,532)
-------------
Net expenses 16,689,286
-------------
Net investment income 19,638,196
-------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on:
Security transactions 34,336,651
Futures transactions 53,635
-------------
Net realized gain on investments and futures
transactions 34,390,286
-------------
Net change in unrealized appreciation on
investments 64,933,429
-------------
Net realized and unrealized gain on
investments and futures transactions 99,323,715
-------------
Net increase in net assets resulting from
operations $118,961,911
=============
</Table>
188 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 CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2006 AND OCTOBER 31, 2005
<Table>
<Caption>
2006 2005
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 19,638,196 $ 10,176,012
Net realized gain on investments
and futures transactions 34,390,286 49,334,339
Net change in unrealized
appreciation on investments 64,933,429 (13,294,038)
-------------------------------
Net increase in net assets
resulting from operations 118,961,911 46,216,313
-------------------------------
Dividends and distributions to shareholders:
From net investment income:
Class A (5,714,660) (2,660,744)
Class B (1,306,124) (832,311)
Class C (1,232,741) (471,286)
Class I (6,313,349) (3,761,336)
Class R1 (1,838,678) (976,758)
Class R2 (1,449,904) (577,711)
Class R3 (72) --
From net realized gain on investments:
Class A (14,375,637) (2,279,721)
Class B (9,718,702) (1,382,400)
Class C (6,839,672) (683,366)
Class I (12,867,732) (3,562,351)
Class R1 (3,523,938) (760,703)
Class R2 (3,370,621) (418,441)
-------------------------------
Total dividends and
distributions to shareholders (68,551,830) (18,367,128)
-------------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 143,119,761 215,741,323
Class B 34,695,453 117,703,587
Class C 56,354,996 118,059,512
Class I 172,050,282 125,506,409
Class R1 38,768,840 53,826,419
Class R2 63,554,213 82,957,162
Class R3 10,000 --
</Table>
<Table>
<Caption>
2006 2005
Net asset value of shares issued in connection
with acquisition of MainStay Strategic Value
Fund:
Class A $ -- $ 15,888,219
Class B -- 37,464,604
Class C -- 1,601,141
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions:
Class A 17,368,513 4,224,161
Class B 10,056,010 2,015,263
Class C 5,697,641 867,629
Class I 18,921,043 7,213,127
Class R1 5,362,616 1,737,461
Class R2 4,805,575 996,137
Class R3 72 --
-------------------------------
570,765,015 785,802,154
Cost of shares redeemed:
Class A (120,943,179) (43,786,775)
Class B (42,678,256) (18,580,184)
Class C (39,998,649) (10,546,082)
Class I (98,124,065) (54,517,852)
Class R1 (17,015,533) (10,443,471)
Class R2 (33,489,887) (33,381,158)
-------------------------------
(352,249,569) (171,255,522)
Net asset value of shares converted (See Note
1):
Class A 56,462,591
Class B (56,462,591)
Increase in net assets derived
from capital share
transactions 218,515,446 614,546,632
-------------------------------
Net increase in net assets 268,925,527 642,395,817
NET ASSETS:
Beginning of year 1,072,811,654 430,415,837
-------------------------------
End of year $1,341,737,181 $1,072,811,654
===============================
Accumulated undistributed net
investment income at end of year $ 2,268,530 $ 513,722
===============================
</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
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A
---------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
Net asset value at beginning
of period $ 26.90 $ 25.41 $ 24.45
-------- -------- -----------
Net investment income 0.44 0.35 0.19
Net realized and unrealized
gain on investments 2.23 1.91 0.96
-------- -------- -----------
Total from investment
operations 2.67 2.26 1.15
-------- -------- -----------
Less dividends and
distributions:
From net investment income (0.40) (0.31) (0.19)
From net realized gain on
investments (1.25) (0.46) --
-------- -------- -----------
Total dividends and
distributions (1.65) (0.77) (0.19)
-------- -------- -----------
Net asset value at end of
period $ 27.92 $ 26.90 $ 25.41
======== ======== ===========
Total investment return (b) 10.35% 8.96% 4.70%(c)
Ratios (to average net
assets)/Supplemental Data:
Net investment income 1.63% 1.32% 0.99%+
Net expenses 1.32% 1.32% 1.34%+#
Expenses (before waiver) 1.32% 1.32% 1.34%+#
Portfolio turnover rate 55% 93% 42%
Net assets at end of period
(in 000's) $420,694 $307,538 $108,204
</Table>
<Table>
<Caption>
CLASS I
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2006 2005 2004 2003 2002
Net asset value at beginning
of period $ 26.94 $ 25.43 $ 24.07 $ 20.41 $ 20.78
-------- -------- -------- -------- -------
Net investment income 0.53 0.45 0.34 0.38(a) 0.48
Net realized and unrealized
gain on investments 2.27 1.94 1.68 3.67 0.00(d)
-------- -------- -------- -------- -------
Total from investment
operations 2.80 2.39 2.02 4.05 0.48
-------- -------- -------- -------- -------
Less dividends and
distributions:
From net investment income (0.53) (0.42) (0.34) (0.39) (0.44)
From net realized gain on
investments (1.25) (0.46) (0.32) -- (0.41)
-------- -------- -------- -------- -------
Total dividends and
distributions (1.78) (0.88) (0.66) (0.39) (0.85)
-------- -------- -------- -------- -------
Net asset value at end of
period $ 27.96 $ 26.94 $ 25.43 $ 24.07 $ 20.41
======== ======== ======== ======== =======
Total investment return (b) 10.84% 9.46% 8.45% 20.13% 2.18%
Ratios (to average net
assets)/Supplemental Data:
Net investment income 2.11% 1.77% 1.42% 1.78% 2.30%
Net expenses 0.85% 0.86% 0.91%# 0.99%# 0.96%#
Expenses (before waiver) 0.85% 0.86% 0.91%# 1.03%# 1.02%#
Portfolio turnover rate 55% 93% 42% 51% 62%
Net assets at end of period
(in 000's) $376,763 $269,652 $180,262 $147,519 $83,906
</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 October 31, 2004, October 31, 2003 and
October 31, 2002, respectively.
+ Annualized.
(a) Per share data based on average shares outstanding during the period.
(b) Total return is calculated exclusive of sales charges. Class I, Class R1, Class R2 and
Class R3 are not subject to sales charges.
(c) Total return is not annualized.
(d) Less than one cent per share.
</Table>
190 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 B CLASS C
--------------------------------------- -----------------------------------------------------
JANUARY 2, DECEMBER 30,
2004* 2002*
THROUGH THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31, YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004 2006 2005 2004 2003
$ 26.84 $ 25.37 $ 24.46 $ 26.83 $ 25.37 $ 24.08 $20.27
-------- -------- ----------- -------- -------- ------- ------------
0.23 0.18 0.08 0.24 0.17 0.13 0.15(a)
2.22 1.89 0.93 2.21 1.89 1.62 3.76
-------- -------- ----------- -------- -------- ------- ------------
2.45 2.07 1.01 2.45 2.06 1.75 3.91
-------- -------- ----------- -------- -------- ------- ------------
(0.20) (0.14) (0.10) (0.20) (0.14) (0.14) (0.10)
(1.25) (0.46) -- (1.25) (0.46) (0.32) --
-------- -------- ----------- -------- -------- ------- ------------
(1.45) (0.60) (0.10) (1.45) (0.60) (0.46) (0.10)
-------- -------- ----------- -------- -------- ------- ------------
$ 27.84 $ 26.84 $ 25.37 $ 27.83 $ 26.83 $ 25.37 $24.08
======== ======== =========== ======== ======== ======= ============
9.49% 8.19% 4.13%(c) 9.49% 8.15% 7.30% 19.32%(c)
0.94% 0.57% 0.24%+ 0.89% 0.57% 0.24% 0.78%+
2.07% 2.07% 2.09%+# 2.07% 2.07% 2.09%# 1.98%+#
2.07% 2.07% 2.09%+# 2.07% 2.07% 2.09%# 2.03%+#
55% 93% 42% 55% 93% 42% 51%
$156,284 $206,074 $62,931 $169,609 $141,279 $29,301 $ 372
</Table>
<Table>
<Caption>
CLASS R1 CLASS R2 CLASS R3
---------------------------------------- ---------------------------------------- -----------
JANUARY 2, JANUARY 2 APRIL 28,
2004* 2004* 2006*
THROUGH THROUGH THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31, YEAR ENDED OCTOBER 31, OCTOBER 31, OCTOBER 31,
2006 2005 2004 2006 2005 2004 2006
$ 26.93 $ 25.43 $ 24.45 $ 26.90 $ 25.41 $ 24.45 $27.25
--------- -------- ----------- --------- -------- ----------- -----------
0.53 0.43 0.23 0.46 0.39 0.18 0.20
2.23 1.93 0.98 2.23 1.90 0.97 0.66
--------- -------- ----------- --------- -------- ----------- -----------
2.76 2.36 1.21 2.69 2.29 1.15 0.86
--------- -------- ----------- --------- -------- ----------- -----------
(0.50) (0.40) (0.23) (0.43) (0.34) (0.19) (0.20)
(1.25) (0.46) -- (1.25) (0.46) -- --
--------- -------- ----------- --------- -------- ----------- -----------
(1.75) (0.86) (0.23) (1.68) (0.80) (0.19) (0.20)
--------- -------- ----------- --------- -------- ----------- -----------
$ 27.94 $ 26.93 $ 25.43 $ 27.91 $ 26.90 $ 25.41 $27.91
========= ======== =========== ========= ======== =========== ===========
10.70% 9.33% 4.96%(c) 10.44% 9.05% 4.71%(c) 3.18%(c)
1.99% 1.68% 1.32%+ 1.75% 1.43% 1.07%+ 1.36%+
0.95% 0.96% 1.01%+# 1.20% 1.21% 1.26%+# 1.48%+
0.95% 0.96% 1.01%+# 1.20% 1.21% 1.26%+# 1.48%+
55% 93% 42% 55% 93% 42% 55%
$108,739 $77,397 $30,394 $109,637 $70,872 $19,324 $ 10
</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 191
MAINSTAY INCOME MANAGER FUND
(FORMERLY MAINSTAY ASSET MANAGER FUND)
INVESTMENT AND PERFORMANCE COMPARISON (UNAUDITED)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE 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 CALL 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM. PERFORMANCE DATA SHOWN EXCLUDING SALES CHARGES DOES NOT
REFLECT THE DEDUCTION OF ANY SALES LOAD, WHICH IF REFLECTED, WOULD REDUCE
PERFORMANCE QUOTED.
CLASS A SHARES--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 7.86% 5.22% 7.78%
Excluding sales charges 14.13 6.41 8.39
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
ASSET INCOME
MAINSTAY MANAGER MANAGER
INCOME RUSSELL 1000 COMPOSITE COMPOSITE
MANAGER FUND S&P 500 INDEX INDEX INDEX INDEX
------------ ------------- ------------ --------- ---------
10/31/96 9450 10000 10000 10000 10000
11894 13211 13184 12216 12127
14227 16117 15783 14286 14025
15931 20253 19821 16517 15972
17676 21487 21616 17618 17337
15501 16136 15987 15611 15717
14108 13698 13653 14511 14893
15934 16548 16700 16561 17056
17247 18107 18258 17804 18364
18533 19686 20169 18857 19521
10/31/06 21153 22903 23401 21073 21684
<Caption>
LEHMAN
BROTHER
AGGREGATE
BOND INDEX
----------
10/31/96 10000
10889
11906
11969
12843
14713
15579
16343
17247
17443
10/31/06 18348
</Table>
CLASS B SHARES--MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 8.35% 5.30% 7.64%
Excluding sales charges 13.35 5.62 7.64
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
ASSET INCOME
MAINSTAY MANAGER MANAGER
INCOME RUSSELL 1000 COMPOSITE COMPOSITE
MANAGER FUND S&P 500 INDEX INDEX INDEX INDEX
------------ ------------- ------------ --------- ---------
10/31/96 10000 10000 10000 10000 10000
12491 13211 13184 12216 12127
14853 16117 15783 14286 14025
16531 20253 19821 16517 15972
18216 21487 21616 17618 17337
15879 16136 15987 15611 15717
14341 13698 13653 14511 14893
16073 16548 16700 16561 17056
17276 18107 18258 17804 18364
18416 19686 20169 18857 19521
10/31/06 20874 22903 23401 21073 21684
<Caption>
LEHMAN
BROTHER
AGGREGATE
BOND INDEX
----------
10/31/96 10000
10889
11906
11969
12843
14713
15579
16343
17247
17443
10/31/06 18348
</Table>
CLASS C SHARES--MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 12.26% 5.62% 7.60%
Excluding sales charges 13.26 5.62 7.60
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
ASSET INCOME
MAINSTAY MANAGER MANAGER
INCOME RUSSELL 1000 COMPOSITE COMPOSITE
MANAGER FUND S&P 500 INDEX INDEX INDEX INDEX
------------ ------------- ------------ --------- ---------
10/31/96 10000 10000 10000 10000 10000
12485 13211 13184 12216 12127
14835 16117 15783 14286 14025
16493 20253 19821 16517 15972
18165 21487 21616 17618 17337
15821 16136 15987 15611 15717
14295 13698 13653 14511 14893
16027 16548 16700 16561 17056
17210 18107 18258 17804 18364
18360 19686 20169 18857 19521
10/31/06 20794 22903 23401 21073 21684
<Caption>
LEHMAN
BROTHER
AGGREGATE
BOND INDEX
----------
10/31/96 10000
10889
11906
11969
12843
14713
15579
16343
17247
17443
10/31/06 18348
</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 as 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 5.50%
and an annual 12b-1 fee of .25%. Class B shares are sold with no initial sales
charge, are subject to a contingent
THE DISCLOSURE AND FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THE TABLES
AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
192 MainStay Income Manager Fund
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
14.34% 6.64% 8.61%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
ASSET INCOME
MAINSTAY MANAGER MANAGER
INCOME RUSSELL 1000 COMPOSITE COMPOSITE
MANAGER FUND S&P 500 INDEX INDEX INDEX INDEX
------------ ------------- ------------ --------- ---------
10/31/96 10000 10000 10000 10000 10000
12609 13211 13184 12216 12127
15118 16117 15783 14286 14025
16951 20253 19821 16517 15972
18846 21487 21616 17618 17337
16562 16136 15987 15611 15717
15109 13698 13653 14511 14893
17098 16548 16700 16561 17056
18540 18107 18258 17804 18364
19979 19686 20169 18857 19521
10/31/06 22843 22903 23401 21073 21684
<Caption>
LEHMAN
BROTHER
AGGREGATE
BOND INDEX
----------
10/31/96 10000
10889
11906
11969
12843
14713
15579
16343
17247
17443
10/31/06 18348
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
- ------------------------------------------------------------------------------
Income Manager Composite Index(1) 11.08% 6.65% 8.05%
Asset Manager Composite Index(2) 11.75 6.18 7.74
S&P 500(R) Index(3) 16.34 7.26 8.64
Lehman Brothers(R) Aggregate Bond Index(4) 5.19 4.51 6.26
Russell 1000(R) Index(5) 16.02 7.92 8.87
Average Lipper flexible portfolio fund(6) 11.98 8.03 8.33
</Table>
deferred sales charge (CDSC) of up to 5.00% 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. These fee waivers and/or expense limitations are contractual and may
be modified or terminated only with the approval of the Board of
Directors/Trustees. The Manager may recoup the amount of any management fee
waivers or expense reimbursements from the Fund pursuant to this agreement if
such action does not cause the Fund to exceed existing expense limitations and
the recoupment is made within three years after the year in which the Manager
incurred the expense. From inception (1/2/91) through 12/31/03, performance for
Class A and B shares (each first offered 1/2/04) includes the historical
performance of Class I shares 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 1.00% sales charge and a 1%
CDSC on redemptions within one year of purchase. From inception through
12/29/02, performance for Class L shares (first offered 12/30/02) includes the
historical performance of Class I shares adjusted to reflect the applicable
sales charge, CDSC, and fees and expenses for Class L shares. Effective 1/02/04,
all outstanding Class L shares of the Fund were converted to Class C shares,
redesignated Class C shares, or both.
1. Going forward, the Fund will measure its performance against an Income
Manager Composite Index. The Fund's Income Manager Composite Index consists
of the Russell 1000(R) Index and the Lehman Brothers(R) Aggregate Bond Index
weighted 55%/45%, respectively. The Russell 1000(R) Index measures the
performance of the 1,000 largest U.S. companies based on total market
capitalization. The Lehman Brothers(R) Aggregate Bond Index is an unmanaged
index that consists of the following other unmanaged Lehman Brothers(R)
indices: the Government Index, Corporate Index, 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 that all income and capital gains are reinvested in
the index or indices that produce them. An investment cannot be made directly
in an index. The Income Manager Composite Index is considered to be the
Fund's broad-based securities market index for comparison purposes.
2. The Asset Manager Composite Index is comprised of the S&P 500(R) Index, the
Citigroup Broad Investment Grade 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
Bond Index (The "BIG Index") is an unmanaged index that is considered
representative of the U.S. investment-grade 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 assume that all income and capital gains are
reinvested in the index or indices that produce them. The Asset Manager
Composite Index was previously considered to be the Fund's broad-based
securities-market index for comparison purposes. An investment cannot be made
directly in an index.
3. "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 in an index.
4. The Lehman Brothers(R) Aggregate Bond Index is an unmanaged index that
consists of the following other unmanaged Lehman Brothers(R) Indices: the
Government Index, Corporate Index, Mortgage-Backed Securities Index and
Asset-Backed Securities Index. To qualify for inclusion in the Lehman
Brothers(R) Aggregate Bond Index, securities must be in 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. An
investment cannot be made directly in an index.
5. 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 in 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 THE
TABLES AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
www.mainstayfunds.com 193
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY INCOME MANAGER FUND
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from May 1, 2006, to October 31, 2006,
and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, if applicable, exchange fees, and sales
charges (loads) on purchases, and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds. The example is based on an investment of $1,000 made at the
beginning of the six-month period and held for the entire period from May 1,
2006, to October 31, 2006.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested to estimate the expenses that you
paid during the six-months ended October 31, 2006. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
- - HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The fourth and fifth data columns in the table below provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balances or
expenses you paid for the six-month period shown. You may use this information
to compare the ongoing costs of investing in the Fund with the ongoing costs of
investing in other Funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
Funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees, if applicable, exchange fees, or sales charges (loads).
Therefore, the fourth and fifth data columns of the table are useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT
ENDING ACCOUNT VALUE (BASED
VALUE (BASED ON HYPOTHETICAL
BEGINNING ON ACTUAL EXPENSES 5% ANNUALIZED EXPENSES
ACCOUNT RETURNS AND PAID RETURN AND PAID
VALUE EXPENSES) DURING ACTUAL EXPENSES) DURING
SHARE CLASS 5/1/06 10/31/06 PERIOD(1) 10/31/06 PERIOD(1)
CLASS A SHARES $1,000.00 $1,064.85 $5.46 $1,019.75 $5.35
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $1,060.25 $9.40 $1,015.95 $9.20
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $1,060.30 $9.35 $1,016.00 $9.15
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,064.80 $4.68 $1,020.50 $4.58
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio of each class
(1.05% for Class A, 1.81% for Class B, 1.80% for Class C and 0.90% for Class
I) multiplied by the average account value over the period, divided by 365
and multiplied by 184 (to reflect the one-half year period). In the absence
of waivers and/or reimbursements, expenses would have been higher.
194 MainStay Income Manager Fund
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2006
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
Common Stocks 51.4
U.S. Government & Federal Agencies 17.5
Short-Term Investments (collateral from securities lending 14.3
is 11.7%)
Corporate Bonds 11.5
Loan Assignments & Participations 6.7
Foreign Bonds 2.8
Real Estate Investment Trusts 2.6
Commercial Mortgage Loans (Collateralized Mortgage 2.5
Obligations)
Asset-Backed Securities 1.3
Yankee Bonds 0.1
Investment Company 0.1
Futures Contracts 0.0*
Liabilities in Excess of Cash and Other Assets (10.8)
</Table>
* Less than one-tenth of a percent.
See Portfolio of Investments on page 198 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2006 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. ExxonMobil Corp.
2. Merck & Co., Inc.
3. Southern Copper Corp.
4. Citizens Communications Co.
5. AT&T, Inc.
6. Pfizer, Inc.
7. Verizon Communications, Inc.
8. Citigroup, Inc.
9. Regal Entertainment Group Class A
10. Microsoft Corp.
</Table>
www.mainstayfunds.com 195
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio managers Tony Elavia and Anthony Malloy of New
York Life Investment Management LLC
WERE THERE ANY CHANGES TO THE FUND'S INVESTMENT APPROACH DURING THE REPORTING
PERIOD?
Effective January 2, 2006, MainStay Asset Manager Fund changed its name to
MainStay Income Manager Fund. The Fund now invests at least 80% of its assets in
income-producing securities subject to the following constraints: Up to 65% of
the Fund's net assets are invested in equity securities and related derivatives,
such as dividend-paying common and preferred stocks (within this allocation, at
least 30% of the Fund's net assets are invested in U.S. equity securities,
including investments in REITs). At least 35% of the Fund's net assets are
invested in fixed-income securities, including cash and cash equiv-alents and
related derivatives. These securities consist of both investment-grade and
high-yield fixed-income securities, including up to 15% of total assets, at the
time of purchase, in high-yield securities; and up to 10% of total assets, at
the time of purchase, in a combination of emerging-market debt and floating-
rate loans.
The Fund may also invest in other fixed-income securities without restriction,
including government, corporate, asset-backed, and mortgage-backed securities.
The Fund does not have a minimum required allocation to money market instruments
and will normally not invest more than 10% in these instruments. Finally, in
pursuing its investment objective, the Fund may invest up to 20% of its total
assets, at the time of purchase, in foreign securities of developed or emerging
markets or in futures associated with such securities.
HOW DID MAINSTAY INCOME MANAGER FUND PERFORM RELATIVE TO ITS BENCHMARK AND ITS
PEERS DURING THE 12 MONTHS ENDED OCTOBER 31, 2006?
Excluding all sales charges, MainStay Income Manager Fund returned 14.13% for
Class A shares, 13.35% for Class B shares, and 13.26% for Class C shares for the
12 months ended October 31, 2006. Over the same period, the Fund's Class I
shares returned 14.34%. All share classes outperformed the 11.08% return of the
Income Manager Composite Index,(1) the Fund's broad-based securities-market
index, for the 12-month period. All share classes outperformed the 11.98% return
of the average Lipper(2) flexible portfolio fund for the 12 months ended October
31, 2006.
DURING THE REPORTING PERIOD, WHICH EQUITY MARKET SEGMENTS AND INDIVIDUAL STOCKS
WERE THE LARGEST POSITIVE CONTRIBUTORS TO THE FUNDS PERFORMANCE AND WHICH ONES
DETRACTED?
The strongest positive contributors to the Fund's performance were
telecommunication providers, mining companies, oil refiners, heavy equipment
manufacturers, and other firms in the materials, energy, and industrials
sectors. Tobacco companies were also strong. The largest detractors from the
Fund's results were airlines, auto manufacturers, and insurance and other
financial services companies.
Among individual stocks, strong positive contributors to the Fund's performance
included Merck, AT&T, and Southern Copper. Significant detractors included the
Fund's positions in TD AmeriTrade, Claire's Stores, and Intel, all of which had
either been eliminated from the portfolio or greatly reduced by the end of
October 2006.
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.
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. Floating-rate debt is
generally considered to have speculative characteristics that may involve risk
of default on principal and interest and risks associated with collateral
impairment, non-diversification, borrower industry concentration, and limited
liquidity. The principal risk of investing in value stocks is that they may
never reach what the portfolio manager believes is their full value or they may
even go down in value. High-yield debt securities ("junk bonds") are generally
considered speculative because they present a greater risk of loss than
higher-quality debt securities and may be subject to greater price volatility.
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 193 for more information on the Asset Manager Composite
Index.
2. See footnote on page 193 for more information on Lipper Inc.
196 MainStay Income Manager Fund
WERE THERE ANY SIGNIFICANT PURCHASES OR SALES DURING THE REPORTING PERIOD?
We purchased Southern Copper for its exceptional yield, attractive valuation,
and strong price momentum. We substantially added to the Fund's position in
Citizens Communications, a telephone company with a high dividend yield that
scores well on all our models. High valuations led us to eliminate the Fund's
positions in Crescent Real Estate and Healthcare Realty. Both companies are real
estate investment trusts.
HOW DID THE FUND'S EQUITY WEIGHTINGS CHANGE DURING THE REPORTING PERIOD?
Within the equity portion of the Fund, we meaningfully reduced exposure to
utilities, REITs, and consumer services over the course of the reporting period
in favor of telecommunications, health care, and banks. We also increased the
Fund's average capitalization.
HOW DID THE FUND'S FIXED-INCOME INVESTMENTS PERFORM?
Exclusive of sales charges, the fixed-income portion of the Fund had a gross
return slightly ahead of the return of the Lehman Brothers(R) Aggregate Bond
Index(3) during the reporting period. These results were aided by a significant
asset-allocation shift made primarily during the first quarter of 2006.
At the beginning of the reporting period, the fixed-income portion of the Fund
was invested to track the Citigroup Broad Investment Grade Bond Index.(4) During
the first quarter of 2006, however, we gradually invested the fixed-income
portion of the Fund in a more diversified array of securities and elected that
going forward, the fixed-income portion of the Fund would measure its
performance against the Lehman Brothers(R) Aggregate Bond Index.
We designated the Fund's investments that consisted primarily of high-grade
fixed-income securities as the "Core Component" of the fixed-income portion of
the Fund. We also increased the Fund's allocation to high-yield securities,
including high-yield corporate bonds, emerging-market debt, and bank loans.
These elements constitute the "Plus Component" of the fixed-income portion of
the Fund. Initial investments in the various elements of the Plus Component
began on different dates, but once the Plus Component was fully invested,
allocations in the fixed-income portion of the Fund remained tightly centered
around 70% Core/30% Plus for the remainder of the 12-month reporting period.
HOW WAS THE FUND POSITIONED AT THE END OF THE REPORTING PERIOD?
As of October 26, 2006, the Fund was overweighted relative to the Russell
1000(R) Index(5) in telecommunications and financials, particularly among REITs,
insurers, and companies in the capital markets industry. On the same date, the
Fund was underweighted in technology, particularly among semiconductor and
hardware companies. Among individual stocks, Southern Copper was overweighted.
General Electric, Procter & Gamble, and Bank of America were all owned by the
Fund but underweighted relative to the Index.
In the fixed-income portion of the Fund, the Core Component held a slightly
overweighted position relative to the Lehman Brothers(R) Aggregate Bond Index in
corporate bonds, mortgage-backed securities, and structured finance securities.
The Core Component also maintained an underweighted position relative to the
Lehman Brothers(R) Aggregate Bond Index in Treasury and agency securities.
The fixed-income Plus Component of the Fund favored bank loans over high-yield
and emerging-market bonds. We felt that the high current income and defensive
nature of bank loans relative to other Plus Component asset classes made the
weighting prudent--particularly in a period that saw an inverted yield curve, a
pause in Federal Reserve tightening, and idiosyncratic risks that weighed on the
credit market.
3. See footnote on page 193 for more information on the Lehman Brothers(R)
Aggregate Bond Index.
4. See footnote 2 on page 193 for more information on the Citigroup Broad
Investment Grade Index.
5. See footnote on page 193 for more information on the Russell 1000(R) 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 INCOME MANAGER FUND ON THIS PAGE AND THE PRECEDING
PAGES HAS NOT BEEN AUDITED.
www.mainstayfunds.com 197
PORTFOLIO OF INVESTMENTS+++ OCTOBER 31, 2006
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
LONG-TERM BONDS (42.4%)+
ASSET-BACKED SECURITIES (1.3%)
- ------------------------------------------------------------------------------
AIRLINES (0.0%)++
Continental Airlines, Inc.
Series 1992-2, Class A1
7.256%, due 3/15/20 $ 33,000 $ 34,986
------------
AUTOMOBILE (0.1%)
Drive Auto Receivables Trust
Series 2005-3, Class A4
5.09%, due 6/17/13 (a) 500,000 498,385
------------
CONSUMER FINANCE (0.2%)
Chase Issuance Trust
Series 2005, Class A-10
4.65%, due 12/17/12 750,000 742,323
------------
HOME EQUITY (1.0%)
Centex Home Equity
Series 2004-B, Class AF4
4.122%, due 1/25/32 500,000 487,370
Citicorp Residential Mortgage Securities, Inc.
Series 2006-1, Class A3
5.706%, due 7/25/36 (b) 500,000 502,789
Countrywide Asset-Backed Certificates
Series 2006-S5, Class A3
5.762%, due 6/25/35 500,000 502,605
Equity One ABS, Inc.
Series 2003-4, Class AF6
4.833%, due 10/25/34 500,000 494,338
GSAA Home Equity Trust
Series 2006-13, Class AF3
6.04%, due 7/25/36 500,000 504,284
JP Morgan Mortgage Acquisition Corp.
Series 2006-WF1, Class A6
6.00%, due 7/25/36 500,000 509,537
Residential Asset Mortgage Products, Inc.
Series 2003-RZ5, Class A7
4.97%, due 9/25/33 500,000 491,988
Residential Asset Securities Corp.
Series 2003-KS9, Class AI6
4.71%, due 11/25/33 100,000 97,462
Saxon Asset Securities Trust
Series 2003-1, Class AF5
4.955%, due 6/25/33 96,707 95,901
------------
3,686,274
------------
Total Asset-Backed Securities
(Cost $4,943,939) 4,961,968
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE OBLIGATIONS) (2.5%)
- ------------------------------------------------------------------------------
Banc of America Commercial Mortgage, Inc.
Series 2005-6, Class A4
5.182%, due 9/10/47 (b) $ 1,000,000 $ 996,720
Series 2006-4, Class A3A
5.60%, due 7/10/46 250,000 254,846
Series 2006-2, Class AAB
5.723%, due 5/10/45 (b) 500,000 515,238
Bear Stearns Adjustable Rate Mortgage Trust
Series 2005-8, Class A4
5.097%, due 8/25/35 (a)(b) 500,000 488,486
Bear Stearns Commercial Mortgage Securities
Series 2006-PW12, Class AAB
5.686%, due 9/11/38 (b) 250,000 257,106
Citigroup/Deutsche Bank Commercial Mortgage Trust
Series 2005-CD1, Class AM
5.226%, due 7/15/44 (b) 1,000,000 997,809
GMAC Commercial Mortgage Securities, Inc.
Series 2006-C1, Class A4
5.238%, due 11/10/45 (b) 1,000,000 996,027
JP Morgan Chase Commercial Mortgage Securities
Corp.
Series 2006-CB16, Class A3B
5.579%, due 5/12/45 500,000 507,010
LB-UBS Commercial Mortgage Trust
Series 2006-C4, Class AAB
5.874%, due 6/15/32 (b) 300,000 312,332
Merrill Lynch Mortgage Trust
Series 2005-MKB2, Class A4
5.204%, due 9/12/42 (b) 1,000,000 993,727
Morgan Stanley Capital I
Series 2006-HQ9, Class AM
5.773%, due 7/12/44 (b) 500,000 516,175
</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.
198 MainStay Income 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
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE OBLIGATIONS) (CONTINUED)
- ------------------------------------------------------------------------------
Structured Adjustable Rate Mortgage Loan Trust
Series 2006-8, Class 4A3
5.75%, due 9/25/36 (b) $ 500,000 $ 497,585
Series 2005-22, Class 5A2
6.03%, due 12/25/35 (b) 859,698 861,578
Wachovia Bank Commercial Mortgage Trust
Series 2005-C18, Class A4
4.935%, due 4/15/42 1,000,000 975,907
------------
Total Commercial Mortgage Loans
(Cost $9,136,663) 9,170,546
------------
CORPORATE BONDS (11.5%)
- ------------------------------------------------------------------------------
ADVERTISING (0.1%)
R.H. Donnelley Corp.
8.875%, due 1/15/16 400,000 412,500
------------
AEROSPACE & DEFENSE (0.3%)
DRS Technologies, Inc.
7.625%, due 2/1/18 (c) 250,000 255,625
Lockheed Martin Corp.
7.65%, due 5/1/16 100,000 116,260
Northrop Grumman Corp.
7.125%, due 2/15/11 100,000 107,084
Northrop Grumman Space & Mission Systems Corp.
Series D
6.38%, due 5/19/08 400,000 405,572
Raytheon Co.
6.40%, due 12/15/18 50,000 53,726
6.75%, due 8/15/07 58,000 58,540
TransDigm, Inc.
7.75%, due 7/15/14 (a) 100,000 102,750
------------
1,099,557
------------
AGRICULTURE (0.0%)++
Archer-Daniels-Midland Co.
8.125%, due 6/1/12 100,000 113,697
------------
AUTO MANUFACTURERS (0.1%)
DaimlerChrysler N.A. Holding Corp.
7.30%, due 1/15/12 250,000 266,760
------------
BANKS (0.9%)
Bank of America Corp.
5.75%, due 8/15/16 125,000 127,392
5.875%, due 2/15/09 500,000 508,633
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
BANKS (CONTINUED)
Bank One Corp.
Series A
6.00%, due 2/17/09 $ 250,000 $ 254,165
Deutsche Bank Financial, Inc.
7.50%, due 4/25/09 100,000 105,083
FleetBoston Financial Corp.
3.85%, due 2/15/08 250,000 245,575
Key Bank N.A.
5.80%, due 7/1/14 175,000 178,925
PNC Bank N.A.
5.25%, due 1/15/17 75,000 74,132
Popular North America, Inc.
5.65%, due 4/15/09 375,000 376,408
SunTrust Banks, Inc.
5.45%, due 12/1/17 50,000 49,969
U.S. Bancorp
Series N
3.95%, due 8/23/07 250,000 247,236
Wachovia Bank N.A.
4.875%, due 2/1/15 350,000 336,973
Wachovia Corp.
6.25%, due 8/4/08 100,000 101,413
Wells Fargo Bank N.A.
5.75%, due 5/16/16 300,000 308,237
5.95%, due 8/26/36 250,000 257,562
6.45%, due 2/1/11 250,000 262,284
------------
3,433,987
------------
BEVERAGES (0.1%)
Anheuser-Busch Cos., Inc.
5.75%, due 4/1/10 100,000 101,892
Coca-Cola Enterprises, Inc.
7.00%, due 5/15/98 100,000 111,954
Le-Natures, Inc.
10.00%, due 6/15/13 (a)(d) 250,000 255,000
------------
468,846
------------
BUILDING MATERIALS (0.2%)
Goodman Global Holdings Co., Inc.
7.875%, due 12/15/12 (c) 300,000 288,000
Masco Corp.
5.75%, due 10/15/08 200,000 200,615
Nortek, Inc.
8.50%, due 9/1/14 250,000 238,750
NTK Holdings, Inc.
(zero coupon), due 3/1/14 200,000 137,000
------------
864,365
------------
</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 199
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
CHEMICALS (0.1%)
Dow Chemical Co. (The)
8.55%, due 10/15/09 $ 100,000 $ 109,005
PQ Corp.
7.50%, due 2/15/13 350,000 335,125
------------
444,130
------------
COMMERCIAL SERVICES (0.3%)
Ashtead Capital, Inc.
9.00%, due 8/15/16 (a) 15,000 15,787
Concentra Operating Corp.
9.125%, due 6/1/12 150,000 156,750
9.50%, due 8/15/10 197,000 205,865
Hertz Corp. (The)
8.875%, due 1/1/14 (a) 300,000 313,500
Iron Mountain, Inc.
8.75%, due 7/15/18 250,000 263,750
United Rentals, Inc.
7.75%, due 11/15/13 (c) 300,000 299,250
------------
1,254,902
------------
COMPUTERS (0.2%)
Activant Solutions, Inc.
9.50%, due 5/1/16 (a) 250,000 232,500
SunGard Data Systems, Inc.
9.125%, due 8/15/13 350,000 363,125
------------
595,625
------------
DIVERSIFIED FINANCIAL SERVICES (2.1%)
American General Finance Corp.
Series H
4.50%, due 11/15/07 250,000 248,090
Ameriprise Financial, Inc.
5.35%, due 11/15/10 50,000 50,242
Bear Stearns Cos., Inc. (The)
5.70%, due 1/15/07 250,000 250,080
Boeing Capital Corp.
5.75%, due 2/15/07 250,000 250,391
Capital One Bank
5.125%, due 2/15/14 100,000 98,371
Caterpillar Financial Services Corp.
4.30%, due 6/1/10 50,000 48,633
Citigroup, Inc.
3.50%, due 2/1/08 500,000 489,604
5.875%, due 2/22/33 250,000 251,815
Countrywide Financial Corp.
6.25%, due 5/15/16 500,000 509,296
Countrywide Home Loans, Inc.
5.625%, due 5/15/07 100,000 100,096
Credit Suisse First Boston USA, Inc.
4.625%, due 1/15/08 250,000 248,126
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
DIVERSIFIED FINANCIAL SERVICES (CONTINUED)
Ford Motor Credit Co.
9.875%, due 8/10/11 $ 250,000 $ 258,329
General Electric Capital Corp.
6.00%, due 6/15/12 500,000 520,098
Series A
6.75%, due 3/15/32 250,000 288,669
General Motors Acceptance Corp.
6.875%, due 9/15/11 300,000 302,059
Goldman Sachs Group, Inc. (The)
5.70%, due 9/1/12 150,000 152,824
HSBC Finance Corp.
4.75%, due 7/15/13 1,000,000 970,116
6.375%, due 10/15/11 50,000 52,465
John Deere Capital Corp.
3.90%, due 1/15/08 250,000 245,982
Jostens IH Corp.
7.625%, due 10/1/12 300,000 303,000
JPMorgan Chase & Co.
5.75%, due 1/2/13 250,000 256,024
Lehman Brothers Holdings, Inc.
5.75%, due 7/18/11 125,000 127,689
7.00%, due 2/1/08 150,000 152,750
MBNA Corp.
6.125%, due 3/1/13 100,000 104,432
Merrill Lynch & Co., Inc.
Series B
4.00%, due 11/15/07 250,000 246,506
Morgan Stanley
6.60%, due 4/1/12 125,000 132,380
6.75%, due 10/15/13 125,000 134,233
National Rural Utilities Cooperative Finance Corp.
5.75%, due 8/28/09 250,000 253,926
Pricoa Global Funding I
4.625%, due 6/25/12 (a) 200,000 193,216
Rainbow National Services LLC
10.375%, due 9/1/14 (a) 300,000 333,750
Residential Capital Corp.
6.375%, due 6/30/10 25,000 25,372
Textron Financial Corp.
4.125%, due 3/3/08 25,000 24,600
Toyota Motor Credit Corp.
4.25%, due 3/15/10 50,000 48,686
------------
7,671,850
------------
ELECTRIC (1.0%)
Alabama Power Co.
Series FF
5.20%, due 1/15/16 50,000 49,535
</Table>
200 MainStay Income 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)
- ------------------------------------------------------------------------------
ELECTRIC (CONTINUED)
American Electric Power Co., Inc.
Series C
5.375%, due 3/15/10 $ 100,000 $ 100,228
Arizona Public Service Co.
5.50%, due 9/1/35 325,000 292,983
Constellation Energy Group, Inc.
6.35%, due 4/1/07 100,000 100,351
Consumers Energy Co.
Series C
4.25%, due 4/15/08 125,000 122,954
Series B
5.375%, due 4/15/13 100,000 99,176
Dominion Resources, Inc.
Series B
6.25%, due 6/30/12 100,000 103,802
DTE Energy Co.
Series A
6.65%, due 4/15/09 100,000 102,894
Duke Energy Corp.
6.25%, due 1/15/12 125,000 130,508
FirstEnergy Corp.
Series A
5.50%, due 11/15/06 60,000 59,999
Series B
6.45%, due 11/15/11 125,000 130,781
Niagara Mohawk Power Corp.
7.75%, due 10/1/08 100,000 104,267
Northern States Power Co.
6.875%, due 8/1/09 100,000 104,035
NRG Energy, Inc.
7.375%, due 2/1/16 350,000 353,938
Pacific Gas & Electric Co.
4.80%, due 3/1/14 100,000 96,530
Peco Energy Co.
3.50%, due 5/1/08 100,000 97,478
Pepco Holdings, Inc.
6.45%, due 8/15/12 400,000 415,797
7.45%, due 8/15/32 50,000 57,136
Progress Energy, Inc.
5.625%, due 1/15/16 50,000 50,127
6.85%, due 4/15/12 25,000 26,766
7.10%, due 3/1/11 100,000 107,077
PSE&G Power LLC
7.75%, due 4/15/11 100,000 108,697
Public Service Electric & Gas Co.
6.375%, due 5/1/08 750,000 760,931
San Diego Gas & Electric Co.
5.35%, due 5/15/35 50,000 47,749
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
ELECTRIC (CONTINUED)
Southern California Edison Co.
6.65%, due 4/1/29 $ 100,000 $ 109,251
Union Electric Co.
5.40%, due 2/1/16 50,000 48,761
------------
3,781,751
------------
ENTERTAINMENT (0.4%)
Isle of Capri Casinos, Inc.
7.00%, due 3/1/14 350,000 336,000
Marquee, Inc.
Series B
8.625%, due 8/15/12 300,000 309,375
Pokagon Gaming Authority
10.375%, due 6/15/14 (a) 40,000 42,900
Tunica-Biloxi Gaming Authority
9.00%, due 11/15/15 (a) 250,000 258,125
Warner Music Group
7.375%, due 4/15/14 200,000 195,500
WMG Holdings Corp.
(zero coupon), due 12/15/14
9.50%, beginning 12/15/09 200,000 153,000
------------
1,294,900
------------
ENVIRONMENTAL CONTROL (0.1%)
Allied Waste North America
7.875%, due 4/15/13 250,000 256,875
Republic Services, Inc.
6.75%, due 8/15/11 25,000 26,382
Waste Services, Inc.
9.50%, due 4/15/14 250,000 256,250
------------
539,507
------------
FOOD (0.3%)
Corn Products International, Inc.
8.25%, due 7/15/07 500,000 507,459
General Mills, Inc.
3.875%, due 11/30/07 100,000 98,319
Kellogg Co.
Series B
7.45%, due 4/1/31 100,000 121,245
Kroger Co. (The)
4.95%, due 1/15/15 100,000 94,444
Pepsi Bottling Holdings, Inc.
5.625%, due 2/17/09 (a) 100,000 101,095
Safeway, Inc.
6.50%, due 3/1/11 (c) 100,000 103,523
Unilever Capital Corp.
7.125%, due 11/1/10 100,000 106,922
------------
1,133,007
------------
FOREST PRODUCTS & PAPER (0.1%)
Buckeye Technologies, Inc.
8.00%, due 10/15/10 350,000 342,125
</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 201
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER (CONTINUED)
Weyerhaeuser Co.
6.75%, due 3/15/12 $ 100,000 $ 104,716
------------
446,841
------------
GAS (0.0%)++
Atmos Energy Corp.
4.00%, due 10/15/09 50,000 47,953
------------
HEALTH CARE--SERVICES (0.1%)
Aetna, Inc.
7.875%, due 3/1/11 50,000 54,829
Quest Diagnostics, Inc.
5.125%, due 11/1/10 25,000 24,721
Res-Care, Inc.
7.75%, due 10/15/13 350,000 348,250
WellPoint, Inc.
5.00%, due 12/15/14 50,000 48,505
------------
476,305
------------
HOME BUILDERS (0.1%)
Centex Corp.
4.875%, due 8/15/08 100,000 99,000
Lennar Corp.
Series B
5.125%, due 10/1/10 100,000 97,908
Meritage Homes Corp.
6.25%, due 3/15/15 300,000 270,750
------------
467,658
------------
HOME FURNISHINGS (0.1%)
ALH Finance LLC/ALH Finance Corp.
8.50%, due 1/15/13 (c) 300,000 297,750
------------
INSURANCE (0.5%)
Allstate Corp. (The)
7.20%, due 12/1/09 100,000 105,901
American International Group, Inc.
4.70%, due 10/1/10 100,000 98,587
6.25%, due 5/1/36 450,000 481,442
ASIF Global Financing XVIII
3.85%, due 11/26/07 (a) 50,000 49,235
Berkshire Hathaway Finance Corp.
4.625%, due 10/15/13 100,000 96,576
CIGNA Corp.
7.00%, due 1/15/11 100,000 105,728
Hartford Financial Services
Group, Inc. (The)
5.55%, due 8/16/08 500,000 502,700
Nationwide Financial Services, Inc.
5.10%, due 10/1/15 25,000 24,031
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
INSURANCE (CONTINUED)
Principal Financial Group, Inc.
6.05%, due 10/15/36 $ 300,000 $ 309,719
Principal Life Income Funding Trust
5.20%, due 11/15/10 25,000 25,022
------------
1,798,941
------------
IRON & STEEL (0.1%)
AK Steel Corp.
7.875%, due 2/15/09 (c) 200,000 200,750
------------
LEISURE TIME (0.2%)
Leslie's Poolmart, Inc.
7.75%, due 2/1/13 300,000 295,500
Worldspan, L.P./W.S. Financing Corp.
11.655%, due 2/15/11 (b)(c) 250,000 249,375
------------
544,875
------------
LODGING (0.1%)
Boyd Gaming Corp.
7.125%, due 2/1/16 150,000 146,438
Harrah's Operating Co., Inc.
5.625%, due 6/1/15 50,000 42,148
Station Casinos, Inc.
7.75%, due 8/15/16 150,000 154,125
------------
342,711
------------
MACHINERY--CONSTRUCTION & MINING (0.0%)++
Caterpillar, Inc.
7.25%, due 9/15/09 100,000 105,699
------------
MEDIA (0.6%)
Belo Corp.
8.00%, due 11/1/08 750,000 782,812
CBD Media Holdings/CBD Holdings Finance, Inc.
9.25%, due 7/15/12 250,000 249,063
Charter Communications Operating LLC
8.00%, due 4/30/12 (a) 300,000 306,000
Clear Channel Communications, Inc.
6.00%, due 11/1/06 50,000 50,000
Comcast Cable Communications Holdings, Inc.
8.375%, due 3/15/13 150,000 171,347
Comcast Corp.
6.45%, due 3/15/37 250,000 253,323
6.50%, due 1/15/15 100,000 104,652
Houghton Mifflin Co.
9.875%, due 2/1/13 200,000 214,250
News America Holdings, Inc.
9.25%, due 2/1/13 100,000 118,371
</Table>
202 MainStay Income 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)
- ------------------------------------------------------------------------------
MEDIA (CONTINUED)
Walt Disney Co. (The)
7.00%, due 3/1/32 $ 100,000 $ 116,705
------------
2,366,523
------------
MINING (0.1%)
Alcoa, Inc.
4.25%, due 8/15/07 250,000 247,064
------------
OFFICE FURNISHINGS (0.1%)
Tempur-Pedic, Inc. and Tempur Production USA, Inc.
10.25%, due 8/15/10 250,000 262,500
------------
OIL & GAS (1.0%)
Chesapeake Energy Corp.
6.625%, due 1/15/16 250,000 244,688
Comstock Resources, Inc.
6.875%, due 3/1/12 300,000 283,875
Devon Financing Corp. LLC
6.875%, due 9/30/11 125,000 133,237
Enterprise Products Operating, L.P.
4.95%, due 6/1/10 100,000 98,305
6.875%, due 3/1/33 750,000 789,054
Hilcorp Energy I, L.P./Hilcorp Finance Co.
9.00%, due 6/1/16 (a)(c) 40,000 41,400
Motiva Enterprises LLC
5.20%, due 9/15/12 (a) 200,000 198,505
Pemex Project Funding Master Trust
5.75%, due 12/15/15 (a) 500,000 493,750
7.375%, due 12/15/14 800,000 878,000
Stone Energy Corp.
8.124%, due 7/15/10 (a)(b) 250,000 248,438
USX Corp.
6.85%, due 3/1/08 100,000 101,649
Valero Energy Corp.
6.125%, due 4/15/07 100,000 100,222
------------
3,611,123
------------
PACKAGING & CONTAINERS (0.1%)
Graham Packaging Co., Inc.
8.50%, due 10/15/12 350,000 348,250
------------
PHARMACEUTICALS (0.1%)
Bristol-Myers Squibb Co.
5.75%, due 10/1/11 150,000 153,007
Eli Lilly & Co.
4.50%, due 3/15/18 100,000 92,569
Merck & Co., Inc.
4.75%, due 3/1/15 100,000 95,766
Pfizer, Inc.
4.65%, due 3/1/18 50,000 47,377
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
PHARMACEUTICALS (CONTINUED)
Schering-Plough Corp.
5.55%, due 12/1/13 $ 100,000 $ 100,588
------------
489,307
------------
PIPELINES (0.4%)
Duke Capital LLC
6.75%, due 2/15/32 600,000 645,569
7.50%, due 10/1/09 350,000 369,142
MarkWest Energy Partners, L.P./MarkWest Energy
Finance Corp.
Series B
6.875%, due 11/1/14 250,000 235,000
Targa Resources, Inc.
8.50%, due 11/1/13 (a) 250,000 249,375
------------
1,499,086
------------
REAL ESTATE (0.2%)
Archstone-Smith Operating Trust
5.25%, due 5/1/15 25,000 24,556
Avalonbay Communities, Inc.
6.125%, due 11/1/12 250,000 260,081
Camden Property Trust
4.375%, due 1/15/10 65,000 63,354
ERP Operating, L.P.
7.125%, due 10/15/17 100,000 111,631
New Plan Excel Realty Trust
5.25%, due 9/15/15 125,000 120,173
Simon Property Group, L.P.
6.375%, due 11/15/07 100,000 100,851
------------
680,646
------------
REAL ESTATE INVESTMENT TRUSTS (0.1%)
Hospitality Properties Trust
5.125%, due 2/15/15 250,000 238,408
Liberty Property, L.P.
8.50%, due 8/1/10 125,000 137,274
------------
375,682
------------
RETAIL (0.2%)
May Department Stores Co. (The)
5.95%, due 11/1/08 100,000 100,746
Michaels Stores, Inc.
11.375%, due 11/1/16 (a) 75,000 75,094
Neiman Marcus Group, Inc. (The)
9.00%, due 10/15/15 (e) 300,000 321,750
Yum! Brands, Inc.
6.25%, due 4/15/16 125,000 129,043
------------
626,633
------------
</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 203
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
SAVINGS & LOANS (0.1%)
Washington Mutual Bank
5.95%, due 5/20/13 $ 250,000 $ 255,604
------------
TELECOMMUNICATIONS (0.7%)
Ameritech Capital Funding Corp.
6.55%, due 1/15/28 100,000 100,101
BellSouth Corp.
6.00%, due 10/15/11 250,000 256,780
CenturyTel, Inc.
Series F
6.30%, due 1/15/08 250,000 252,275
Cincinnati Bell, Inc.
8.375%, due 1/15/14 300,000 306,000
GCI, Inc.
7.25%, due 2/15/14 250,000 242,500
GTE South, Inc.
Series C
6.00%, due 2/15/08 (b) 300,000 302,000
Motorola, Inc.
4.608%, due 11/16/07 100,000 99,329
New Cingular Wireless Services, Inc.
7.875%, due 3/1/11 100,000 109,637
Sprint Capital Corp.
6.125%, due 11/15/08 150,000 152,303
8.75%, due 3/15/32 350,000 432,410
Verizon Global Funding Corp.
5.85%, due 9/15/35 250,000 239,906
7.75%, due 12/1/30 150,000 175,304
------------
2,668,545
------------
TEXTILES (0.2%)
INVISTA
9.25%, due 5/1/12 (a) 300,000 318,750
Simmons Co.
7.875%, due 1/15/14 (c) 250,000 246,875
------------
565,625
------------
TRANSPORTATION (0.1%)
Burlington Northern Santa Fe Corp.
7.125%, due 12/15/10 100,000 106,929
CSX Corp.
7.45%, due 5/1/07 100,000 100,947
FedEx Corp.
2.65%, due 4/1/07 25,000 24,713
Norfolk Southern Corp.
6.75%, due 2/15/11 100,000 105,732
7.05%, due 5/1/37 25,000 29,365
Union Pacific Corp.
6.65%, due 1/15/11 100,000 105,076
------------
472,762
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
TRUCKING & LEASING (0.0%)++
TTX Co.
5.00%, due 4/1/12 (a) $ 100,000 $ 98,301
------------
Total Corporate Bonds
(Cost $42,701,880) 42,672,518
------------
FOREIGN BONDS (2.8%)
- ------------------------------------------------------------------------------
BANKS (0.1%)
China Development Bank
5.00%, due 10/15/15 100,000 97,547
Kreditanstalt fuer Wiederaufbau
3.375%, due 1/23/08 250,000 244,312
------------
341,859
------------
BEVERAGES (0.0%)++
Diageo Capital PLC
3.375%, due 3/20/08 100,000 97,487
------------
CHEMICALS (0.1%)
Ineos Group Holdings PLC
8.50%, due 2/15/16 (a)(c) 250,000 240,625
------------
DIVERSIFIED FINANCIAL SERVICES (0.1%)
CIT Group Co. of Canada
5.20%, due 6/1/15 250,000 242,989
Majapahit Holding B.V.
7.75%, due 10/17/16 (a) 100,000 102,500
UFJ Finance Aruba AEC
6.75%, due 7/15/13 100,000 107,140
------------
452,629
------------
FOREIGN GOVERNMENTS (1.8%)
Dominican Republic
9.04%, due 1/23/18 (a) 38,254 43,705
Federal Republic of Brazil
7.875%, due 3/7/15 375,000 415,313
8.75%, due 2/4/25 250,000 302,500
Lebanese Republic
7.75%, due 9/7/12 100,000 98,500
People's Republic of China
4.75%, due 10/29/13 150,000 147,307
Province of Ontario
5.50%, due 10/1/08 250,000 252,189
Republic of Argentina
8.28%, due 12/31/33 100,125 100,825
</Table>
204 MainStay Income 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)
- ------------------------------------------------------------------------------
FOREIGN GOVERNMENTS (CONTINUED)
Republic of Colombia
8.25%, due 12/22/14 $ 300,000 $ 336,600
Republic of Costa Rica
6.548%, due 3/20/14 (a) 100,000 101,100
Republic of Ecuador
12.00%, due 11/15/12 (a) 71,400 73,542
Republic of Indonesia
6.875%, due 3/9/17 (a) 175,000 180,688
Republic of Italy
5.625%, due 6/15/12 500,000 515,652
Republic of Panama
7.25%, due 3/15/15 250,000 268,375
Republic of Peru
8.375%, due 5/3/16 25,000 29,250
9.875%, due 2/6/15 300,000 376,500
Republic of Philippines
8.875%, due 3/17/15 400,000 464,500
9.875%, due 1/15/19 100,000 127,250
Republic of Poland
5.25%, due 1/15/14 200,000 200,269
Republic of South Africa
6.50%, due 6/2/14 200,000 210,000
Republic of Turkey
7.25%, due 3/15/15 300,000 307,500
7.375%, due 2/5/25 200,000 201,500
Republic of Uruguay
8.00%, due 11/18/22 225,000 243,563
Republic of Venezuela
8.50%, due 10/8/14 600,000 666,600
Russian Federation
5.00%, due 3/31/30 (a)
7.50%, beginning 3/31/07 700,000 784,000
Ukraine Government
7.65%, due 6/11/13 (a) 150,000 160,500
------------
6,607,728
------------
HOLDING COMPANIES--DIVERSIFIED (0.1%)
JSG Funding PLC
9.625%, due 10/1/12 350,000 370,563
------------
INVESTMENT COMPANY (0.0%)++
Temasek Financial I, Ltd.
4.50%, due 9/21/15 (a) 150,000 142,926
------------
MEDIA (0.0%)++
Thomson Corp. (The)
5.75%, due 2/1/08 75,000 75,332
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
MINING (0.2%)
Codelco, Inc.
4.75%, due 10/15/14 (a) $ 200,000 $ 190,340
6.15%, due 10/24/36 (a) 100,000 102,496
Novelis, Inc.
7.25%, due 2/15/15 (a) 300,000 286,500
------------
579,336
------------
OIL & GAS (0.1%)
Petroliam Nasional Berhad
7.75%, due 8/15/15 (a) 325,000 379,357
------------
SEMICONDUCTORS (0.0%)++
Sensata Technologies B.V.
8.00%, due 5/1/14 (a) 200,000 193,000
------------
TELECOMMUNICATIONS (0.3%)
Deutsche Telekom International Finance B.V.
8.00%, due 6/15/10 250,000 272,890
Intelsat Subsidiary Holding Co., Ltd.
8.625%, due 1/15/15 300,000 311,250
Telecom Italia Capital S.A.
6.375%, due 11/15/33 100,000 95,127
Telefonica Europe B.V.
7.75%, due 9/15/10 100,000 108,209
Vodafone Group PLC
7.75%, due 2/15/10 250,000 268,300
------------
1,055,776
------------
Total Foreign Bonds
(Cost $10,553,909) 10,536,618
------------
LOAN ASSIGNMENTS & PARTICIPATIONS (6.7%) (f)
- ------------------------------------------------------------------------------
AUTOMOBILE (0.1%)
Goodyear Tire & Rubber Co. (The)
2nd Lien Term Loan
8.14%, due 4/30/10 500,000 503,393
------------
BEVERAGE, FOOD & TOBACCO (0.3%)
Commonwealth Brands, Inc.
New Term Loan
7.688%, due 12/22/12 466,958 469,643
</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, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
LOAN ASSIGNMENTS & PARTICIPATIONS (CONTINUED)
- ------------------------------------------------------------------------------
BEVERAGE, FOOD & TOBACCO (CONTINUED)
Dole Food Co., Inc.
Credit Link Deposit
5.244%, due 4/12/13 $ 46,512 $ 46,098
Tranche C Term Loan
7.474%, due 4/12/13 347,093 344,008
Tranche B Term Loan
7.55%, due 4/12/13 104,128 103,202
------------
962,951
------------
BROADCASTING & ENTERTAINMENT (0.4%)
Charter Communications Operating LLC
Replacement Term Loan
8.005%, due 4/28/13 500,000 504,047
CSC Holdings, Inc.
Incremental Term Loan
7.148%, due 3/29/13 497,500 497,034
Gray Television, Inc.
Incremental Term Loan
6.88%, due 11/22/12 496,250 495,098
------------
1,496,179
------------
BUILDINGS & REAL ESTATE (0.3%)
General Growth Properties, Inc.
Tranche A1 Term Loan
6.57%, due 2/24/10 500,000 496,106
Macerich Partnership, L.P.
Term Loan
6.875%, due 4/26/10 500,000 497,500
------------
993,606
------------
CARGO TRANSPORT (0.1%)
Laidlaw International, Inc.
Canadian Term Loan B
7.117%, due 7/31/13 124,688 125,571
Term Loan B
7.117%, due 7/31/13 374,063 376,712
------------
502,283
------------
CHEMICALS, PLASTICS & RUBBER (1.0%)
Brenntag Holding GmbH and Co.
Acquisition Term Loan
8.08%, due 1/20/14 186,545 188,256
Term Loan B2
8.08%, due 1/20/14 763,455 769,419
Celanese AG
Dollar Term Loan
7.367%, due 4/6/11 465,885 468,214
Huntsman International LLC
Term B Dollar Facility
7.07%, due 8/16/12 476,673 476,077
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CHEMICALS, PLASTICS & RUBBER (CONTINUED)
INEOS Group Holdings, Ltd.
Tranche A4 Term Loan
7.611%, due 12/17/12 $ 500,000 $ 503,282
Lucite International US Finco, Ltd.
Term Loan B1
8.07%, due 7/7/13 369,303 371,842
Rockwood Specialties Group, Inc.
Tranche E Term Loan
7.376%, due 7/30/12 664,626 667,451
------------
3,444,541
------------
CONTAINERS, PACKAGING & GLASS (0.1%)
Graham Packaging Holdings Co.
Incremental Term Loan B
7.687%, due 10/7/11 497,468 499,689
------------
DIVERSIFIED NATURAL RESOURCES, PRECIOUS
METALS & MINERALS (0.1%)
Georgia-Pacific Corp.
Term Loan B
7.385%, due 12/20/12 327,525 329,174
Term Loan C
8.39%, due 12/23/13 170,000 172,085
------------
501,259
------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING (0.1%)
Invensys International Holdings, Ltd.
Tranche A Term Loan
7.398%, due 1/15/11 78,689 78,885
Term A Bonding
7.446%, due 12/15/10 71,311 71,490
------------
150,375
------------
DIVERSIFIED/CONGLOMERATE SERVICE (0.1%)
SunGard Data Systems, Inc.
Term Loan
7.999%, due 2/11/13 496,231 500,532
------------
ELECTRONICS (0.1%)
Sensata Technologies Finance Co. LLC
Term Loan
7.13%, due 4/26/13 498,750 495,555
------------
</Table>
206 MainStay Income 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
LOAN ASSIGNMENTS & PARTICIPATIONS (CONTINUED)
- ------------------------------------------------------------------------------
FINANCE (0.1%)
Hertz Corp. (The)
Letter of Credit
5.39%, due 12/21/12 $ 55,556 $ 55,940
Tranche B Term Loan
7.654%, due 12/21/12 441,397 444,450
------------
500,390
------------
GROCERY (0.1%)
Roundy's Supermarkets, Inc.
Term Loan
8.415%, due 11/3/11 497,805 500,667
------------
HEALTHCARE, EDUCATION & CHILDCARE (0.9%)
Alliance Imaging, Inc.
Tranche C1 Term Loan
7.938%, due 12/29/11 487,431 487,634
CONMED Corp.
Institutional Term Loan B
7.32%, due 4/13/13 494,630 494,011
DaVita, Inc.
Term Loan B
7.425%, due 10/5/12 446,192 447,985
Fresenius Medical Care Holdings, Inc.
Term Loan
6.752%, due 3/31/13 497,500 494,252
HealthSouth Corp.
Term Loan B
8.62%, due 3/10/13 498,750 500,551
Vanguard Health Holding Co. LLC
Replacement Term Loan
7.868%, due 9/23/11 496,259 496,105
Warner Chilcott Corp.
Dovobet Delayed Draw Term Loan
7.867%, due 1/18/12 10,986 11,008
Dovonex Delayed Draw Term Loan
7.867%, due 1/18/12 54,929 55,039
Tranche C Term Loan
7.867%, due 1/18/12 65,564 65,869
Tranche B Term Loan
7.926%, due 1/18/12 238,805 239,914
------------
3,292,368
------------
HOME & OFFICE FURNISHINGS, HOUSEWARES, & DURABLE
CONSUMER PRODUCTS (0.1%)
Jarden Corp.
Term Loan B2
7.117%, due 1/24/12 475,266 474,434
------------
LEISURE, AMUSEMENT, MOTION PICTURES,
ENTERTAINMENT (0.6%)
AMC Entertainment, Inc.
Term Loan
7.445%, due 1/26/13 496,250 499,869
Bombardier Recreational Products, Inc.
Term Loan
8.13%, due 6/28/13 500,000 499,063
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
LEISURE, AMUSEMENT, MOTION PICTURES,
ENTERTAINMENT (CONTINUED)
Cedar Fair, L.P.
U.S. Term Loan B
7.867%, due 8/30/12 $ 498,750 $ 503,894
Easton-Bell Sports, Inc.
Tranche B Term Loan
7.118%, due 3/16/12 497,500 497,914
Regal Cinemas Corp.
Term Loan
7.117%, due 11/10/10 239,592 239,132
------------
2,239,872
------------
MACHINERY (0.1%)
RBS Global, Inc.
Term Loan B
7.876%, due 7/19/13 500,000 502,500
------------
MINING, STEEL, IRON & NON-PRECIOUS METALS (0.1%)
Magnum Coal Co.
Funded Letter of Credit
8.57%, due 3/21/13 22,727 22,784
Term Loan
8.62%, due 3/21/13 226,136 226,702
------------
249,486
------------
OIL & GAS (0.1%)
Babcock & Wilcox Co. (The)
Synthetic Letter of Credit
8.117%, due 2/22/12 500,000 502,500
------------
PERSONAL & NONDURABLE CONSUMER PRODUCTS (0.2%)
JohnsonDiversey, Inc.
New Term Loan B
7.97%, due 12/16/11 226,532 228,090
Solo Cup Co.
Term Loan B1
8.608%, due 2/27/11 447,704 449,593
------------
677,683
------------
</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, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
LOAN ASSIGNMENTS & PARTICIPATIONS (CONTINUED)
- ------------------------------------------------------------------------------
PERSONAL TRANSPORTATION (0.2%)
United Airlines, Inc.
Delayed Draw Term Loan
9.125%, due 2/1/12 $ 62,188 $ 63,120
Tranche B Term Loan
9.25%, due 2/1/12 435,313 441,842
------------
504,962
------------
PRINTING & PUBLISHING (0.7%)
Hanley Wood LLC
Delayed Draw Term Loan
7.61%, due 8/1/12 51,738 51,673
Closing Date Term Loan
7.694%, due 8/1/12 433,161 432,620
Merrill Communications LLC
Term Loan
7.59%, due 12/22/12 496,250 497,336
Nielsen Finance LLC
Dollar Term Loan
8.19%, due 8/9/13 500,000 501,719
R.H. Donnelley, Inc.
Tranche D2 Term Loan
6.887%, due 6/30/11 496,215 494,010
Yell Group PLC
Term Loan B1
7.32%, due 10/27/12 500,000 502,115
------------
2,479,473
------------
RETAIL STORE (0.2%)
Jean Coutu Group (PJC), Inc. (The)
Term Loan B
7.937%, due 7/30/11 464,351 465,445
Neiman Marcus Group, Inc. (The)
Term Loan B
7.641%, due 4/6/13 378,909 381,719
------------
847,164
------------
TELECOMMUNICATIONS (0.3%)
PanAmSat Corp.
Term Loan B2
7.872%, due 1/3/14 500,000 503,889
Windstream Corp.
Tranche B Term Loan
7.12%, due 7/17/13 500,000 502,411
------------
1,006,300
------------
UTILITIES (0.3%)
LSP General Finance Co. LLC
1st Lien Term Loan
7.117%, due 5/6/13 467,298 466,325
Delayed Draw 1st Lien Term Loan
7.117%, due 5/6/13 19,874 19,833
NRG Energy, Inc.
Credit Link Deposit
7.367%, due 2/1/13 92,832 93,243
Term Loan B
7.367%, due 2/1/13 405,133 407,116
------------
986,517
------------
Total Loan Assignments & Participations
(Cost $24,886,102) 24,814,679
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
U.S. GOVERNMENT & FEDERAL AGENCIES (17.5%)
- ------------------------------------------------------------------------------
FEDERAL FARM CREDIT BANK (0.3%)
5.98%, due 9/15/16 $ 1,000,000 $ 1,002,053
------------
FEDERAL HOME LOAN BANK (0.1%)
5.25%, due 6/18/14 (c) 500,000 509,088
------------
FEDERAL HOME LOAN BANK
(COLLATERALIZED MORTGAGE OBLIGATION) (0.2%)
Series VN-2015, Class A
5.46%, due 11/27/15 897,379 900,113
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (0.7%)
4.125%, due 7/12/10 1,085,000 1,058,103
4.875%, due 11/15/13 1,000,000 995,566
5.50%, due 9/25/13 500,000 500,401
------------
2,554,070
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(MORTGAGE PASS-THROUGH SECURITIES) (3.1%)
4.50%, due 7/1/18 292,980 283,695
4.50%, due 8/1/20 344,025 332,679
4.50%, due 3/1/21 855,919 827,000
4.50%, due 11/1/21 TBA (g) 500,000 482,969
4.50%, due 8/1/33 381,753 359,390
4.50%, due 8/1/35 458,938 430,762
5.00%, due 12/1/20 936,159 921,642
5.00%, due 4/1/21 957,875 943,022
5.00%, due 7/1/35 900,000 869,974
5.00%, due 8/1/35 543,662 525,524
5.00%, due 10/1/35 94,073 90,935
5.00%, due 12/1/35 1,999,999 1,933,276
5.50%, due 2/1/18 456,660 458,230
5.50%, due 2/1/21 401,002 401,261
5.50%, due 8/1/35 41,630 41,198
5.50%, due 1/1/36 186,432 184,494
6.00%, due 8/1/17 318,754 323,580
6.00%, due 11/1/21 TBA (g) 500,000 507,031
6.00%, due 12/1/35 40,072 40,355
6.00%, due 9/1/36 249,345 251,044
</Table>
208 MainStay Income 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
U.S. GOVERNMENT & FEDERAL AGENCIES (CONTINUED)
- ------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(MORTGAGE PASS-THROUGH SECURITIES) (CONTINUED)
6.50%, due 11/1/16 $ 104,863 $ 107,108
6.50%, due 2/1/27 1,334 1,369
6.50%, due 5/1/29 103,368 106,156
6.50%, due 6/1/29 145,569 149,497
6.50%, due 7/1/29 215,317 221,124
6.50%, due 8/1/29 110,314 113,289
6.50%, due 9/1/29 9,173 9,421
6.50%, due 10/1/29 1,116 1,146
6.50%, due 6/1/32 79,871 81,903
7.00%, due 3/1/26 870 900
7.00%, due 9/1/26 27,781 28,761
7.00%, due 10/1/26 133 137
7.00%, due 7/1/30 6,082 6,279
7.00%, due 7/1/32 116,065 119,833
7.50%, due 1/1/16 18,525 19,243
7.50%, due 5/1/32 111,072 115,167
7.75%, due 10/1/07 5,496 5,511
8.00%, due 11/1/12 24,485 25,282
------------
11,320,187
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (0.4%)
6.00%, due 9/26/13 1,000,000 998,223
6.50%, due 9/1/36 499,576 509,226
------------
1,507,449
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (6.3%)
4.00%, due 11/1/21 TBA (g) 500,000 473,281
4.50%, due 7/1/20 69,666 67,407
4.50%, due 12/1/20 727,409 703,825
4.50%, due 3/1/21 96,318 93,195
5.00%, due 1/1/21 4,454 4,387
5.00%, due 2/1/21 743,452 732,192
5.00%, due 3/1/21 1,341 1,321
5.00%, due 6/1/35 48,007 46,365
5.00%, due 11/1/35 497,531 480,515
5.00%, due 4/1/36 3,742,730 3,613,379
5.00%, due 11/1/36 TBA (g) 500,000 482,656
5.50%, due 9/1/18 314,192 315,126
5.50%, due 8/1/35 909,776 899,584
5.50%, due 10/1/35 2,635,656 2,606,129
5.50%, due 11/1/35 888,174 878,224
5.50%, due 2/1/36 974,746 963,418
5.50%, due 4/1/36 3,774,360 3,730,907
5.50%, due 11/1/36 TBA (g) 500,000 494,063
5.959%, due 7/1/36 (b) 489,828 492,733
6.00%, due 4/1/19 12,304 12,466
6.00%, due 12/1/31 11,808 11,922
6.00%, due 1/1/32 11,244 11,346
6.00%, due 11/1/35 89,817 90,395
6.00%, due 1/1/36 22,604 22,749
6.00%, due 7/1/36 2,255,887 2,269,854
6.00%, due 9/1/36 1,698,527 1,709,044
6.00%, due 10/1/36 499,551 502,644
6.00%, due 11/1/36 TBA (g) 500,000 502,969
6.50%, due 8/1/32 120,642 123,587
6.50%, due 3/1/35 215,306 219,519
6.50%, due 11/1/36 TBA (g) 500,000 509,531
7.00%, due 5/1/26 20,494 21,206
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (CONTINUED)
7.00%, due 6/1/26 $ 3,674 $ 3,802
7.00%, due 7/1/30 58,891 60,849
7.50%, due 8/1/11 3,993 4,012
7.50%, due 10/1/11 5,972 6,133
7.50%, due 10/1/15 106,768 110,522
8.00%, due 7/1/09 2,592 2,647
8.00%, due 4/1/10 9,207 9,472
8.00%, due 10/1/10 5,050 5,195
8.00%, due 8/1/11 2,130 2,205
8.00%, due 10/1/11 13,313 13,777
8.00%, due 11/1/11 3,235 3,348
8.50%, due 8/1/26 4,042 4,340
8.50%, due 10/1/26 462 496
9.00%, due 6/1/26 3,293 3,583
9.00%, due 7/1/26 5,874 6,359
9.00%, due 8/1/26 3,643 3,889
9.00%, due 9/1/26 149 150
------------
23,326,718
------------
FREDDIE MAC
(COLLATERALIZED MORTGAGE OBLIGATION) (0.3%)
Series R005, Class AB
5.50%, due 12/15/18 922,233 923,113
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (1.0%)
5.00%, due 8/15/33 20,334 19,858
5.00%, due 2/15/36 297,059 289,690
5.00%, due 11/1/36 TBA (g) 500,000 487,500
5.50%, due 9/15/35 800,715 797,579
5.50%, due 11/1/36 TBA (g) 500,000 497,813
6.00%, due 1/15/33 216,022 219,356
6.00%, due 11/15/33 221,543 224,863
6.00%, due 11/1/36 TBA (g) 500,000 506,719
6.50%, due 4/15/29 340 350
6.50%, due 5/15/29 1,012 1,043
6.50%, due 8/15/29 80 83
6.50%, due 7/15/31 236,957 244,059
6.50%, due 10/15/31 23,067 23,762
</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, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
U.S. GOVERNMENT & FEDERAL AGENCIES (CONTINUED)
- ------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (CONTINUED)
7.00%, due 7/15/11 $ 984 $ 1,010
7.00%, due 10/15/11 71,633 73,518
7.00%, due 9/15/23 6,461 6,678
7.00%, due 7/15/25 21,449 22,193
7.00%, due 12/15/25 16,541 17,115
7.00%, due 5/15/26 11,253 11,648
7.00%, due 11/15/27 31,367 32,479
7.00%, due 12/15/27 132,909 137,622
7.00%, due 6/15/28 5,468 5,655
7.50%, due 3/15/26 11,610 12,127
7.50%, due 6/15/26 633 661
7.50%, due 10/15/30 49,161 51,258
8.00%, due 8/15/26 2,308 2,447
8.00%, due 9/15/26 1,254 1,330
8.00%, due 10/15/26 27,413 29,063
8.50%, due 11/15/26 26,987 28,957
9.00%, due 11/15/26 6,066 6,569
------------
3,753,005
------------
UNITED STATES TREASURY BONDS (0.7%)
4.50%, due 2/15/36 (c) 1,074,000 1,036,578
5.25%, due 2/15/29 500,000 531,172
6.25%, due 8/15/23 (c) 1,000,000 1,163,750
------------
2,731,500
------------
UNITED STATES TREASURY NOTES (4.4%)
3.625%, due 5/15/13 555,000 525,494
4.00%, due 6/15/09 1,500,000 1,477,091
4.00%, due 3/15/10 (c) 1,600,000 1,570,750
4.00%, due 2/15/14 770,000 741,786
4.00%, due 2/15/15 (c) 500,000 479,512
4.375%, due 8/15/12 25,000 24,772
4.50%, due 2/15/09 (c) 2,260,000 2,252,321
4.625%, due 8/31/11 55,000 55,107
4.875%, due 10/31/08 4,000,000 4,013,436
4.875%, due 8/15/09 2,100,000 2,113,616
4.875%, due 8/15/16 (c) 3,104,000 3,168,504
------------
16,422,389
------------
Total U.S. Government & Federal Agencies
(Cost $64,592,781) 64,949,685
------------
YANKEE BONDS (0.1%) (h)
- ------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (0.1%)
SIUK PLC
8.23%, due 2/1/27 250,000 255,669
------------
OIL & GAS (0.0%)++
EnCana Corp.
6.30%, due 11/1/11 100,000 103,770
------------
PIPELINES (0.0%)++
TransCanada Pipelines, Ltd.
5.85%, due 3/15/36 100,000 99,713
------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
TRANSPORTATION (0.0%)++
Canadian National Railway Co.
7.625%, due 5/15/23 $ 50,000 $ 60,580
------------
Total Yankee Bonds
(Cost $521,706) 519,732
------------
Total Long-Term Bonds
(Cost $157,336,980) 157,625,746
------------
<Caption>
SHARES
COMMON STOCKS (51.4%)
- ------------------------------------------------------------------------------
AEROSPACE & DEFENSE (1.0%)
Boeing Co. (The) 18,568 1,482,840
Northrop Grumman Corp. 9,794 650,224
Raytheon Co. 13,167 657,692
United Technologies Corp. 13,415 881,634
------------
3,672,390
------------
AGRICULTURE (1.2%)
Altria Group, Inc. 24,848 2,020,888
Reynolds American, Inc. (c) 40,006 2,526,779
------------
4,547,667
------------
AIRLINES (0.1%)
Southwest Airlines Co. 28,044 421,501
------------
APPAREL (0.6%)
Jones Apparel Group, Inc. 44,218 1,476,881
NIKE, Inc. Class B 7,237 664,936
------------
2,141,817
------------
BANKS (3.1%)
AmSouth Bancorporation 49,283 1,489,332
Bank of America Corp. 27,940 1,505,128
Bank of New York Co., Inc. (The) 42,203 1,450,517
Comerica, Inc. 24,894 1,448,582
National City Corp. (c) 40,539 1,510,078
North Fork Bancorporation., Inc. 15,566 444,876
Northern Trust Corp. 25,473 1,495,775
Regions Financial Corp. 41,621 1,579,517
UnionBanCal Corp. 7,218 415,612
------------
11,339,417
------------
</Table>
210 MainStay Income 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 (0.6%)
Coca-Cola Co. (The) (c) 17,528 $ 818,908
PepsiCo, Inc. 20,723 1,314,667
------------
2,133,575
------------
BIOTECHNOLOGY (0.3%)
Celgene Corp. (i) 22,867 1,222,012
------------
BUILDING MATERIALS (0.3%)
Masco Corp. 33,757 933,381
------------
CHEMICALS (0.8%)
E.I. du Pont de Nemours & Co. 6,319 289,410
Lyondell Chemical Co. 66,335 1,702,819
Monsanto Co. 11,477 507,513
Sigma-Aldrich Corp. 5,057 379,831
------------
2,879,573
------------
COMMERCIAL SERVICES (0.5%)
Accenture, Ltd. Class A 19,532 642,798
McKesson Corp. 27,537 1,379,328
------------
2,022,126
------------
COMPUTERS (2.2%)
Hewlett-Packard Co. 82,019 3,177,416
International Business Machines Corp. 35,829 3,308,092
Lexmark International, Inc. Class A (i) 26,179 1,664,723
------------
8,150,231
------------
COSMETICS & PERSONAL CARE (0.2%)
Procter & Gamble Co. (The) 14,363 910,471
------------
DIVERSIFIED FINANCIAL SERVICES (3.6%)
American Express Co. 15,961 922,705
Ameriprise Financial, Inc. (c) 41,725 2,148,837
Charles Schwab Corp. (The) 110,070 2,005,475
CIT Group, Inc. 9,377 488,073
V Citigroup, Inc. 104,677 5,250,598
JPMorgan Chase & Co. 8,161 387,158
Morgan Stanley 8,130 621,376
Raymond James Financial, Inc. 48,068 1,531,446
------------
13,355,668
------------
ELECTRIC (0.8%)
Duke Energy Corp. 21,981 695,479
Great Plains Energy, Inc. (c) 10,669 347,169
TXU Corp. 28,067 1,771,870
------------
2,814,518
------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.2%)
Emerson Electric Co. 8,637 728,963
------------
ELECTRONICS (0.1%)
Applera Corp.-Applied BioSystems Group 10,812 403,288
------------
ENTERTAINMENT (1.2%)
V Regal Entertainment Group Class A (c) 221,128 4,583,983
------------
</Table>
<Table>
<Caption>
SHARES VALUE
FOOD (0.5%)
General Mills, Inc. 6,978 $ 396,490
Kraft Foods, Inc. Class A (c) 43,299 1,489,486
------------
1,885,976
------------
HEALTH CARE--PRODUCTS (1.0%)
Baxter International, Inc. 8,216 377,690
Becton, Dickinson & Co. 8,238 576,907
C.R. Bard, Inc. 5,214 427,339
Johnson & Johnson 26,382 1,778,147
STERIS Corp. 24,014 585,221
------------
3,745,304
------------
HEALTH CARE--SERVICES (1.4%)
Aetna, Inc. 35,844 1,477,490
Humana, Inc. (i) 24,394 1,463,640
UnitedHealth Group, Inc. 13,347 651,067
WellCare Health Plans, Inc. (i) 28,860 1,695,525
------------
5,287,722
------------
HOUSEWARES (0.1%)
Newell Rubbermaid, Inc. 18,213 524,170
------------
INSURANCE (2.8%)
Allstate Corp. (The) 19,230 1,179,953
American International Group, Inc. 9,964 669,282
Aon Corp. 29,249 1,017,573
CNA Financial Corp. (i) 30,806 1,153,685
Loews Corp. 38,861 1,512,470
Nationwide Financial Services, Inc. Class A 15,140 770,929
Old Republic International Corp. 56,317 1,268,822
Prudential Financial, Inc. 6,461 497,045
St. Paul Travelers Cos., Inc. (The) 16,617 849,627
W.R. Berkley Corp. 40,157 1,480,187
------------
10,399,573
------------
INVESTMENT COMPANIES (1.9%)
Allied Capital Corp. (c) 97,119 3,062,162
American Capital Strategies, Ltd. (c) 95,830 4,136,023
------------
7,198,185
------------
IRON & STEEL (0.5%)
Nucor Corp. 28,728 1,678,002
------------
LODGING (0.1%)
Hilton Hotels Corp. 12,950 374,514
------------
</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
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- ------------------------------------------------------------------------------
MACHINERY--DIVERSIFIED (0.9%)
AGCO Corp. (i) 61,626 $ 1,648,495
Cummins, Inc. (c) 12,223 1,552,077
------------
3,200,572
------------
MEDIA (0.7%)
Cablevision Systems Corp. Class A 45,497 1,264,362
CBS Corp. Class B 18,127 524,595
McGraw-Hill Cos., Inc. (The) 14,661 940,796
------------
2,729,753
------------
MINING (2.4%)
Cia Vale do Rio Doce, ADR (j) 16,020 407,549
Phelps Dodge Corp. 16,191 1,625,253
V Southern Copper Corp. (c) 133,887 6,879,114
------------
8,911,916
------------
MISCELLANEOUS--MANUFACTURING (1.1%)
Danaher Corp. 9,352 671,193
General Electric Co. 65,801 2,310,273
Honeywell International, Inc. 15,665 659,810
Illinois Tool Works, Inc. 12,907 618,633
------------
4,259,909
------------
OFFICE FURNISHINGS (0.3%)
Steelcase, Inc. Class A 77,383 1,282,236
------------
OIL & GAS (3.1%)
Chevron Corp. (c) 36,040 2,421,888
Devon Energy Corp. 7,733 516,874
ENSCO International, Inc. 8,887 435,196
V ExxonMobil Corp. 104,341 7,452,034
Hess Corp. (c) 12,363 524,191
------------
11,350,183
------------
OIL & GAS SERVICES (0.2%)
Halliburton Co. (c) 22,428 725,546
------------
PACKAGING & CONTAINERS (0.1%)
Packaging Corp. of America 14,145 324,911
------------
PHARMACEUTICALS (3.9%)
AmerisourceBergen Corp. 19,072 900,198
V Merck & Co., Inc. 155,056 7,042,644
Novartis AG, ADR (j) 11,241 682,666
V Pfizer, Inc. 204,282 5,444,115
Sanofi-Aventis, ADR (j) 11,797 503,614
------------
14,573,237
------------
REAL ESTATE (0.0%)++
CB Richard Ellis Group, Inc. Class A (i) 4,649 139,609
------------
RETAIL (3.3%)
American Eagle Outfitters, Inc. 38,157 1,747,591
Barnes & Noble, Inc. 11,012 454,906
Best Buy Co., Inc. 12,225 675,431
Family Dollar Stores, Inc. 14,603 430,058
</Table>
<Table>
<Caption>
SHARES VALUE
RETAIL (CONTINUED)
Federated Department Stores, Inc. 33,849 $ 1,486,310
Gap, Inc. (The) (c) 20,252 425,697
Home Depot, Inc. (The) 32,978 1,231,069
J.C. Penney Co., Inc. 7,000 526,610
Kohl's Corp. (i) 20,318 1,434,451
McDonald's Corp. 9,131 382,772
Nordstrom, Inc. 10,806 511,664
OfficeMax, Inc. 25,079 1,193,259
Wal-Mart Stores, Inc. 34,811 1,715,486
------------
12,215,304
------------
SAVINGS & LOANS (1.3%)
Capitol Federal Financial (c) 79,925 3,029,157
New York Community Bancorp, Inc. (c) 21,621 353,503
Washington Mutual, Inc. (c) 35,622 1,506,811
------------
4,889,471
------------
SEMICONDUCTORS (0.9%)
Applied Materials, Inc. (c) 27,887 484,955
Intel Corp. 24,545 523,790
Microchip Technology, Inc. 18,563 611,280
National Semiconductor Corp. (c) 24,973 606,594
Texas Instruments, Inc. 30,916 933,045
------------
3,159,664
------------
SOFTWARE (2.1%)
Automatic Data Processing, Inc. 17,583 869,304
First Data Corp. 10,297 249,702
IMS Health, Inc. 17,107 476,430
Mastercard, Inc. Class A 20,718 1,535,204
V Microsoft Corp. 156,135 4,482,636
------------
7,613,276
------------
TELECOMMUNICATIONS (5.4%)
V AT&T, Inc. 186,497 6,387,522
BellSouth Corp. 14,605 658,685
V Citizens Communications Co. 459,553 6,737,047
Motorola, Inc. 39,520 911,331
V Verizon Communications, Inc. 144,273 5,338,101
------------
20,032,686
------------
</Table>
212 MainStay Income 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)
- ------------------------------------------------------------------------------
TRANSPORTATION (0.6%)
CSX Corp. 11,354 $ 404,997
Overseas Shipholding Group, Inc. 23,674 1,480,809
United Parcel Service, Inc. Class B 6,875 518,031
------------
2,403,837
------------
Total Common Stocks
(Cost $159,651,413) 191,166,137(p)
------------
REAL ESTATE INVESTMENT TRUSTS (2.6%)
- ------------------------------------------------------------------------------
CapitalSource, Inc. (c) 27,982 776,221
Equity Office Properties Trust (c) 53,421 2,270,392
iStar Financial, Inc. 12,945 599,742
New Century Financial Corp. (c) 73,243 2,884,309
New Plan Excel Realty Trust 45,714 1,316,563
SL Green Realty Corp. (c) 7,613 921,554
Thornburg Mortgage, Inc. (c) 26,257 674,280
------------
Total Real Estate Investment Trusts
(Cost $8,923,795) 9,443,061
------------
INVESTMENT COMPANY (0.1%)
- ------------------------------------------------------------------------------
iShares Russell 1000 Growth Index Fund (k) 7,199 388,674
------------
Total Investment Company
(Cost $385,579) 388,674
------------
<Caption>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS (14.3%)
- ------------------------------------------------------------------------------
COMMERCIAL PAPER (1.1%)
Fairway Finance Corp.
5.289%, due 11/20/06 (l) $ 2,297,254 2,297,254
Greyhawk Funding
5.286%, due 11/13/06 (l) 957,189 957,189
Jupiter Securitization Corp.
5.303%, due 11/14/06 (l) 957,189 957,189
------------
Total Commercial Paper
(Cost $4,211,632) 4,211,632
------------
<Caption>
SHARES
INVESTMENT COMPANY (3.1%)
BGI Institutional Money Market Fund (l) 11,431,078 11,431,078
------------
Total Investment Company
(Cost $11,431,078) 11,431,078
------------
<Caption>
PRINCIPAL
AMOUNT VALUE
REPURCHASE AGREEMENT (0.7%)
Morgan Stanley & Co.
5.42%, dated 10/31/06
due 11/1/06
Proceeds at Maturity $2,500,172
(Collateralized by various Corporate Bonds,
with rates between 0% - 8.40% and
maturity dates between 1/30/07 - 6/15/34,
with a Principal Amount of
$2,528,462 and a Market Value
of $2,599,176) (l) $ 2,499,796 $ 2,499,796
------------
Total Repurchase Agreement
(Cost $2,499,796) 2,499,796
------------
TIME DEPOSITS (6.8%)
Banco Bilbao Vizcaya Argentaria S.A.
5.30%, due 1/9/07 (l) 1,914,379 1,914,379
Bank of America
5.27%, due 11/21/06 (b)(l) 1,914,379 1,914,379
Bank of Montreal
5.28%, due 11/27/06 (l) 1,914,379 1,914,379
Bank of Nova Scotia
5.30%, due 11/10/06 (l) 1,914,379 1,914,379
Barclays
5.32%, due 1/18/07 (l) 1,914,379 1,914,379
Deutsche Bank AG
5.27%, due 11/9/06 (l) 1,340,065 1,340,065
Fortis Bank
5.27%, due 11/6/06 (l) 3,828,757 3,828,757
Halifax Bank of Scotland
5.30%, due 1/10/07 (l) 1,914,379 1,914,379
Lloyds TSB Bank PLC
5.30%, due 12/21/06 (l) 1,914,378 1,914,378
Royal Bank of Canada
5.30%, due 12/22/06 (l) 1,914,378 1,914,378
Royal Bank of Scotland
5.29%, due 12/12/06 (l) 1,914,378 1,914,378
Skandinaviska Enskilda Banken AB
5.31%, due 11/3/06 (l) 1,914,378 1,914,378
UBS AG
5.28%, due 12/5/06 (l) 957,189 957,189
------------
Total Time Deposits
(Cost $25,269,797) 25,269,797
------------
U.S. GOVERNMENT & FEDERAL AGENCIES (2.6%)
Federal Agricultural Mortgage Corporation
(Discount Note)
4.98%, due 11/1/06 4,595,000 4,595,000
------------
</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 213
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENT (CONTINUED)
- ------------------------------------------------------------------------------
U.S. GOVERNMENT & FEDERAL AGENCIES (CONTINUED)
Federal Home Loan Mortgage Corporation (Discount
Note)
5.00%, due 11/1/06 $ 2,595,000 $ 2,595,000
------------
Federal National Mortgage Association (Discount
Note)
5.09%, due 11/2/06 125,000 124,982
------------
United States Treasury Bills
4.833%, due 11/2/06 515,000 514,931
4.989%, due 1/18/07 (m) 300,000 296,795
4.998%, due 1/25/07 1,750,000 1,729,630
------------
2,541,356
------------
Total U.S. Government & Federal Agencies
(Cost $9,856,368) 9,856,338
------------
Total Short-Term Investments
(Cost $53,268,671) 53,268,641
------------
Total Investments
(Cost $379,566,438) (n) 110.8% 411,892,259(o)
Liabilities in Excess of
Cash and Other Assets (10.8) (39,964,038)
----------- ------------
Net Assets 100.0% $371,928,221
=========== ============
</Table>
<Table>
<Caption>
CONTRACTS UNREALIZED
LONG APPRECIATION
FUTURES CONTRACTS (0.0%)++
- -----------------------------------------------------------------------------
Standard & Poor's 500 Index
Mini December 2006 35 $ 26,995
-------------------
Total Futures Contracts
(Settlement Value $2,420,600) (p) $ 26,995
===================
</Table>
<Table>
++ Less than one tenth of a percent.
+++ Fifty percent of the Fund's liquid assets are maintained to cover "senior
securities transactions" which may include, but are not limited to,
forwards, TBA's, options and futures. This percentage is marked-to-market
daily against the value of the Fund's "senior securities" holdings to
ensure proper coverage for these transactions.
(a) May be sold to institutional investors only under Rule 144a or securities
offered pursuant to Section 4(2) of the Securities Act of 1933, as amended.
(b) Floating rate. Rate shown is the rate in effect at October 31, 2006.
(c) Represents a security, or a portion thereof, which is out on loan.
(d) Issue in default.
(e) PIK ("Payment in Kind")--interest or dividend payment is made with
additional securities.
(f) Floating Rate Loan--generally pays 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, 2006. 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. Under procedures adopted by the Board, the loans are
deemed to be liquid.
(g) TBA: Securities purchased on a forward commitment basis with an approximate
principal amount and maturity date. The actual principal amount and
maturity date will be determined upon settlement. The market value of these
securities at October 31, 2006 is $4,944,532.
(h) Yankee Bond--dollar-denominated bond issued in the United States by a
foreign bank or corporation.
(i) Non-income producing security.
(j) ADR--American Depositary Receipt.
(k) Exchange Traded Fund--represents a basket of securities that are traded on
an exchange.
(l) Represents a security, or a portion thereof, purchased with cash collateral
received for securities on loan.
(m) Segregated as collateral for TBAs.
(n) The cost for federal income tax purposes is $380,381,659.
(o) At October 31, 2006 net unrealized appreciation was $31,510,600, 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 $33,738,320 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $2,227,720.
(p) The combined market value of common stocks and settlement value of Standard
& Poor's 500 Index futures contracts approximately represents 52.0% of net
assets.
</Table>
214 MainStay Income 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 ASSETS AND LIABILITIES AS OF OCTOBER 31, 2006
<Table>
ASSETS:
Investment in securities, at value (identified
cost $379,566,438) including $41,986,585
market value of securities loaned $411,892,259
Cash 697,191
Unrealized appreciation on unfunded
commitments 892
Receivables:
Investment securities sold 16,386,962
Dividends and interest 1,807,453
Fund shares sold 680,260
Variation margin on futures contracts 3,322
Other assets 16,606
-------------
Total assets 431,484,945
-------------
LIABILITIES:
Securities lending collateral 43,412,303
Payables:
Investment securities purchased 15,550,378
Manager (See Note 3) 155,669
Fund shares redeemed 138,290
Transfer agent (See Note 3) 118,072
NYLIFE Distributors (See Note 3) 47,148
Professional fees 44,326
Shareholder communication 32,232
Custodian 19,388
Directors 4,836
Accrued expenses 34,082
-------------
Total liabilities 59,556,724
-------------
Net assets $371,928,221
=============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1
billion shares authorized:
Class A $ 4,825
Class B 1,973
Class C 636
Class I 17,807
Additional paid-in capital 329,529,462
Accumulated undistributed net investment
income 2,027,378
Accumulated net realized gain on investments,
futures transactions and foreign currency
transactions 7,992,432
Net unrealized appreciation on investments and
futures contracts 32,352,816
Net unrealized appreciation on unfunded
commitments 892
-------------
Net assets $371,928,221
=============
CLASS A
Net assets applicable to outstanding shares $ 70,859,314
=============
Shares of capital stock outstanding 4,824,503
=============
Net asset value per share outstanding $ 14.69
Maximum sales charge (5.50% of offering price) 0.85
-------------
Maximum offering price per share outstanding $ 15.54
=============
CLASS B
Net assets applicable to outstanding shares $ 28,663,656
=============
Shares of capital stock outstanding 1,972,961
=============
Net asset value and offering price per share
outstanding $ 14.53
=============
CLASS C
Net assets applicable to outstanding shares $ 9,249,929
=============
Shares of capital stock outstanding 636,467
=============
Net asset value and offering price per share
outstanding $ 14.53
=============
CLASS I
Net assets applicable to outstanding shares $263,155,322
=============
Shares of capital stock outstanding 17,806,580
=============
Net asset value and offering price per share
outstanding $ 14.78
=============
</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 215
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2006
<Table>
INVESTMENT INCOME:
INCOME:
Interest $ 8,102,821
Dividends (a) 7,002,220
Income from securities loaned--net 320,006
------------
Total income 15,425,047
------------
EXPENSES:
Manager (See Note 3) 2,312,543
Transfer agent--Classes A, B and C (See Note
3) 330,278
Transfer agent--Class I (See Note 3) 352,148
Distribution/Service--Class A (See Note 3) 189,352
Service--Class B (See Note 3) 72,102
Service--Class C (See Note 3) 16,491
Distribution--Class B (See Note 3) 216,306
Distribution--Class C (See Note 3) 49,473
Professional fees 116,671
Custodian 116,140
Shareholder communication 68,383
Registration 62,555
Directors 25,804
Miscellaneous 81,615
------------
Total expenses before waiver/reimbursement 4,009,861
Expense waiver/reimbursement from Manager
(See Note 3) (362,231)
------------
Net expenses 3,647,630
------------
Net investment income 11,777,417
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) on:
Security transactions $ 46,432,313
Futures transactions (923,874)
Foreign currency transactions 337
------------
Net realized gain on investments, futures
transactions and foreign currency
transactions 45,508,776
------------
Net change in unrealized appreciation
(depreciation) on:
Security transactions and unfunded loan
commitments (10,292,857)
Futures contracts 407,791
Translation of other assets and liabilities
in foreign currency transactions (5,061)
------------
Net change in unrealized appreciation on
investments, unfunded loan commitments,
futures contracts and foreign currency
transactions (9,890,127)
------------
Net realized and unrealized gain on
investments, unfunded loan commitments,
futures transactions and foreign currency
transactions 35,618,649
------------
Net increase in net assets resulting from
operations $ 47,396,066
============
</Table>
(a) Dividends recorded net of foreign withholding taxes in the amount of $3,714.
216 MainStay Income 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 CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2006 AND OCTOBER 31, 2005
<Table>
<Caption>
2006 2005
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 11,777,417 $ 5,472,399
Net realized gain on investments,
futures transactions and foreign
currency transactions 45,508,776 21,009,942
Net change in unrealized
appreciation on investments,
futures contracts and foreign
currency transactions (9,890,127) (1,739,961)
----------------------------
Net increase in net assets
resulting from operations 47,396,066 24,742,380
----------------------------
Dividends to shareholders:
From net investment income:
Class A (3,078,443) (883,795)
Class B (889,617) (271,640)
Class C (196,479) (42,898)
Class I (11,158,352) (3,506,544)
----------------------------
Total dividends to shareholders (15,322,891) (4,704,877)
----------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 20,744,956 27,147,132
Class B 5,993,828 16,869,238
Class C 4,545,350 3,844,235
Class I 39,038,432 30,813,805
Net asset value of shares issued
to shareholders in reinvestment
of dividends:
Class A 2,871,547 836,197
Class B 830,317 257,606
Class C 149,639 37,036
Class I 11,153,979 3,485,389
----------------------------
85,328,048 83,290,638
Cost of shares redeemed:
Class A (42,633,906) (13,295,310)
Class B (6,697,188) (3,885,353)
Class C (2,078,567) (1,352,258)
Class I (49,072,887) (43,142,283)
----------------------------
(100,482,548) (61,675,204)
Net asset value of shares converted (See Note 1):
Class A 8,975,485 --
Class B (8,975,485) --
Increase (decrease) in net
assets derived from capital
share transactions (15,154,500) 21,615,434
----------------------------
Net increase in net assets 16,918,675 41,652,937
</Table>
<Table>
<Caption>
2006 2005
NET ASSETS:
Beginning of year $ 355,009,546 $313,356,609
----------------------------
End of year $ 371,928,221 $355,009,546
============================
Accumulated undistributed net
investment income at end of year $ 2,027,378 $ 5,618,339
============================
</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>
CLASS A
---------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
Net asset value at beginning of period $ 13.42 $ 12.67 $ 12.17
-------- -------- -----------
Net investment income 0.46(a) 0.18(a)(b) 0.12
Net realized and unrealized gain on investments 1.39 0.76 0.38
Net realized and unrealized gain on foreign currency
transactions 0.00(c) 0.00(c) 0.00(c)
-------- -------- -----------
Total from investment operations 1.85 0.94 0.50
-------- -------- -----------
Less dividends:
From net investment income (0.58) (0.19) --
-------- -------- -----------
Net asset value at end of period $ 14.69 $ 13.42 $ 12.67
======== ======== ===========
Total investment return (d) 14.13% 7.46% 4.11%(e)
Ratios (to average net assets)/Supplemental Data:
Net investment income 3.28% 1.41%(b) 1.40%+
Net expenses 1.05% 1.23% 1.02%+
Expenses (before waiver/reimbursement) 1.33% 1.31% 1.23%+
Portfolio turnover rate 162%(f) 100%(f) 89%
Net assets at end of period (in 000's) $70,859 $74,169 $55,796
</Table>
<Table>
<Caption>
CLASS C
------------------------------------------------
DECEMBER 30,
2002*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004 2003
Net asset value at beginning of period $13.22 $12.54 $11.86 $10.64
------ ------ ------ ------------
Net investment income 0.35(a) 0.08(a)(b) 0.11 0.06(a)
Net realized and unrealized gain (loss) on
investments 1.37 0.75 0.76 1.16
Net realized and unrealized gain (loss) on foreign
currency transactions 0.00(c) 0.00(c) 0.00(c) (0.00)(c)
------ ------ ------ ------------
Total from investment operations 1.72 0.83 0.87 1.22
------ ------ ------ ------------
Less dividends:
From net investment income (0.41) (0.15) (0.19) --
------ ------ ------ ------------
Net asset value at end of period $14.53 $13.22 $12.54 $11.86
====== ====== ====== ============
Total investment return (d) 13.26% 6.68% 7.39% 11.47%(e)
Ratios (to average net assets)/Supplemental Data:
Net investment income 2.56% 0.65%(b) 0.65% 0.65%+
Net expenses 1.80% 1.98% 1.77% 1.83%+
Expenses (before waiver/reimbursement) 2.07% 2.06% 1.98% 2.06%+
Portfolio turnover rate 162%(f) 100%(f) 89% 113%
Net assets at end of period (in 000's) $9,250 $5,976 $3,218 $ 46
</Table>
<Table>
* Commencement of operations.
+ Annualized.
(a) Per share data based on average shares outstanding during the period.
(b) Net investment income and the ratio of net investment income includes $0.02 per share and
0.12%, respectively as a result of a special one time dividend from Microsoft Corp.
(c) Less than one cent per share.
(d) Total return is calculated exclusive of sales charges. Class I is not subject to sales
charges.
(e) Total return is not annualized.
(f) The portfolio turnover rate not including mortgage dollar rolls is 157% and 76% for the
years ended October 31, 2006 and 2005, respectively.
</Table>
218 MainStay Income 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 B
---------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2006 2005 2004
$ 13.21 $ 12.54 $ 12.12
-------- -------- -----------
0.34(a) 0.08(a)(b) 0.04
1.39 0.74 0.38
0.00(c) 0.00(c) 0.00(c)
-------- -------- -----------
1.73 0.82 0.42
-------- -------- -----------
(0.41) (0.15) --
-------- -------- -----------
$ 14.53 $ 13.21 $ 12.54
======== ======== ===========
13.35% 6.60% 3.47%(e)
2.49% 0.65%(b) 0.65%+
1.81% 1.98% 1.77%+
2.08% 2.06% 1.98%+
162%(f) 100%(f) 89%
$28,664 $34,755 $20,087
</Table>
<Table>
<Caption>
CLASS I
----------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2006 2005 2004 2003 2002
$ 13.53 $ 12.74 $ 11.99 $ 10.81 $ 12.11
-------- -------- -------- -------- --------
0.48(a) 0.24(a)(b) 0.22 0.18 (a) 0.22
1.41 0.74 0.78 1.22 (1.25)
0.00(c) 0.00(c) 0.00(c) (0.00)(c) (0.00)(c)
-------- -------- -------- -------- --------
1.89 0.98 1.00 1.40 (1.03)
-------- -------- -------- -------- --------
(0.64) (0.19) (0.25) (0.22) (0.27)
-------- -------- -------- -------- --------
$ 14.78 $ 13.53 $ 12.74 $ 11.99 $ 10.81
======== ======== ======== ======== ========
14.34% 7.76% 8.43% 13.17% (8.78%)
3.44% 1.75%(b) 1.59% 1.65% 1.84%
0.90% 0.88% 0.83% 0.83% 0.83%
0.93% 0.96% 1.04% 1.06% 0.94%
162%(f) 100%(f) 89% 113% 4%
$263,155 $240,110 $234,256 $262,438 $399,199
</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 219
MAINSTAY CONSERVATIVE ALLOCATION FUND
INVESTMENT AND PERFORMANCE COMPARISON (UNAUDITED)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE 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 CALL 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM. PERFORMANCE DATA SHOWN EXCLUDING SALES CHARGES DOES NOT
REFLECT THE DEDUCTION OF ANY SALES LOAD, WHICH IF REFLECTED, WOULD REDUCE
PERFORMANCE QUOTED.
CLASS A SHARES--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- -----------------------------------------
With sales charges 3.34% 3.71%
Excluding sales charges 9.36 7.51
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY CONSERVATIVE LEHMAN BROTHERS
CONSERVATIVE ALLOCATION MSCI EAFE AGGREGATE BOND
ALLOCATION FUND BENCHMARK S&P 500 INDEX INDEX INDEX
--------------- ------------ ------------- --------- ---------------
4/4/05 9450 10000 10000 10000 10000
9685 10246 10365 10731 10129
10/31/06 10591 11281 12059 13684 10655
</Table>
CLASS B SHARES--MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- -----------------------------------------
With sales charges 3.67% 4.30%
Excluding sales charges 8.67 6.76
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY CONSERVATIVE LEHMAN BROTHERS
CONSERVATIVE ALLOCATION MSCI EAFE AGGREGATE BOND
ALLOCATION FUND BENCHMARK S&P 500 INDEX INDEX INDEX
--------------- ------------ ------------- --------- ---------------
4/4/05 10000 10000 10000 10000 10000
10202 10246 10365 10731 10129
10/31/06 10686 11281 12059 13684 10655
</Table>
CLASS C SHARES--MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- -----------------------------------------
With sales charges 7.67% 6.76%
Excluding sales charges 8.67 6.76
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY CONSERVATIVE LEHMAN BROTHERS
CONSERVATIVE ALLOCATION MSCI EAFE AGGREGATE BOND
ALLOCATION FUND BENCHMARK S&P 500 INDEX INDEX INDEX
--------------- ------------ ------------- --------- ---------------
4/4/05 10000 10000 10000 10000 10000
10202 10246 10365 10731 10129
10/31/06 11086 11281 12059 13684 10655
</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 as 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 1.00% 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. These fee waivers and/or expense limitations are
contractual and may be modified or terminated only with the approval of the
Board of Directors. The Manager may recoup the amount of any management fee
waivers or expense reimbursements from the Fund pursuant to this agreement if
such action does not cause the Fund to exceed existing expense limitations and
the recoupment is made within three years after the year in which the Manager
incurred the expense.
THE DISCLOSURE AND FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THE TABLES
AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
220 MainStay Conservative Allocation Fund
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- ------------------------------------------
10.13% 8.04%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY CONSERVATIVE LEHMAN BROTHERS
CONSERVATIVE ALLOCATION MSCI EAFE AGGREGATE BOND
ALLOCATION FUND BENCHMARK S&P 500 INDEX INDEX INDEX
--------------- ------------ ------------- --------- ---------------
4/4/05 10000 10000 10000 10000 10000
10257 10246 10365 10731 10129
10/31/06 11296 11281 12059 13684 10655
</Table>
<Table>
<Caption>
ONE SINCE
BENCHMARK PERFORMANCE YEAR INCEPTION
- -----------------------------------------------------------------------------------------
Conservative Allocation Benchmark(1) 10.09% 7.95%
S&P 500(R) Index(2) 16.34 12.62
MSCI EAFE(R) Index(3) 27.52 22.03
Lehman Brothers(R) Aggregate Bond Index(4) 5.19 4.11
Average Lipper mixed-asset target allocation conservative fund(5) 7.62 4.96
</Table>
1. The Conservative Allocation Benchmark was built using different weightings
from three well-known indices that represent three asset classes. U.S. stocks
(35% weighted) are represented by the S&P 500(R) Index, international stocks
(5% weighted) are represented by Morgan Stanley Capital International Europe,
Australasia, and Far East Index--the MSCI EAFE(R) Index--and U.S. bonds (60%
weighted) are represented by the Lehman Brothers(R) Aggregate Bond Index.
Results for all indices assume that all income and capital gains are
reinvested in the index or indices that produce them. The Conservative
Allocation Benchmark is considered to be the Fund's broad-based
securities-market index for comparison purposes. An investment cannot be made
directly in an index or a benchmark.
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 in an index.
3. The Morgan Stanley Capital International Europe, Australasia, and Far East
Index--the MSCI EAFE(R) Index--is an unmanaged index that is considered
representative of the international stock market. Results assume reinvestment
of all income and capital gains. An investment cannot be made directly in an
index.
4. The Lehman Brothers(R) Aggregate Bond Index is an unmanaged index that
consists of the following other unmanaged Lehman Brothers(R) indices: the
Government Index, Corporate Index, Mortgage-Backed Securities Index, and
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. An investment
cannot be made directly in an index.
5. 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 THE
TABLES AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
www.mainstayfunds.com 221
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY CONSERVATIVE ALLOCATION FUND
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from May 1, 2006, to October 31, 2006,
and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, if applicable, exchange fees, and sales
charges (loads) on purchases, and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds. The example is based on an investment of $1,000 made at the
beginning of the six-month period and held for the entire period from May 1,
2006, to October 31, 2006.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested to estimate the expenses that you
paid during the six-months ended October 31, 2006. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
- - HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The fourth and fifth data columns in the table below provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balances or
expenses you paid for the six-month period shown. You may use this information
to compare the ongoing costs of investing in the Fund with the ongoing costs of
investing in other Funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
Funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees, if applicable, exchange fees, or sales charges (loads).
Therefore, the fourth and fifth data columns of the table are useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT
ENDING ACCOUNT VALUE (BASED
VALUE (BASED ON HYPOTHETICAL
BEGINNING ON ACTUAL EXPENSES 5% ANNUALIZED EXPENSES
ACCOUNT RETURNS AND PAID RETURN AND PAID
VALUE EXPENSES) DURING ACTUAL EXPENSES) DURING
SHARE CLASS 5/1/06 10/31/06 PERIOD(1) 10/31/06 PERIOD(1)
CLASS A SHARES $1,000.00 $1,042.95 $2.73 $1,022.35 $2.70
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $1,039.60 $6.58 $1,018.60 $6.51
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $1,040.60 $6.58 $1,018.60 $6.51
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,046.05 $1.29 $1,023.75 $1.28
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio of each class
(0.53% for Class A, 1.28% for Class B and Class C, and 0.25% for Class I)
multiplied by the average account value over the period, divided by 365 and
multiplied by 184 (to reflect the one-half year period). In the absence of
waivers and/or reimbursements, expenses would have been higher.
222 MainStay Conservative Allocation Fund
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2006
(COMPOSITION PIE CHART)
<Table>
Affiliated Investment Companies 99.9
Cash and Other Assets, Less Liabilities 0.1
</Table>
See Portfolio of Investments on page 227 for specific holdings within these
categories.
www.mainstayfunds.com 223
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio manager Tony Elavia of New York Life Investment
Management LLC
HOW DID MAINSTAY CONSERVATIVE ALLOCATION FUND PERFORM RELATIVE TO ITS PEERS AND
ITS BENCHMARK DURING THE 12 MONTHS ENDED OCTOBER 31, 2006?
Excluding all sales charges, MainStay Conservative Allocation Fund returned
9.36% for Class A shares, 8.67% for Class B shares, and 8.67% for Class C shares
during the 12 months ended October 31, 2006. For the same period, the Fund's
Class I shares returned 10.13%. Class I shares outperformed--and Class A, Class
B, and Class C shares underperformed--the 10.09% return of Conservative
Allocation Benchmark,(1) the Fund's broad-based securities-market index, for the
12-month reporting period. All share classes outperformed the 7.62% return of
the average Lipper(2) mixed-asset target allocation conservative fund for the 12
months ended October 31, 2006.
HOW DID YOU DETERMINE THE FUND'S ALLOCATIONS AMONG THE UNDERLYING FUNDS?
MainStay Conservative Allocation Fund invests in other MainStay Funds, which are
referred to as Underlying Funds.
Throughout the summer and into the fall, we emphasized Underlying Funds with
larger average capitalizations and a stronger growth orientation. We believed
that the market's capitalization and style preferences had become a bit
distorted in recent years. From July through October 2006, the style bias had
little impact on the performance of the Fund but the orientation toward
Underlying Funds with larger average capitalizations began to benefit returns.
WERE THERE ANY SPECIFIC CHANGES IN YOUR ALLOCATIONS TO UNDERLYING FUNDS?
One recent change has been a gradual migration out of MainStay Common Stock Fund
and into MainStay Growth Equity Fund and domestic equity products subadvised by
Institutional Capital LLC (ICAP). Although the shift detracted from performance
through October 31, 2006, the overall impact was slight.
We also elected to split the Fund's exposure to international equities evenly
between MainStay International Equity Fund and MainStay ICAP International Fund.
Since MainStay ICAP International Fund did not become available until September
1, 2006, the impact of the move, though negative, has been very mild.
DURING THE REPORTING PERIOD, WHICH UNDERLYING FUNDS HAD THE HIGHEST TOTAL
RETURNS AND WHICH HAD THE LOWEST?
MainStay International Equity Fund was the best-performing Underlying Fund by a
considerable margin, followed by MainStay Large Cap Opportunities Fund and other
Underlying Funds with a large-cap value orientation. The worst-performing
Underlying Funds were on the fixed-income side. MainStay Short Term Bond Fund
had the lowest total return, followed by MainStay Cash Reserves Fund, MainStay
Indexed Bond Fund, MainStay Intermediate Term Bond Fund, and MainStay Government
Bond Fund. All these Underlying Funds grouped closely together, with total
returns that were less than one percentage point apart.
DURING THE REPORTING PERIOD, WHICH UNDERLYING FUNDS MADE THE GREATEST POSITIVE
CONTRIBUTIONS TO THE FUND'S PERFORMANCE AND WHICH ONES DETRACTED?
A sizable average allocation to MainStay Common Stock Fund was among the
strongest positive contributors to the Fund's performance on an absolute basis
and relative to the Conservative Allocation Benchmark. A large position in
MainStay Indexed Bond Fund also accounted for much of the Fund's return,
although that holding had little impact on performance relative to the
benchmark. MainStay High Yield Corporate Bond Fund was by far the
best-performing of the Underlying Fixed-Income Funds during the reporting
period.
None of the Underlying Funds generated negative returns, but the Fund's
positions in MainStay Large Cap Growth Fund and MainStay All Cap Growth Fund
detracted from the Fund's performance relative to the Conservative Allocation
Benchmark.
1. See footnote on page 221 for more information on the Fund's Conservative
Allocation Benchmark.
2. See footnote page 221 for more information on Lipper Inc.
THE DISCLOSURE AND FOOTNOTES ON PAGE 226 ARE AN INTEGRAL PART OF THE PORTFOLIO
MANAGEMENT DISCUSSION AND ANALYSIS AND SHOULD BE CAREFULLY READ IN CONJUNCTION
WITH IT.
224 MainStay Conservative Allocation Fund
WHAT FACTORS INFLUENCED PERFORMANCE IN THE FIXED-INCOME PORTION OF THE FUND?
A strategic blend of fixed-income Underlying Funds similar to the bond component
of the benchmark was established at the inception of the Fund and has been
maintained ever since. During the reporting period, fixed-income returns tended
to improve with investments made further down the credit spectrum. The Fund
maintains small, strategic exposures to MainStay Floating Rate Fund and MainStay
High Yield Corporate Bond Fund, both of which fared well during the reporting
period. The Fund's much larger allocation to MainStay Indexed Bond Fund resulted
in modest returns only a shade better than inflation or cash.
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.
www.mainstayfunds.com 225
The Fund's performance depends on the advisor's skill in determining the
asset-class allocations and the mix of Underlying MainStay Funds as well as the
performance of these Underlying Funds. The Underlying Funds' performance may be
lower than the performance of the asset class or classes the Underlying Funds
were selected to represent. The Fund is indirectly subject to the investment
risks of each Underlying Fund held. Principal risks of the Underlying Funds are
described below.
MainStay Conservative Allocation Fund is a "fund of funds" that invests in other
MainStay Funds. The cost of investing in the Fund may be higher than the cost of
investing in a mutual fund that invests directly in individual stocks and bonds.
By investing in the Fund, clients will indirectly bear fees and expenses charged
by the Underlying Funds in which the Fund invests in addition to the Fund's
direct fees and expenses. In addition, the use of a fund-of-funds structure
could affect the timing, amount, and character of distributions to the client
and may increase taxes payable by the client.
The Fund may invest more than 25% of its assets in one Underlying Fund, which
may significantly affect the net asset value of the Fund.
The Fund, through its investment in the Underlying Funds, may be subject to
risks of the Underlying Funds, including the following:
- - Stocks and bonds can decline because of adverse issuer, market, regulatory, or
economic developments.
- - High-yield securities carry higher risks, and some of the Underlying Funds'
investments have speculative characteristics and present a greater risk of
loss than higher-quality debt securities. High-yield securities can also be
subject to greater price volatility.
- - Stocks of small companies may be subject to higher price volatility,
significantly lower trading volume, and greater spreads between bid and ask
prices than stocks of larger companies. Furthermore, small-cap companies may
be more vulnerable to adverse business or market developments than larger
companies, and the product lines of small- cap companies may be more limited
than those of larger-capitalization companies.
- - Stocks of mid-cap companies 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.
- - When interest rates rise, the prices of fixed-income securities in the
Underlying Funds' portfolios will generally fall. On the other hand, when
interest rates fall, the prices of fixed-income securities in the Underlying
Funds' portfolios will generally rise.
- - The Underlying Floating-Rate Funds are generally considered to have
speculative characteristics. These Underlying Funds may involve risk of
default on principal and interest and risks associated with collateral
impairment, nondiversification, borrower industry concentration, and limited
liquidity.
- - AN INVESTMENT IN THE UNDERLYING MONEY MARKET FUND IS NOT INSURED OR GUARANTEED
BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE UNDERLYING MONEY
MARKET FUND SEEKS TO MAINTAIN A VALUE OF $1.00 PER SHARE, IT IS POSSIBLE TO
LOSE MONEY.
Before making an investment in the Fund, you should consider all the risks
associated with it.
INFORMATION ABOUT MAINSTAY CONSERVATIVE ALLOCATION FUND ON THIS PAGE AND THE
PRECEDING PAGES HAS NOT BEEN AUDITED.
226 MainStay Conservative Allocation Fund
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006
<Table>
<Caption>
SHARES VALUE
AFFILIATED INVESTMENT COMPANIES (99.9%)+
- ---------------------------------------------------------------------------
EQUITY FUNDS (39.8%)
MainStay Common Stock Fund 399,358 $ 5,882,541
MainStay Growth Equity Fund (a)(b) 238,662 2,634,825
MainStay ICAP Equity Fund 4,635 219,039
MainStay ICAP International Fund 41,171 1,573,569
MainStay ICAP Select Equity Fund 103,753 4,288,094
MainStay International Equity Fund 94,189 1,581,427
MainStay Large Cap Growth Fund (b) 1,064,440 6,269,552
MainStay S&P 500 Index Fund 67,931 2,184,668
MainStay Small Cap Opportunity Fund 10,951 221,001
MainStay Value Fund 9,301 216,070
-----------
25,070,786
-----------
FIXED INCOME FUNDS (60.1%)
MainStay Floating Rate Fund 476,466 4,731,311
MainStay High Yield Corporate Bond Fund 745,698 4,727,723
MainStay Indexed Bond Fund (b) 2,260,839 24,168,371
MainStay Intermediate Term Bond Fund 436,692 4,257,749
-----------
37,885,154
-----------
Total Affiliated Investment Companies
(Cost $61,355,732) (c) 99.9% 62,955,940(d)
Cash and Other Assets,
Less Liabilities 0.1 31,796
--------- -----------
Net Assets 100.0% $62,987,736
========= ===========
</Table>
<Table>
+ Percentages indicated are based on Fund net assets.
(a) Non-income producing Portfolio/Fund.
(b) The Fund's ownership exceeds 5% of the outstanding shares of
the underlying Portfolio/Fund.
(c) The cost for federal income tax purposes is $61,390,011.
(d) At October 31, 2006 net unrealized appreciation was
$1,565,929 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 $1,651,073 and aggregate gross unrealized
depreciation for all investments on which there was an
excess of cost over market value of $85,144.
</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 227
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2006
<Table>
ASSETS:
Investment in affiliated investment companies,
at value (identified cost $61,355,732) $62,955,940
Cash 221,114
Receivables:
Fund shares sold 118,824
Interest 290
Other assets 17,713
------------
Total assets 63,313,881
------------
LIABILITIES:
Payables:
Investment securities purchased 221,605
Manager (See Note 3) 30,165
NYLIFE Distributors (See Note 3) 26,995
Fund shares redeemed 14,231
Shareholder communication 11,626
Professional fees 10,388
Custodian 3,448
Transfer agent (See Note 3) 2,501
Directors 782
Accrued expenses 4,404
------------
Total liabilities 326,145
------------
Net assets $62,987,736
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1
billion shares authorized:
Class A $ 3,786
Class B 1,246
Class C 748
Class I 56
Additional paid-in capital 60,322,416
Accumulated undistributed net realized gain on
investments 1,059,276
Net unrealized appreciation on investments 1,600,208
------------
Net assets $62,987,736
============
CLASS A
Net assets applicable to outstanding shares $40,889,019
============
Shares of capital stock outstanding 3,785,542
============
Net asset value per share outstanding $ 10.80
Maximum sales charge (5.50% of offering price) 0.63
------------
Maximum offering price per share outstanding $ 11.43
============
CLASS B
Net assets applicable to outstanding shares $13,425,544
============
Shares of capital stock outstanding 1,245,679
============
Net asset value and offering price per share
outstanding $ 10.78
============
CLASS C
Net assets applicable to outstanding shares $ 8,066,351
============
Shares of capital stock outstanding 748,378
============
Net asset value and offering price per share
outstanding $ 10.78
============
CLASS I
Net assets applicable to outstanding shares $ 606,822
============
Shares of capital stock outstanding 55,923
============
Net asset value and offering price per share
outstanding $ 10.85
============
</Table>
228 MainStay Conservative Allocation 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, 2006
<Table>
INVESTMENT INCOME:
INCOME:
Dividend distributions from affiliated
investment companies $1,478,410
Interest 4,370
-----------
Total income 1,482,780
-----------
EXPENSES:
Distribution--Class B (See Note 3) 77,449
Distribution--Class C (See Note 3) 40,897
Distribution/Service--Class A (See Note 3) 73,203
Service--Class B (See Note 3) 25,816
Service--Class C (See Note 3) 13,632
Registration 47,720
Offering costs 35,097
Professional fees 26,588
Custodian 20,740
Transfer agent--Classes A, B and C (See Note
3) 13,379
Shareholder communication 7,568
Directors 3,327
Miscellaneous 8,672
-----------
Total expenses before reimbursement 394,088
Expense reimbursement from Manager
(See Note 3) (36,386)
-----------
Net expenses 357,702
-----------
Net investment income 1,125,078
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on:
Affiliated investment company transactions 1,101,906
Capital gain distributions from affiliated
investment company transactions 133,886
-----------
Net realized gain on investments 1,235,792
-----------
Net change in unrealized depreciation on
investments 1,680,273
-----------
Net realized and unrealized gain on investments 2,916,065
-----------
Net increase in net assets resulting from
operations $4,041,143
===========
</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 229
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED OCTOBER 31, 2006 AND THE PERIOD APRIL 4, 2005
(COMMENCEMENT OF OPERATIONS) THROUGH OCTOBER 31, 2005
<Table>
<Caption>
2006 2005
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 1,125,078 $ 140,553
Net realized gain on investments 1,235,792 4,353
Net change in unrealized
appreciation (depreciation) on
investments 1,680,273 (80,065)
--------------------------
Net increase in net assets resulting
from operations 4,041,143 64,841
--------------------------
Dividends and distributions to shareholders:
From net investment income:
Class A (986,092) (42,116)
Class B (246,117) (16,565)
Class C (139,935) (4,892)
Class I (5,432) (48)
From net realized gain on investments:
Class A (2,835) --
Class B (1,886) --
Class C (580) --
Class I (2) --
--------------------------
Total dividends and distributions to
shareholders (1,382,879) (63,621)
--------------------------
</Table>
<Table>
<Caption>
2006 2005
Capital share transactions:
Net proceeds from sale of shares:
Class A $ 27,764,577 $13,659,478
Class B 10,076,432 9,356,234
Class C 6,308,580 2,973,430
Class I 569,960 10,086
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions:
Class A 910,173 39,643
Class B 237,874 15,826
Class C 119,825 4,207
Class I 5,434 48
--------------------------
45,992,855 26,058,952
Cost of shares redeemed:
Class A (7,102,217) (352,445)
Class B (2,326,415) (281,606)
Class C (1,587,299) (66,198)
Class I (7,301) (74)
--------------------------
(11,023,232) (700,323)
Net asset value of shares converted (See Note 1):
Class A 4,313,326 --
Class B (4,313,326) --
Increase in net assets derived
from capital share transactions 34,969,623 25,358,629
--------------------------
Net increase in net assets 37,627,887 25,359,849
NET ASSETS:
Beginning of period 25,359,849 --
--------------------------
End of period $ 62,987,736 $25,359,849
==========================
Accumulated undistributed net
investment income at end of period $ -- $ 116,513
==========================
</Table>
230 MainStay Conservative Allocation 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
www.mainstayfunds.com 231
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A CLASS B
---------------------------- ----------------------------
APRIL 4, APRIL 4,
2005* 2005*
YEAR ENDED THROUGH YEAR ENDED THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2006 2005 2006 2005
Net asset value at beginning of period $ 10.21 $ 10.00 $ 10.18 $10.00
----------- ----------- ----------- -----------
Net investment income (a) 0.28 0.14 0.22 0.10
Net realized and unrealized gain on investments 0.65 0.11(b) 0.65 0.10(b)
----------- ----------- ----------- -----------
Total from investment operations 0.93 0.25 0.87 0.20
----------- ----------- ----------- -----------
Less dividends and distributions:
From net investment income (0.34) (0.04) (0.27) (0.02)
From net realized gain on investments (0.00)(c) -- (0.00)(c) --
----------- ----------- ----------- -----------
Total dividends and distributions (0.34) (0.04) (0.27) (0.02)
----------- ----------- ----------- -----------
Net asset value at end of period $ 10.80 $ 10.21 $ 10.78 $10.18
=========== =========== =========== ===========
Total investment return (d) 9.36% 2.49%(e) 8.67% 2.02%(e)
Ratios (to average net assets)/Supplemental Data:
Net investment income 2.71% 2.43%+ 2.07% 1.68%+
Net expenses (f) 0.53% 0.60%+ 1.28% 1.35%+
Expenses (before reimbursement) (f) 0.61% 1.55%+ 1.36% 2.30%+
Portfolio turnover rate 33% 3% 33% 3%
Net assets at end of period (in 000's) $40,889 $13,350 $13,426 $9,100
</Table>
<Table>
* Commencement of operations.
+ Annualized.
(a) Per share data based on average shares outstanding during the period.
(b) The amount shown for a share outstanding does not correspond with aggregate net realized
and unrealized gain (loss) on investments due to the timing of purchases and redemptions
of Fund shares in relation to fluctuating market values of the investments of the Fund
during the period.
(c) Less than one cent per share.
(d) Total return is calculated exclusive of sales charges. Class I is not subject to sales
charges.
(e) Total return is not annualized.
(f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly
bears a pro-rata share of the fees and expenses of the underlying funds in which it
invests. Such indirect expenses are not included in the above reported expense ratios.
</Table>
232 MainStay Conservative Allocation 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 C CLASS I
- --------------------------------- ----------------------------
APRIL 4, APRIL 4,
2005* 2005*
YEAR ENDED THROUGH YEAR ENDED THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2006 2005 2006 2005
$10.18 $10.00 $10.21 $10.00
----------- ----------- ----------- -----------
0.21 0.10 0.33 0.15
0.66 0.10(b) 0.68 0.11(b)
----------- ----------- ----------- -----------
0.87 0.20 1.01 0.26
----------- ----------- ----------- -----------
(0.27) (0.02) (0.37) (0.05)
(0.00)(c) -- (0.00)(c) --
----------- ----------- ----------- -----------
(0.27) (0.02) (0.37) (0.05)
----------- ----------- ----------- -----------
$10.78 $10.18 $10.85 $10.21
=========== =========== =========== ===========
8.67% 2.02%(e) 10.13% 2.57%(e)
2.02% 1.68%+ 3.15% 2.78%+
1.28% 1.35%+ 0.25% 0.25%+
1.36% 2.30%+ 0.33% 1.20%+
33% 3% 33% 3%
$8,066 $2,900 $ 607 $ 10
</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 233
MAINSTAY GROWTH ALLOCATION FUND
INVESTMENT AND PERFORMANCE COMPARISON (UNAUDITED)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE 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 CALL 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM. PERFORMANCE DATA SHOWN EXCLUDING SALES CHARGES DOES NOT
REFLECT THE DEDUCTION OF ANY SALES LOAD, WHICH IF REFLECTED, WOULD REDUCE
PERFORMANCE QUOTED.
CLASS A SHARES--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- ------------------------------------------
With sales charges 10.08% 9.70%
Excluding sales charges 16.49 13.71
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY GROWTH GROWTH ALLOCATION
ALLOCATION FUND BENCHMARK S&P 500 INDEX MSCI EAFE INDEX
--------------- ----------------- ------------- ---------------
4/4/05 9450 10000 10000 10000
9932 10440 10365 10731
10/31/06 11570 12377 12059 13684
</Table>
CLASS B SHARES--MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- ------------------------------------------
With sales charges 10.59% 10.49%
Excluding sales charges 15.59 12.87
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY GROWTH GROWTH ALLOCATION
ALLOCATION FUND BENCHMARK S&P 500 INDEX MSCI EAFE INDEX
--------------- ----------------- ------------- ---------------
4/4/05 10000 10000 10000 10000
10470 10440 10365 10731
10/31/06 11702 12377 12059 13684
</Table>
CLASS C SHARES--MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- ------------------------------------------
With sales charges 14.79% 12.93%
Excluding sales charges 15.79 12.93
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY GROWTH GROWTH ALLOCATION
ALLOCATION FUND BENCHMARK S&P 500 INDEX MSCI EAFE INDEX
--------------- ----------------- ------------- ---------------
4/4/05 10000 10000 10000 10000
10460 10440 10365 10731
10/31/06 12112 12377 12059 13684
</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 as 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 1.00% 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. These fee waivers and/or expense limitations are
contractual and may be modified or terminated only with the approval of the
Board of Directors. The Manager may recoup the amount of any management fee
waivers or expense reimbursements from the Fund pursuant to this agreement if
such action does not cause the Fund to exceed existing expense limitations and
the recoupment is made within three years after the year in which the Manager
incurred the expense.
THE DISCLOSURE AND FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THE TABLES
AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
234 MainStay Growth Allocation Fund
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- ------------------------------------------
17.36% 14.32%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY GROWTH GROWTH ALLOCATION
ALLOCATION FUND BENCHMARK S&P 500 INDEX MSCI EAFE INDEX
--------------- ----------------- ------------- ---------------
4/4/05 10000 10000 10000 10000
10520 10440 10365 10731
10/31/06 12347 12377 12059 13684
</Table>
<Table>
<Caption>
ONE SINCE
BENCHMARK PERFORMANCE YEAR INCEPTION
- ------------------------------------------------------
Growth Allocation Benchmark(1) 18.55% 14.50%
S&P 500(R) Index(2) 16.34 12.62
MSCI EAFE(R) Index(3) 27.52 22.03
Average Lipper multi-cap core
fund(5) 14.49 11.75
</Table>
1. The Growth Allocation Benchmark was built using different weightings from two
well-known indices that represent two asset classes. U.S. stocks (80%
weighted) are represented by the S&P 500(R) Index and international stocks
(20% weighted) are represented by the Morgan Stanley Capital International
Europe, Australasia, and Far East Index--the MSCI EAFE(R) Index. Results for
all indices assume that all income and capital gains are reinvested in the
index that produced them. The Growth Allocation Benchmark is considered to be
the Fund's broad-based securities-market index for comparison purposes. An
investment cannot be made directly in an index or a benchmark.
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 in an index.
3. The Morgan Stanley Capital International Europe, Australasia, and Far East
Index--the MSCI EAFE(R) Index--is an unmanaged index that is considered
representative of the international stock market. Results assume reinvestment
of all income and capital gains. An investment cannot be made 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 THE
TABLES AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
www.mainstayfunds.com 235
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY GROWTH ALLOCATION FUND
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from May 1, 2006, to October 31, 2006,
and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, if applicable, exchange fees, and sales
charges (loads) on purchases, and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds. The example is based on an investment of $1,000 made at the
beginning of the six-month period and held for the entire period from May 1,
2006, to October 31, 2006.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested to estimate the expenses that you
paid during the six-months ended October 31, 2006. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
- - HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The fourth and fifth data columns in the table below provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balances or
expenses you paid for the six-month period shown. You may use this information
to compare the ongoing costs of investing in the Fund with the ongoing costs of
investing in other Funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
Funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees, if applicable, exchange fees, or sales charges (loads).
Therefore, the fourth and fifth data columns of the table are useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT
ENDING ACCOUNT VALUE (BASED
VALUE (BASED ON HYPOTHETICAL
BEGINNING ON ACTUAL EXPENSES 5% ANNUALIZED EXPENSES
ACCOUNT RETURNS AND PAID RETURN AND PAID
VALUE EXPENSES) DURING ACTUAL EXPENSES) DURING
SHARE CLASS 5/1/06 10/31/06 PERIOD(1) 10/31/06 PERIOD(1)
CLASS A SHARES $1,000.00 $1,044.20 $2.68 $1,022.40 $2.65
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $1,040.25 $6.53 $1,018.65 $6.46
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $1,040.25 $6.53 $1,018.65 $6.46
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,045.65 $1.29 $1,023.75 $1.28
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio of each class
(0.52% for Class A, 1.27% for Class B and Class C, and 0.25% for Class I)
multiplied by the average account value over the period, divided by 365 and
multiplied by 184 (to reflect the one-half year period). In the absence of
waivers and/or reimbursements, expenses would have been higher.
236 MainStay Growth Allocation Fund
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2006
(COMPOSITION PIE CHART)
<Table>
Affiliated Investment Companies 99.6
Cash and Other Assets, Less Liabilities 0.4
</Table>
See Portfolio of Investments on page 240 for specific holdings within these
categories.
www.mainstayfunds.com 237
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio manager Tony Elavia of New York Life Investment
Management LLC
HOW DID MAINSTAY GROWTH ALLOCATION FUND PERFORM RELATIVE TO ITS PEERS AND ITS
BENCHMARK DURING THE 12 MONTHS ENDED OCTOBER 31, 2006?
Excluding all sales charges, MainStay Growth Allocation Fund returned 16.49% for
Class A shares, 15.59% for Class B shares, and 15.79% for Class C shares during
the 12 months ended October 31, 2006. For the same period, the Fund's Class I
shares returned 17.36%. All share classes underperformed the 18.55% return of
the Growth Allocation Benchmark,(1) the Fund's broad-based securities-market
index, for the 12-month period. All share classes outperformed the 14.49% return
of the average Lipper(2) multi-cap core fund for the 12 months ended October 31,
2006.
HOW DID YOU DETERMINE THE FUND'S ALLOCATIONS AMONG THE UNDERLYING FUNDS?
MainStay Growth Allocation Fund invests in other MainStay Funds, which are
referred to as Underlying Funds.
Throughout the summer and into the fall, we emphasized Underlying Funds with
larger average capitalizations and a stronger growth orientation. We believed
that the market's capitalization and style preferences had become a bit
distorted in recent years. From July through October 2006, the style bias had
little impact on the performance of the Fund but the orientation toward
Underlying Funds with larger average capitalizations began to benefit returns.
WERE THERE ANY SPECIFIC CHANGES IN YOUR ALLOCATIONS TO UNDERLYING FUNDS?
One recent change has been a gradual migration out of MainStay Common Stock Fund
and into MainStay Growth Equity Fund and domestic equity products subadvised by
Institutional Capital LLC (ICAP). Although the shift detracted from performance
through October 31, 2006, the overall impact was slight.
We also elected to split the Fund's exposure to international equities evenly
between MainStay International Equity Fund and MainStay ICAP International Fund.
Since MainStay ICAP International Fund did not become available until September
1, 2006, the impact of the move, though negative, has been very mild.
DURING THE REPORTING PERIOD, WHICH UNDERLYING FUNDS HAD THE HIGHEST TOTAL
RETURNS AND WHICH HAD THE LOWEST?
MainStay International Equity Fund was the best-performing Underlying Fund by a
considerable margin, followed by MainStay Large Cap Opportunities Fund and other
Underlying Funds with a large-cap value orientation. The Fund's worst-performing
holdings were growth-oriented Underlying Funds. MainStay Capital Appreciation
Fund had the lowest total return, followed by MainStay All Cap Growth Fund,
MainStay Mid Cap Growth Fund, and MainStay Large Cap Growth Fund. All these
Underlying Funds grouped closely together, with total returns that were less
than two percentage points apart.
DURING THE REPORTING PERIOD, WHICH UNDERLYING FUNDS MADE THE GREATEST POSITIVE
CONTRIBUTIONS TO THE FUND'S PERFORMANCE AND WHICH ONES DETRACTED?
The Fund's position in MainStay International Equity Fund made the largest
positive contribution to the Fund's performance. Foreign markets showed
exceptional results during the 12-month reporting period. A sizeable average
allocation to MainStay Common Stock Fund was another strong contributor to the
Fund's absolute and relative performance.
None of the Underlying Funds generated negative returns, but the Fund's
positions in MainStay Large Cap Growth Fund and MainStay All Cap Growth Fund
detracted from the Fund's performance relative to the Growth Allocation
Benchmark.
1. See footnote on page 235 for more information on the Fund's Growth Allocation
Benchmark.
2. See footnote on page 235 for more information on Lipper Inc.
THE DISCLOSURE AND FOOTNOTES ON PAGE 239 ARE AN INTEGRAL PART OF THE PORTFOLIO
MANAGEMENT DISCUSSION AND ANALYSIS AND SHOULD BE CAREFULLY READ IN CONJUNCTION
WITH IT.
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.
238 MainStay Growth Allocation Fund
The Fund's performance depends on the advisor's skill in determining the
asset-class allocations and the mix of Underlying MainStay Funds as well as the
performance of these Underlying Funds. The Underlying Funds' performance may be
lower than the performance of the asset class or classes the Underlying Funds
were selected to represent. The Fund is indirectly subject to the investment
risks of each Underlying Fund held. Principal risks of the Underlying Funds are
described below.
MainStay Growth Allocation Fund is a "fund of funds" that invests in other
MainStay Funds. The cost of investing in the Fund may be higher than the cost of
investing in a mutual fund that invests directly in individual stocks and bonds.
By investing in the Fund, clients will indirectly bear fees and expenses charged
by the Underlying Funds in which the Fund invests in addition to the Fund's
direct fees and expenses. In addition, the use of a fund-of-funds structure
could affect the timing, amount, and character of distributions to the client
and may increase taxes payable by the client.
The Fund may invest more than 25% of its assets in one Underlying Fund, which
may significantly affect the net asset value of the Fund.
The Fund, through its investment in the Underlying Funds, may be subject to
risks of the Underlying Funds, including the following:
- - Stocks and bonds can decline because of adverse issuer, market, regulatory, or
economic developments.
- - The principal risk of growth stocks is that investors expect growth companies
to increase their earnings at a certain rate that is generally higher than the
rate expected for nongrowth companies. If these expectations are not met, the
market price of the stock may decline significantly, even if earnings showed
an absolute increase.
- - High-yield securities carry higher risks, and some of the Underlying Funds'
investments have speculative characteristics and present a greater risk of
loss than higher-quality debt securities. High-yield securities can also be
subject to greater price volatility.
- - Stocks of small companies may be subject to higher price volatility,
significantly lower trading volume, and greater spreads between bid and ask
prices than stocks of larger companies. Furthermore, small-cap companies may
be more vulnerable to adverse business or market developments than larger
companies, and the product lines of small- cap companies may be more limited
than those of larger-capitalization companies.
- - Stocks of mid-cap companies 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.
Before making an investment in the Fund, you should consider all the risks
associated with it.
INFORMATION ABOUT MAINSTAY GROWTH ALLOCATION FUND ON THIS PAGE AND THE PRECEDING
PAGES HAS NOT BEEN AUDITED.
www.mainstayfunds.com 239
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006
<Table>
<Caption>
SHARES VALUE
AFFILIATED INVESTMENT COMPANIES (99.6%)+
- ---------------------------------------------------------------------------
EQUITY FUNDS (99.6%)
MainStay Common Stock Fund (a) 1,448,046 $21,329,720
MainStay Growth Equity Fund (a)(b) 262,340 2,896,229
MainStay ICAP Equity Fund 44,428 2,099,689
MainStay ICAP International Fund 237,293 9,069,351
MainStay ICAP Select Equity Fund 232,246 9,598,724
MainStay International Equity Fund 542,019 9,100,493
MainStay Large Cap Growth Fund (a) 3,919,546 23,086,126
MainStay S&P 500 Index Fund 213,860 6,877,747
MainStay Small Cap Opportunity Fund 35,685 720,119
MainStay Value Fund 249,501 5,795,906
-----------
Total Affiliated Investment Companies
(Cost $85,636,889) (c) 99.6% 90,574,104(d)
Cash and Other Assets,
Less Liabilities 0.4 349,203
--------- -----------
Net Assets 100.0% $90,923,307
========= ===========
</Table>
<Table>
+ Percentages indicated are based on Fund net assets.
(a) The Fund's ownership exceeds 5% of the outstanding shares of
the underlying Portfolio/Fund.
(b) Non-income producing Portfolio/Fund.
(c) The cost for federal income tax purposes is $85,651,674.
(d) At October 31, 2006 net unrealized appreciation was
$4,922,430 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 $4,922,430.
</Table>
240 MainStay Growth Allocation 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, 2006
<Table>
ASSETS:
Investment in affiliated investment companies,
at value (identified cost $85,636,889) $90,574,104
Cash 219,722
Receivables:
Fund shares sold 471,060
Interest 892
Other assets 18,540
------------
Total assets 91,284,318
------------
LIABILITIES:
Payables:
Investment securities purchased 219,356
NYLIFE Distributors (See Note 3) 41,778
Fund shares redeemed 37,665
Manager (See Note 3) 28,673
Professional fees 11,340
Shareholder communication 10,575
Custodian 3,656
Transfer agent (See Note 3) 2,500
Directors 1,063
Accrued expenses 4,405
------------
Total liabilities 361,011
------------
Net assets $90,923,307
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1
billion shares authorized:
Class A $ 4,513
Class B 2,320
Class C 722
Class I 1
Additional paid-in capital 83,444,436
Accumulated undistributed net realized gain on
investments 2,534,100
Net unrealized appreciation on investments 4,937,215
------------
Net assets $90,923,307
============
CLASS A
Net assets applicable to outstanding shares $54,499,211
============
Shares of capital stock outstanding 4,513,025
============
Net asset value per share outstanding $ 12.08
Maximum sales charge (5.50% of offering price) 0.70
------------
Maximum offering price per share outstanding $ 12.78
============
CLASS B
Net assets applicable to outstanding shares $27,769,692
============
Shares of capital stock outstanding 2,320,396
============
Net asset value and offering price per share
outstanding $ 11.97
============
CLASS C
Net assets applicable to outstanding shares $ 8,639,906
============
Shares of capital stock outstanding 721,516
============
Net asset value and offering price per share
outstanding $ 11.97
============
CLASS I
Net assets applicable to outstanding shares $ 14,498
============
Shares of capital stock outstanding 1,192
============
Net asset value and offering price per share
outstanding $ 12.17*
============
</Table>
<Table>
* Difference in the NAV recalculation and NAV stated is caused
by rounding differences.
</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 241
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2006
<Table>
INVESTMENT INCOME:
INCOME:
Dividend distributions from affiliated
investment companies $ 159,346
Interest 7,765
-----------
Total income 167,111
-----------
EXPENSES:
Distribution--Class B (See Note 3) 130,256
Distribution--Class C (See Note 3) 43,729
Distribution/Service--Class A (See Note 3) 79,298
Service--Class B (See Note 3) 43,419
Service--Class C (See Note 3) 14,576
Registration 49,921
Offering costs 35,097
Professional fees 28,379
Custodian 17,439
Transfer agent--Classes A, B and C (See Note
3) 13,624
Shareholder communication 7,541
Directors 3,780
Miscellaneous 8,816
-----------
Total expenses before reimbursement 475,875
Expense reimbursement from Manager (See Note
3) (16,114)
-----------
Net expenses 459,761
-----------
Net investment loss (292,650)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on:
Affiliated investment company transactions 2,646,674
Capital gain distributions from affiliated
investment company transactions 446,903
-----------
Net realized gain on investments 3,093,577
-----------
Net change in unrealized appreciation on
investments 4,684,684
-----------
Net realized and unrealized gain on investments 7,778,261
-----------
Net increase in net assets resulting from
operations $7,485,611
===========
</Table>
242 MainStay Growth Allocation 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 YEAR ENDED OCTOBER 31, 2006 AND THE PERIOD APRIL 4, 2005
(COMMENCEMENT OF OPERATIONS) THROUGH OCTOBER 31, 2005
<Table>
<Caption>
2006 2005
INCREASE IN NET ASSETS:
Operations:
Net investment loss $ (292,650) $ (51,251)
Net realized gain on investments 3,093,577 140,192
Net change in unrealized
appreciation on investments 4,684,684 252,531
--------------------------
Net increase in net assets resulting
from operations 7,485,611 341,472
--------------------------
Dividends and distributions to shareholders:
From net investment income:
Class A (144,346) --
Class B (58,222) --
Class C (22,116) --
Class I (105) --
From net realized gain on investments:
Class A (62,778) --
Class B (51,982) --
Class C (16,165) --
Class I (54) --
--------------------------
Total dividends and distributions to
shareholders (355,768) --
--------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 40,726,021 10,648,023
Class B 22,473,965 8,106,966
Class C 8,524,550 963,872
Class I 11,983 10,106
</Table>
<Table>
<Caption>
2006 2005
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions:
Class A $ 195,379 $ --
Class B 105,939 --
Class C 30,806 --
Class I 159 --
--------------------------
72,068,802 19,728,967
Cost of shares redeemed:
Class A (3,808,028) (157,473)
Class B (2,714,340) (77,214)
Class C (1,509,251) (69,298)
Class I (10,100) (73)
--------------------------
(8,041,719) (304,058)
Net asset value of shares converted (See Note 1):
Class A 2,447,141 --
Class B (2,447,141) --
Increase in net assets derived
from capital share transactions 64,027,083 19,424,909
--------------------------
Net increase in net assets 71,156,926 19,766,381
NET ASSETS:
Beginning of period 19,766,381 --
--------------------------
End of period $ 90,923,307 $19,766,381
==========================
</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 243
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A CLASS B
---------------------------- ----------------------------
APRIL 4, APRIL 4,
2005* 2005*
YEAR ENDED THROUGH YEAR ENDED THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2006 2005 2006 2005
Net asset value at beginning of period $ 10.51 $ 10.00 $ 10.47 $10.00
----------- ----------- ----------- -----------
Net investment income (loss) (a) (0.03) (0.04) (0.10) (0.08)
Net realized and unrealized gain on investments 1.74 0.55(b) 1.72 0.55(b)
----------- ----------- ----------- -----------
Total from investment operations 1.71 0.51 1.62 0.47
----------- ----------- ----------- -----------
Less dividends and distributions:
From net investment income (0.09) -- (0.07) --
From net realized gain on investments (0.05) -- (0.05) --
----------- ----------- ----------- -----------
Total dividends and distributions (0.14) -- (0.12) --
----------- ----------- ----------- -----------
Net asset value at end of period $ 12.08 $ 10.51 $ 11.97 $10.47
=========== =========== =========== ===========
Total investment return (c) 16.49% 5.10%(d) 15.59% 4.70%(d)
Ratios (to average net assets)/Supplemental Data:
Net investment income (loss) (0.25%) (0.61%)+ (0.91%) (1.36%)+
Net expenses (e) 0.52% 0.62%+ 1.27% 1.37% +
Expenses (before reimbursement) (e) 0.55% 1.84%+ 1.30% 2.59% +
Portfolio turnover rate 84% 21% 84% 21%
Net assets at end of period (in 000's) $54,499 $10,709 $27,770 $8,142
</Table>
<Table>
* Commencement of operations.
+ Annualized.
(a) Per share data based on average shares outstanding during the period.
(b) The amount shown for a share outstanding does not correspond with aggregate net realized
and unrealized gain (loss) on investments due to the timing of purchases and redemptions
of Fund shares in relation to fluctuating market values of the investments of the Fund
during the period.
(c) Total return is calculated exclusive of sales charge. Class I is not subject to sales
charges.
(d) Total return is not annualized.
(e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly
bears a pro-rata share of the fees and expenses of the underlying funds in which it
invests. Such indirect expenses are not included in the above reported expense ratios.
</Table>
244 MainStay Growth Allocation 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 C CLASS I
- --------------------------------- ----------------------------
APRIL 4, APRIL 4,
2005* 2005*
YEAR ENDED THROUGH YEAR ENDED THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2006 2005 2006 2005
$10.46 $10.00 $10.52 $10.00
------ ------ ------ ------
(0.11) (0.08) 0.01 (0.01)
1.74 0.54(b) 1.79 0.53(b)
------ ------ ------ ------
1.63 0.46 1.80 0.52
------ ------ ------ ------
(0.07) -- (0.10) --
(0.05) -- (0.05) --
------ ------ ------ ------
(0.12) -- (0.15) --
------ ------ ------ ------
$11.97 $10.46 $12.17 $10.52
====== ====== ====== ======
15.79% 4.60%(d) 17.36% 5.20%(d)
(0.95%) (1.36%)+ 0.06% (0.24%)+
1.27% 1.37% + 0.25% 0.25% +
1.30% 2.59% + 0.28% 1.47% +
84% 21% 84% 21%
$8,640 $ 904 $ 14 $ 11
</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 245
MAINSTAY MODERATE ALLOCATION FUND
INVESTMENT AND PERFORMANCE COMPARISON (UNAUDITED)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE 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 CALL 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM. PERFORMANCE DATA SHOWN EXCLUDING SALES CHARGES DOES NOT
REFLECT THE DEDUCTION OF ANY SALES LOAD, WHICH IF REFLECTED, WOULD REDUCE
PERFORMANCE QUOTED.
CLASS A SHARES--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- ------------------------------------------
With sales charges 6.01% 6.21%
Excluding sales charges 12.18 10.10
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY MODERATE LEHMAN BROTHERS
MODERATE ALLOCATION MSCI EAFE AGGREGATE BOND
ALLOCATION FUND BENCHMARK S&P 500 INDEX INDEX INDEX
--------------- ---------- ------------- --------- ---------------
04/4/05 9450 10000 10000 10000 10000
9802 10312 10365 10731 10129
10/31/06 10996 11639 12059 13684 10655
</Table>
CLASS B SHARES--MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- ------------------------------------------
With sales charges 6.31% 6.81%
Excluding sales charges 11.31 9.24
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY MODERATE LEHMAN BROTHERS
MODERATE ALLOCATION MSCI EAFE AGGREGATE BOND
ALLOCATION FUND BENCHMARK S&P 500 INDEX INDEX INDEX
--------------- ---------- ------------- --------- ---------------
4/4/05 10000 10000 10000 10000 10000
10326 10312 10365 10731 10129
10/31/06 11093 11639 12059 13684 10655
</Table>
CLASS C SHARES--MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- ------------------------------------------
With sales charges 10.31% 9.24%
Excluding sales charges 11.31 9.24
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY MODERATE LEHMAN BROTHERS
MODERATE ALLOCATION MSCI EAFE AGGREGATE BOND
ALLOCATION FUND BENCHMARK S&P 500 INDEX INDEX INDEX
--------------- ---------- ------------- --------- ---------------
4/4/05 10000 10000 10000 10000 10000
10326 10312 10365 10731 10129
10/31/06 11493 11639 12059 13684 10655
</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 as 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
THE DISCLOSURE AND FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THE TABLES
AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
246 MainStay Moderate Allocation Fund
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- ------------------------------------------
12.63% 10.43%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY MODERATE LEHMAN BROTHERS
MODERATE ALLOCATION MSCI EAFE AGGREGATE BOND
ALLOCATION FUND BENCHMARK S&P 500 INDEX INDEX INDEX
--------------- ---------- ------------- --------- ---------------
4/4/05 10000 10000 10000 10000 10000
10380 10312 10365 10731 10129
10/31/06 11691 11639 12059 13684 10655
</Table>
<Table>
<Caption>
ONE SINCE
BENCHMARK PERFORMANCE YEAR INCEPTION
- ---------------------------------------------------------------------------------------------
Moderate Allocation Benchmark(1) 12.87% 10.11%
S&P 500(R) Index(2) 16.34 12.62
MSCI EAFE(R) Index(3) 27.52 22.03
Lehman Brothers(R) Aggregate Bond Index(4) 5.19 4.11
Average Lipper mixed-asset target allocation moderate
fund(5) 11.45 8.88
</Table>
CDSC of 1.00% 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. These fee waivers and/or expense limitations are
contractual and may be modified or terminated only with the approval of the
Board of Directors. The Manager may recoup the amount of any management fee
waivers or expense reimbursements from the Fund pursuant to this agreement if
such action does not cause the Fund to exceed existing expense limitations and
the recoupment is made within three years after the year in which the Manager
incurred the expense.
1. The Fund's Moderate Allocation Benchmark was built using different weightings
from three well-known indices that represent three asset classes. U.S. stocks
(50% weighted) are represented by the S&P 500(R) Index, international stocks
(10% weighted) are represented by the Morgan Stanley Capital International
Europe, Australasia, and Far East--the MSCI EAFE(R) Index--and U.S. bonds
(40% weighted) are represented by the Lehman Brothers(R) Aggregate Bond
Index. Results for all indices assume that all income and capital gains are
reinvested in the index or indices that produce them. The Fund's Moderate
Allocation Benchmark is considered to be the Fund's broad-based
securities-market index for comparison purposes. An investment cannot be made
directly in an index or benchmark.
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 in an index.
3. The Morgan Stanley Capital International Europe, Australasia, and Far East
Index--the MSCI EAFE(R) Index--is an unmanaged index that is considered to be
representative of the international stock market. Results assume reinvestment
of all income and capital gains. An investment cannot be made directly in an
index.
4. The Lehman Brothers(R) Aggregate Bond Index is an unmanaged index that
consists of the following other unmanaged Lehman Brothers(R) indices: the
Government Index, Corporate Index, Mortgage-Backed Securities Index, and
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. An investment
cannot be made directly in an index.
5. 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 THE
TABLES AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
www.mainstayfunds.com 247
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY MODERATE ALLOCATION FUND
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from May 1, 2006, to October 31, 2006,
and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, if applicable, exchange fees, and sales
charges (loads) on purchases, and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds. The example is based on an investment of $1,000 made at the
beginning of the six-month period and held for the entire period from May 1,
2006, to October 31, 2006.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested to estimate the expenses that you
paid during the six-months ended October 31, 2006. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
- - HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The fourth and fifth data columns in the table below provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balances or
expenses you paid for the six-month period shown. You may use this information
to compare the ongoing costs of investing in the Fund with the ongoing costs of
investing in other Funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
Funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees, if applicable, exchange fees, or sales charges (loads).
Therefore, the fourth and fifth data columns of the table are useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT
ENDING ACCOUNT VALUE (BASED
VALUE (BASED ON HYPOTHETICAL
BEGINNING ON ACTUAL EXPENSES 5% ANNUALIZED EXPENSES
ACCOUNT RETURNS AND PAID RETURN AND PAID
VALUE EXPENSES) DURING ACTUAL EXPENSES) DURING
SHARE CLASS 5/1/06 10/31/06 PERIOD(1) 10/31/06 PERIOD(1)
CLASS A SHARES $1,000.00 $1,048.35 $2.32 $1,022.75 $2.29
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $1,044.10 $6.18 $1,019.00 $6.11
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $1,044.10 $6.18 $1,019.00 $6.11
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,049.50 $0.93 $1,024.10 $0.92
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio of each class
(0.45% for Class A, 1.20% for Class B and Class C, and 0.18% for Class I)
multiplied by the average account value over the period, divided by 365 and
multiplied by 184 (to reflect the one-half year period). In the absence of
waivers and/or reimbursements, expenses would have been higher.
248 MainStay Moderate Allocation Fund
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2006
(COMPOSITION PIE CHART)
<Table>
Affiliated Investment Companies 99.9
Cash and Other Assets, Less Liabilities 0.1
</Table>
See Portfolio of Investments on page 253 for specific holdings within these
categories.
www.mainstayfunds.com 249
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio manager Tony Elavia of New York Life Investment
Management LLC
HOW DID MAINSTAY MODERATE ALLOCATION FUND PERFORM RELATIVE TO ITS PEERS AND ITS
BENCHMARK DURING THE 12 MONTHS ENDED OCTOBER 31, 2006?
Excluding all sales charges, MainStay Moderate Allocation Fund returned 12.18%
for Class A shares, 11.31% for Class B shares, and 11.31% for Class C shares
during the 12 months ended October 31, 2006. For the same period, the Fund's
Class I shares returned 12.63%. All share classes underperformed the 12.87%
return of the Moderate Allocation Benchmark,(1) the Fund's broad-based
securities-market index, for the 12-month reporting period. Class A and Class I
shares outperformed--and Class B and Class C shares underperformed--the 11.45%
return of the average Lipper(2) mixed-asset target allocation moderate fund for
the 12 months ended October 31, 2006.
HOW DID YOU DETERMINE THE FUND'S ALLOCATIONS AMONG THE UNDERLYING FUNDS?
MainStay Moderate Allocation Fund invests in other MainStay Funds, which are
referred to as Underlying Funds.
Throughout the summer and into the fall, we emphasized Underlying Funds with
larger average capitalizations and a stronger growth orientation. We believed
that the market's capitalization and style preferences had become a bit
distorted in recent years. From July through October 2006, the style bias had
little impact on the performance of the Fund but the orientation toward
Underlying Funds with larger average capitalizations began to benefit returns.
WERE THERE ANY SPECIFIC CHANGES IN YOUR ALLOCATIONS TO UNDERLYING FUNDS?
One recent change has been a gradual migration out of MainStay Common Stock Fund
and into MainStay Growth Equity Fund and domestic equity products subadvised by
Institutional Capital LLC (ICAP). Although the shift detracted from performance
through October 31, 2006, the overall impact was slight.
We also elected to split the Fund's exposure to international equities evenly
between MainStay International Fund and MainStay ICAP International Fund. Since
MainStay ICAP International Equity Fund did not become available until September
1, 2006, the impact of the move, though negative, has been very mild.
DURING THE REPORTING PERIOD, WHICH UNDERLYING FUNDS HAD THE HIGHEST TOTAL
RETURNS AND WHICH HAD THE LOWEST?
MainStay International Equity Fund was the best-performing Underlying Fund by a
considerable margin, followed by MainStay Large Cap Opportunities Fund and other
Underlying Funds with a large-cap value orientation. The worst-performing
Underlying Funds were on the fixed-income side. MainStay Short Term Bond Fund
had the lowest total return, followed by MainStay Cash Reserves Fund, MainStay
Indexed Bond Fund, MainStay Intermediate Term Bond Fund, and MainStay Government
Bond Fund. All these Underlying Fixed-Income Funds grouped closely together with
total returns less than one percentage point apart.
DURING THE REPORTING PERIOD, WHICH UNDERLYING FUNDS MADE THE GREATEST POSITIVE
CONTRIBUTIONS TO THE FUND'S PERFORMANCE AND WHICH ONES DETRACTED?
A sizable average allocation to MainStay Common Stock Fund was among the most
influential contributors to the Fund's performance on an absolute basis and
relative to the Moderate Allocation Benchmark. Our position in MainStay
International Equity Fund also made a meaningful contribution to the Fund's
performance. Foreign markets showed exceptional results during the 12-month
reporting period. MainStay High Yield Corporate Bond Fund was by far the
best-performing of the Underlying Fixed-Income Funds during the reporting
period.
None of the Underlying Funds generated negative returns, but the Fund's position
in MainStay Large Cap Growth Fund detracted from the Fund's performance relative
to the Moderate Allocation Benchmark.
1. See footnote on page 247 for more information on the Fund's Moderate
Allocation Benchmark.
2. See footnote on page 247 for more information on Lipper Inc.
THE DISCLOSURE AND FOOTNOTES ON PAGE 252 ARE AN INTEGRAL PART OF THE PORTFOLIO
MANAGEMENT DISCUSSION AND ANALYSIS AND SHOULD BE CAREFULLY READ IN CONJUNCTION
WITH IT.
250 MainStay Moderate Allocation Fund
WHAT FACTORS INFLUENCED PERFORMANCE IN THE FIXED-INCOME PORTION OF THE FUND?
A strategic blend of fixed-income Underlying Funds similar to the bond component
of the benchmark was established at the inception of the Fund and has been
maintained ever since. During the reporting period, fixed-income returns tended
to improve with investments made further down the credit spectrum. The Fund
maintains small, strategic exposures to MainStay Floating Rate Fund and MainStay
High Yield Corporate Bond Fund, both of which fared well during the reporting
period. A much larger allocation to MainStay Indexed Bond Fund resulted in
modest returns only a shade better than inflation or cash.
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.
www.mainstayfunds.com 251
The Fund's performance depends on the advisor's skill in determining the
asset-class allocations and the mix of Underlying MainStay Funds as well as the
performance of these Underlying Funds. The Underlying Funds' performance may be
lower than the performance of the asset class or classes the Underlying Funds
were selected to represent. The Fund is indirectly subject to the investment
risks of each Underlying Fund held. Principal risks of the Underlying Funds are
described below.
MainStay Moderate Allocation Fund is a "fund of funds" that invests in other
MainStay Funds. The cost of investing in the Fund may be higher than the cost of
investing in a mutual fund that invests directly in individual stocks and bonds.
By investing in the Fund, clients will indirectly bear fees and expenses charged
by the Underlying Funds in which the Fund invests in addition to the Fund's
direct fees and expenses. In addition, the use of a fund-of-funds structure
could affect the timing, amount, and character of distributions to the client
and may increase taxes payable by the client.
The Fund may invest more than 25% of its assets in one Underlying Fund, which
may significantly affect the net asset value of the Fund.
The Fund, through its investment in the Underlying Funds, may be subject to
risks of the Underlying Funds, including the following:
- - Stocks and bonds can decline because of adverse issuer, market, regulatory, or
economic developments.
- - High-yield securities carry higher risks, and some of the Underlying Funds'
investments have speculative characteristics and present a greater risk of
loss than higher-quality debt securities. High-yield securities can also be
subject to greater price volatility.
- - Stocks of small companies may be subject to higher price volatility,
significantly lower trading volume, and greater spreads between bid and ask
prices than stocks of larger companies. Furthermore, small-cap companies may
be more vulnerable to adverse business or market developments than larger
companies, and the product lines of small- cap companies may be more limited
than those of larger-capitalization companies.
- - Stocks of mid-cap companies 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.
- - When interest rates rise, the prices of fixed-income securities in the
Underlying Funds' portfolios will generally fall. On the other hand, when
interest rates fall, the prices of fixed-income securities in the Underlying
Funds' portfolios will generally rise.
- - The Underlying Floating-Rate Funds are generally considered to have
speculative characteristics. These Underlying Funds may involve risk of
default on principal and interest and risks associated with collateral
impairment, nondiversification, borrower industry concentration, and limited
liquidity.
- - AN INVESTMENT IN THE UNDERLYING MONEY MARKET FUND IS NOT INSURED OR GUARANTEED
BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE UNDERLYING MONEY
MARKET FUND SEEKS TO MAINTAIN A VALUE OF $1.00 PER SHARE, IT IS POSSIBLE TO
LOSE MONEY.
Before making an investment in the Fund, you should consider all the risks
associated with it.
INFORMATION ABOUT MAINSTAY MODERATE ALLOCATION FUND ON THIS PAGE AND THE
PRECEDING PAGES HAS NOT BEEN AUDITED.
252 MainStay Moderate Allocation Fund
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006
<Table>
<Caption>
SHARES VALUE
AFFILIATED INVESTMENT COMPANIES (99.9%)+
- --------------------------------------------------------------------------------
EQUITY FUNDS (59.9%)
MainStay Common Stock Fund (a) 1,296,554 $ 19,098,244
MainStay Growth Equity Fund (a)(b) 393,983 4,349,577
MainStay ICAP Equity Fund 34,341 1,622,975
MainStay ICAP International Fund 209,952 8,024,351
MainStay ICAP Select Equity Fund 388,066 16,038,762
MainStay International Equity Fund 479,045 8,043,157
MainStay Large Cap Growth Fund (a) 4,351,633 25,631,119
MainStay S&P 500 Index Fund 248,981 8,007,235
MainStay Small Cap Opportunity Fund 39,516 797,424
MainStay Value Fund 195,562 4,542,905
------------
96,155,749
------------
FIXED INCOME FUNDS (40.0%)
MainStay Floating Rate Fund 810,987 8,053,098
MainStay High Yield Corporate Bond Fund 1,265,345 8,022,285
MainStay Indexed Bond Fund (a) 3,831,930 40,963,330
MainStay Intermediate Term Bond Fund (a) 741,961 7,234,116
------------
64,272,829
------------
Total Affiliated Investment Companies (Cost
$154,724,860) (c) 99.9% 160,428,578(d)
Cash and Other Assets, Less Liabilities 0.1 102,996
------------- ------------
Net Assets 100.0% $160,531,574
============= ============
</Table>
<Table>
+ Percentages indicated are based on Fund net assets.
(a) The Fund's ownership exceeds 5% of the outstanding shares of the underlying
Portfolio/Fund.
(b) Non-income producing Portfolio/Fund.
(c) The cost for federal income tax purposes is $154,799,952.
(d) At October 31, 2006 net unrealized appreciation was $5,628,626 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 $5,666,858 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $38,232.
</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 253
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2006
<Table>
ASSETS:
Investment in affiliated investment companies,
at value (identified cost $154,724,860) $160,428,578
Cash 603,078
Receivables:
Fund shares sold 219,017
Interest 926
Other assets 28,741
-------------
Total assets 161,280,340
-------------
LIABILITIES:
Payables:
Investment securities purchased 556,320
Fund shares redeemed 85,750
NYLIFE Distributors (See Note 3) 67,626
Professional fees 14,560
Shareholder communication 11,203
Custodian 4,526
Transfer agent (See Note 3) 2,500
Directors 1,876
Accrued expenses 4,405
-------------
Total liabilities 748,766
-------------
Net assets $160,531,574
=============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1
billion shares authorized:
Class A $ 9,489
Class B 3,332
Class C 1,344
Class I 9
Additional paid-in capital 150,692,863
Accumulated undistributed net realized gain on
investments 4,120,819
Net unrealized appreciation on investments 5,703,718
-------------
Net assets $160,531,574
=============
CLASS A
Net assets applicable to outstanding shares $107,585,511
=============
Shares of capital stock outstanding 9,488,953
=============
Net asset value per share outstanding $ 11.34
Maximum sales charge (5.50% of offering price) 0.66
-------------
Maximum offering price per share outstanding $ 12.00
=============
CLASS B
Net assets applicable to outstanding shares $ 37,649,210
=============
Shares of capital stock outstanding 3,331,905
=============
Net asset value and offering price per share
outstanding $ 11.30
=============
CLASS C
Net assets applicable to outstanding shares $ 15,192,021
=============
Shares of capital stock outstanding 1,344,102
=============
Net asset value and offering price per share
outstanding $ 11.30
=============
CLASS I
Net assets applicable to outstanding shares $ 104,832
=============
Shares of capital stock outstanding 9,232
=============
Net asset value and offering price per share
outstanding $ 11.36
=============
</Table>
254 MainStay Moderate Allocation 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, 2006
<Table>
INVESTMENT INCOME:
INCOME:
Dividend distributions from affiliated
investment companies $ 2,424,144
Interest 12,769
------------
Total income 2,436,913
------------
EXPENSES:
Distribution--Class B (See Note 3) 202,705
Distribution--Class C (See Note 3) 74,490
Distribution/Service--Class A (See Note 3) 169,859
Service--Class B (See Note 3) 67,568
Service--Class C (See Note 3) 24,830
Registration 66,214
Professional fees 38,135
Offering 35,097
Custodian 22,473
Transfer agent--Classes A, B and C
(See Note 3) 13,399
Shareholder communication 13,318
Directors 6,958
Miscellaneous 10,387
------------
Total expenses 745,433
------------
Net investment income 1,691,480
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on:
Affiliated investment company transactions 3,875,359
Capital gain distributions from affiliated
investment company transactions 523,279
------------
Net realized gain on investments 4,398,638
------------
Net change in unrealized appreciation on
investments 5,543,868
------------
Net realized and unrealized gain on investments 9,942,506
------------
Net increase in net assets resulting from
operations $11,633,986
============
</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 255
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED OCTOBER 31, 2006 AND THE PERIOD APRIL 4, 2005
(COMMENCEMENT OF OPERATIONS) THROUGH OCTOBER 31, 2005
<Table>
<Caption>
2006 2005
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 1,691,480 $ 143,616
Net realized gain on investments 4,398,638 15,537
Net change in unrealized
appreciation on investments 5,543,868 159,850
--------------------------
Net increase in net assets
resulting from operations 11,633,986 319,003
--------------------------
Dividends and distributions to shareholders:
From net investment income:
Class A (1,528,889) (48,100)
Class B (384,640) (8,842)
Class C (138,626) (1,110)
Class I (1,918) (31)
From net realized gain on investments:
Class A (8,494) --
Class B (6,669) --
Class C (1,130) --
Class I (3) --
--------------------------
Total dividends and distributions
to shareholders (2,070,369) (58,083)
--------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 75,756,074 25,154,433
Class B 30,230,392 20,068,287
Class C 13,543,465 3,008,034
Class I 89,021 10,087
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions:
Class A 1,423,418 42,995
Class B 373,073 8,663
Class C 121,740 855
Class I 1,921 31
--------------------------
121,539,104 48,293,385
Cost of shares redeemed:
Class A (9,580,960) (1,271,773)
Class B (5,431,408) (500,588)
Class C (2,280,808) (58,074)
Class I (1,767) (74)
--------------------------
(17,294,943) (1,830,509)
</Table>
<Table>
<Caption>
2006 2005
Net asset value of shares converted (See Note 1):
Class A $ 9,740,336 $ --
Class B (9,740,336) --
Increase in net assets derived
from capital share transactions 104,244,161 46,462,876
--------------------------
Net increase in net assets 113,807,778 46,723,796
NET ASSETS:
Beginning of period 46,723,796 --
--------------------------
End of period $160,531,574 $46,723,796
==========================
Accumulated undistributed net
investment income at end of period $ -- $ 125,114
==========================
</Table>
256 MainStay Moderate Allocation 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
www.mainstayfunds.com 257
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A CLASS B
---------------------------- ----------------------------
APRIL 4, APRIL 4,
2005* 2005*
YEAR ENDED THROUGH YEAR ENDED THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2006 2005 2006 2005
Net asset value at beginning of period $ 10.35 $ 10.00 $ 10.32 $ 10.00
----------- ----------- ----------- -----------
Net investment income (a) 0.20 0.09 0.13 0.04
Net realized and unrealized gain on investments 1.04 0.28(b) 1.02 0.29(b)
----------- ----------- ----------- -----------
Total from investment operations 1.24 0.37 1.15 0.33
----------- ----------- ----------- -----------
Less dividends and distributions:
From net investment income (0.25) (0.02) (0.17) (0.01)
From net realized gain on investments (0.00)(c) -- (0.00)(c) --
----------- ----------- ----------- -----------
Total dividends and distributions (0.25) (0.02) (0.17) (0.01)
----------- ----------- ----------- -----------
Net asset value at end of period $ 11.34 $ 10.35 $ 11.30 $ 10.32
=========== =========== =========== ===========
Total investment return (d) 12.18% 3.73%(e) 11.31% 3.26%(e)
Ratios (to average net assets)/Supplemental Data:
Net investment income 1.84% 1.42%+ 1.21% 0.67%+
Net expenses (f) 0.45% 0.55%+ 1.20% 1.30%+
Expenses (before reimbursement) (f) 0.45% 0.97%+ 1.20% 1.72%+
Portfolio turnover rate 48% 2% 48% 2%
Net assets at end of period (in 000's) $107,586 $24,080 $37,649 $19,676
</Table>
<Table>
* Commencement of operations.
+ Annualized.
(a) Per share data based on average shares outstanding during the period.
(b) The amount shown for a share outstanding does not correspond with aggregate net realized
and unrealized gain (loss) on investments due to the timing of purchase and redemptions of
Fund shares in relation to fluctuating market values of the investments of the Fund during
the period.
(c) Less than one cent per share.
(d) Total return is calculated exclusive of sales charges. Class I is not subject to a sales
charge.
(e) Total return is not annualized.
(f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly
bears a pro-rata share of the fees and expenses of the underlying funds in which it
invests. Such indirect expenses are not included in the above reported expense ratios.
</Table>
258 MainStay Moderate Allocation 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 C CLASS I
- --------------------------------- ----------------------------
APRIL 4, APRIL 4,
2005* 2005*
YEAR ENDED THROUGH YEAR ENDED THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2006 2005 2006 2005
$ 10.32 $10.00 $10.35 $10.00
----------- ----------- ----------- -----------
0.12 0.04 0.22 0.10
1.03 0.29(b) 1.06 0.28(b)
----------- ----------- ----------- -----------
1.15 0.33 1.28 0.38
----------- ----------- ----------- -----------
(0.17) (0.01) (0.27) (0.03)
(0.00)(c) -- (0.00)(c) --
----------- ----------- ----------- -----------
(0.17) (0.01) (0.27) (0.03)
----------- ----------- ----------- -----------
$ 11.30 $10.32 $11.36 $10.35
=========== =========== =========== ===========
11.31% 3.26%(e) 12.63% 3.80%(e)
1.11% 0.67%+ 2.04% 1.72%+
1.20% 1.30%+ 0.18% 0.25%+
1.20% 1.72%+ 0.18% 0.67%+
48% 2% 48% 2%
$15,192 $2,958 $ 105 $ 10
</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 259
MAINSTAY MODERATE GROWTH ALLOCATION FUND
INVESTMENT AND PERFORMANCE COMPARISON (UNAUDITED)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE 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 CALL 1-800-MAINSTAY (1-800-624-6782) OR VISIT
WWW.MAINSTAYFUNDS.COM. PERFORMANCE DATA SHOWN EXCLUDING SALES CHARGES DOES NOT
REFLECT THE DEDUCTION OF ANY SALES LOAD, WHICH IF REFLECTED, WOULD REDUCE
PERFORMANCE QUOTED.
CLASS A SHARES--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- ------------------------------------------
With sales charges 7.92% 8.00%
Excluding sales charges 14.20 11.95
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MODERATE
MODERATE GROWTH LEHMAN BROTHERS
GROWTH ALLOCATION MSCI EAFE AGGREGATE BOND
ALLOCATION FUND BENCHMARK S&P 500 INDEX INDEX INDEX
--------------- ---------- ------------- --------- ---------------
4/4/05 9450 10000 10000 10000 10000
9885 10377 10365 10731 10129
10/31/06 11288 12005 12059 13684 10655
</Table>
CLASS B SHARES--MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- ------------------------------------------
With sales charges 8.28% 8.69%
Excluding sales charges 13.28 11.10
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MODERATE
MODERATE GROWTH LEHMAN BROTHERS
GROWTH ALLOCATION MSCI EAFE AGGREGATE BOND
ALLOCATION FUND BENCHMARK S&P 500 INDEX INDEX INDEX
--------------- ---------- ------------- --------- ---------------
4/4/05 10000 10000 10000 10000 10000
10420 10377 10365 10731 10129
10/31/06 11403 12005 12059 13684 10655
</Table>
CLASS C SHARES--MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- ------------------------------------------
With sales charges 12.28% 11.10%
Excluding sales charges 13.28 11.10
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MODERATE
MODERATE GROWTH LEHMAN BROTHERS
GROWTH ALLOCATION MSCI EAFE AGGREGATE BOND
ALLOCATION FUND BENCHMARK S&P 500 INDEX INDEX INDEX
--------------- ---------- ------------- --------- ---------------
4/4/05 10000 10000 10000 10000 10000
10420 10377 10365 10731 10129
10/31/06 11803 12005 12059 13684 10655
</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 as 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 1.00% 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. These fee waivers and/or expense limitations are
contractual and may be modified or terminated only with the approval of the
Board of Directors. The Manager may recoup the amount of any management fee
waivers or expense reimbursements from the Fund pursuant to this agreement if
such action does not cause the Fund to exceed existing expense limitations and
the recoupment is made within three years after the year in which the Manager
incurred the expense.
THE DISCLOSURE AND FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THE TABLES
AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
260 MainStay Moderate Growth Allocation Fund
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE SINCE
TOTAL RETURNS YEAR INCEPTION
- ------------------------------------------
14.86% 12.42%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MODERATE
MODERATE GROWTH LEHMAN BROTHERS
GROWTH ALLOCATION MSCI EAFE AGGREGATE BOND
ALLOCATION FUND BENCHMARK S&P 500 INDEX INDEX INDEX
--------------- ---------- ------------- --------- ---------------
4/4/05 10000 10000 10000 10000 10000
10470 10377 10365 10731 10129
10/31/06 12026 12005 12059 13684 10655
</Table>
<Table>
<Caption>
ONE SINCE
BENCHMARK PERFORMANCE YEAR INCEPTION
- -----------------------------------------------------------------------------------------
Moderate Growth Allocation Benchmark(1) 15.69% 12.30%
S&P 500(R) Index(2) 16.34 12.62
MSCI EAFE(R) Index(3) 27.52 22.03
Lehman Brothers(R) Aggregate Bond Index(4) 5.19 4.11
Average Lipper mixed-asset target allocation growth fund(5) 12.47 9.79
</Table>
1. The Fund's Moderate Growth Allocation Benchmark was built using different
weightings from three well-known indices that represent three asset classes.
U.S. stocks (65% weighted) are represented by the S&P 500(R) Index,
international stocks (15% weighted) are represented by the Morgan Stanley
Capital International Europe, Australasia, and Far East Index--the MSCI
EAFE(R) Index--and U.S. bonds (20% weighted) are represented by the Lehman
Brothers(R) Aggregate Bond Index. Results for all indices assume that all
income and capital gains are reinvested in the index or indices that produce
them. The Fund's Moderate Growth Allocation Benchmark is considered to be the
Fund's broad-based securities-market index for comparison purposes. An
investment cannot be made directly in an index or benchmark.
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 in an index.
3. The Morgan Stanley Capital International Europe, Australasia, and Far East
Index--the MSCI EAFE(R) Index--is an unmanaged index that is considered to be
representative of the international stock market. Results assume reinvestment
of all income and capital gains. An investment cannot be made directly in an
index.
4. The Lehman Brothers(R) Aggregate Bond Index is an unmanaged index that
consists of the following other unmanaged Lehman Brothers(R) indices: the
Government Index, Corporate Index, Mortgage-Backed Securities Index, and
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. An investment
cannot be made directly in an index.
5. 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 THE
TABLES AND GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
www.mainstayfunds.com 261
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY MODERATE GROWTH ALLOCATION
FUND
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from May 1, 2006, to October 31, 2006,
and the impact of those costs on your investment.
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, if applicable, exchange fees, and sales
charges (loads) on purchases, and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds. The example is based on an investment of $1,000 made at the
beginning of the six-month period and held for the entire period from May 1,
2006, to October 31, 2006.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested to estimate the expenses that you
paid during the six-months ended October 31, 2006. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
- - HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The fourth and fifth data columns in the table below provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balances or
expenses you paid for the six-month period shown. You may use this information
to compare the ongoing costs of investing in the Fund with the ongoing costs of
investing in other Funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
Funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees, if applicable, exchange fees, or sales charges (loads).
Therefore, the fourth and fifth data columns of the table are useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
<Table>
<Caption>
ENDING ACCOUNT
ENDING ACCOUNT VALUE (BASED
VALUE (BASED ON HYPOTHETICAL
BEGINNING ON ACTUAL EXPENSES 5% ANNUALIZED EXPENSES
ACCOUNT RETURNS AND PAID RETURN AND PAID
VALUE EXPENSES) DURING ACTUAL EXPENSES) DURING
SHARE CLASS 5/1/06 10/31/06 PERIOD(1) 10/31/06 PERIOD(1)
CLASS A SHARES $1,000.00 $1,043.35 $2.21 $1,022.85 $2.19
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $1,040.20 $6.07 $1,019.10 $6.01
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $1,040.20 $6.07 $1,019.10 $6.01
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,045.55 $0.88 $1,024.15 $0.87
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's annualized expense ratio of each class
(0.43% for Class A, 1.18% for Class B and Class C, and 0.17% for Class I)
multiplied by the average account value over the period, divided by 365 and
multiplied by 184 (to reflect the one-half year period). In the absence of
waivers and/or reimbursements, expenses would have been higher.
262 MainStay Moderate Growth Allocation Fund
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2006
(COMPOSITION PIE CHART)
<Table>
Affiliated Investment Companies 99.8
Cash and Other Assets, Less Liabilities 0.2
</Table>
See Portfolio of Investments on page 267 for specific holdings within these
categories.
www.mainstayfunds.com 263
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio manager Tony Elavia of New York Life Investment
Management LLC
HOW DID MAINSTAY MODERATE GROWTH ALLOCATION FUND PERFORM RELATIVE TO ITS PEERS
AND ITS BENCHMARK DURING THE 12 MONTHS ENDED OCTOBER 31, 2006?
Excluding all sales charges, MainStay Moderate Growth Allocation Fund returned
14.20% for Class A shares, 13.28% for Class B shares, and 13.28% for Class C
shares during the 12 months ended October 31, 2006. For the same period, the
Fund's Class I shares returned 14.86%. All share classes under-performed the
15.69% return of the Moderate Growth Allocation Benchmark,(1) the Fund's
broad-based securities-market index, for the 12-month reporting period. All
share classes outperformed the 12.47% return of the average Lipper(2)
mixed-asset target allocation growth fund for the 12 months ended October 31,
2006.
HOW DID YOU DETERMINE THE FUND'S ALLOCATIONS AMONG THE UNDERLYING FUNDS?
MainStay Moderate Growth Allocation Fund invests in other MainStay Funds, which
are referred to as Underlying Funds.
Throughout the summer and into the fall, we emphasized Underlying Funds with
larger average capitalizations and a stronger growth orientation. We believed
that the market's capitalization and style preferences had become a bit
distorted in recent years. From July through October 2006, the style bias had
little impact on the performance of the Fund but the orientation toward
Underlying Funds with larger average capitalizations began to benefit returns.
WERE THERE ANY SPECIFIC CHANGES IN YOUR ALLOCATIONS TO UNDERLYING FUNDS?
One recent change has been a gradual migration out of MainStay Common Stock Fund
and into MainStay Growth Equity Fund and domestic equity products subadvised by
Institutional Capital LLC (ICAP). Although the shift detracted from performance
through October 31, 2006, the overall impact was slight.
We also elected to split the Fund's exposure to international equities evenly
between MainStay International Equity Fund and MainStay ICAP International Fund.
Since MainStay ICAP International Fund did not become available until September
1, 2006, the impact of the move, though negative, has been very mild.
DURING THE REPORTING PERIOD, WHICH UNDERLYING FUNDS HAD THE HIGHEST TOTAL
RETURNS AND WHICH HAD THE LOWEST?
MainStay International Equity Fund was the best-performing Underlying Fund by a
considerable margin, followed by MainStay Large Cap Opportunities Fund and other
Underlying Funds with a large-cap value orientation. The worst-performing
Underlying Funds were on the fixed-income side. MainStay Short Term Bond Fund
had the lowest total return, followed by MainStay Cash Reserves Fund, MainStay
Indexed Bond Fund, MainStay Intermediate Term Bond Fund, and MainStay Government
Bond Fund. All these Underlying Fixed Income Funds grouped closely together,
with total returns that were less than one percentage point apart.
DURING THE REPORTING PERIOD, WHICH UNDERLYING FUNDS MADE THE GREATEST POSITIVE
CONTRIBUTIONS TO THE FUND'S PERFORMANCE AND WHICH ONES DETRACTED?
A sizable average allocation to MainStay Common Stock Fund was among the
strongest positive contributors to the Fund's performance on an absolute basis
and relative to the Moderate Growth Allocation Benchmark. Our position in
MainStay International Equity Fund also made a meaningful contribution to the
Fund's performance. Foreign markets showed exceptional results during the
12-month reporting period. MainStay High Yield Corporate Bond Fund was by far
the best-performing of the Underlying Fixed-Income Funds during the reporting
period.
None of the Underlying Funds generated negative returns, but the Fund's
positions in MainStay Large Cap Growth Fund and MainStay All Cap Growth Fund
detracted from the Fund's performance relative to the Moderate Growth Allocation
Benchmark.
1. See footnote on page 261 for more information on the Fund's Moderate Growth
Allocation Benchmark.
2. See footnote page 261 for more information on Lipper Inc.
THE DISCLOSURE AND FOOTNOTES ON PAGE 266 ARE AN INTEGRAL PART OF THE PORTFOLIO
MANAGEMENT DISCUSSION AND ANALYSIS AND SHOULD BE CAREFULLY READ IN CONJUNCTION
WITH IT.
264 MainStay Moderate Growth Allocation Fund
WHAT FACTORS INFLUENCED PERFORMANCE IN THE FIXED-INCOME PORTION OF THE FUND?
A strategic blend of fixed-income Underlying Funds similar to the bond component
of the benchmark was established at the inception of the Fund and has been
maintained ever since. During the reporting period, fixed-income returns tended
to improve with investments made further down the credit spectrum. The Fund
maintains small, strategic exposures to MainStay Floating Rate Fund and MainStay
High Yield Corporate Bond Fund, both of which fared well during the reporting
period. A much larger allocation to MainStay Indexed Bond Fund resulted in
modest returns only a shade better than inflation or cash.
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.
www.mainstayfunds.com 265
The Fund's performance depends on the advisor's skill in determining the
asset-class allocations and the mix of Underlying MainStay Funds as well as the
performance of these Underlying Funds. The Underlying Funds' performance may be
lower than the performance of the asset class or classes the Underlying Funds
were selected to represent. The Fund is indirectly subject to the investment
risks of each Underlying Fund held. Principal risks of the Underlying Funds are
described below.
MainStay Moderate Growth Allocation Fund is a "fund of funds" that invests in
other MainStay Funds. The cost of investing in the Fund may be higher than the
cost of investing in a mutual fund that invests directly in individual stocks
and bonds. By investing in the Fund, clients will indirectly bear fees and
expenses charged by the Underlying Funds in which the Fund invests in addition
to the Fund's direct fees and expenses. In addition, the use of a fund-of-funds
structure could affect the timing, amount, and character of distributions to the
client and may increase taxes payable by the client.
The Fund may invest more than 25% of its assets in one Underlying Fund, which
may significantly affect the net asset value of the Fund.
The Fund, through its investment in the Underlying Funds, may be subject to
risks of the Underlying Funds, including the following:
- - Stocks and bonds can decline because of adverse issuer, market, regulatory, or
economic developments.
- - The principal risk of growth stocks is that investors expect growth companies
to increase their earnings at a certain rate that is generally higher than the
rate expected for nongrowth companies. If these expectations are not met, the
market price of the stock may decline significantly, even if earnings showed
an absolute increase.
- - High-yield securities carry higher risks, and some of the Underlying Funds'
investments have speculative characteristics and present a greater risk of
loss than higher-quality debt securities. High-yield securities can also be
subject to greater price volatility.
- - Stocks of small companies may be subject to higher price volatility,
significantly lower trading volume, and greater spreads between bid and ask
prices than stocks of larger companies. Furthermore, small-cap companies may
be more vulnerable to adverse business or market developments than larger
companies, and the product lines of small- cap companies may be more limited
than those of larger-capitalization companies.
- - Stocks of mid-cap companies 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.
- - When interest rates rise, the prices of fixed-income securities in the
Underlying Funds' portfolios will generally fall. On the other hand, when
interest rates fall, the prices of fixed-income securities in the Underlying
Funds' portfolios will generally rise.
- - The Underlying Floating-Rate Funds are generally considered to have
speculative characteristics. These Underlying Funds may involve risk of
default on principal and interest and risks associated with collateral
impairment, nondiversification, borrower industry concentration, and limited
liquidity.
- - AN INVESTMENT IN THE UNDERLYING MONEY MARKET FUND IS NOT INSURED OR GUARANTEED
BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE UNDERLYING MONEY
MARKET FUND SEEKS TO MAINTAIN A VALUE OF $1.00 PER SHARE, IT IS POSSIBLE TO
LOSE MONEY.
Before making an investment in the Fund, you should consider all the risks
associated with it.
INFORMATION ABOUT MAINSTAY MODERATE GROWTH ALLOCATION FUND ON THIS PAGE AND THE
PRECEDING PAGES HAS NOT BEEN AUDITED.
266 MainStay Moderate Growth Allocation Fund
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2006
<Table>
<Caption>
SHARES VALUE
AFFILIATED INVESTMENT COMPANIES (99.8%)+
- ----------------------------------------------------------------------------
EQUITY FUNDS (79.8%)
MainStay Common Stock Fund (a) 2,230,331 $ 32,852,770
MainStay Growth Equity Fund (a)(b) 412,141 4,550,038
MainStay ICAP International Fund 344,296 13,159,006
MainStay ICAP Select Equity Fund 517,846 21,402,578
MainStay International Equity Fund 785,579 13,189,865
MainStay Large Cap Growth Fund (a) 5,767,164 33,968,599
MainStay S&P 500 Index Fund 336,140 10,810,259
MainStay Small Cap Opportunity Fund 55,939 1,128,858
MainStay Value Fund 392,131 9,109,207
------------
140,171,180
------------
FIXED INCOME FUNDS (20.0%)
MainStay Floating Rate Fund 886,411 8,802,056
MainStay High Yield Corporate Bond Fund 1,387,096 8,794,190
MainStay Indexed Bond Fund 1,399,996 14,965,954
MainStay Intermediate Term Bond Fund 270,549 2,637,850
------------
35,200,050
------------
Total Affiliated Investment Companies
(Cost $167,211,137) (c) 99.8% 175,371,230(d)
Cash and Other Assets,
Less Liabilities 0.2 424,909
--------- ------------
Net Assets 100.0% $175,796,139
========= ============
</Table>
<Table>
+ Percentages indicated are based on Fund net assets.
(a) The Fund's ownership exceeds 5% of the outstanding shares of
the underlying Portfolio/Fund.
(b) Non-income producing Portfolio/Fund.
(c) The cost for federal income tax purposes is $167,244,902.
(d) At October 31, 2006 net unrealized appreciation was
$8,126,328 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 $8,166,021 and aggregate gross unrealized
depreciation for all investments on which there was an
excess of cost over market value of $39,693.
</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 267
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2006
<Table>
ASSETS:
Investment in affiliated investment companies,
at value (identified cost $167,211,137) $175,371,230
Cash 1,044,869
Receivables:
Fund shares sold 719,524
Interest 1,791
Other assets 21,621
-------------
Total assets 177,159,035
-------------
LIABILITIES:
Payables:
Investment securities purchased 1,043,313
Fund shares redeemed 202,017
NYLIFE Distributors (See Note 3) 77,315
Professional fees 14,984
Shareholder communication 12,072
Custodian 4,307
Transfer agent (See Note 3) 2,500
Directors 1,984
Accrued expenses 4,404
-------------
Total liabilities 1,362,896
-------------
Net assets $175,796,139
=============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
1 billion shares authorized:
Class A $ 9,601
Class B 4,142
Class C 1,348
Class I 1
Additional paid-in capital 163,782,889
Accumulated undistributed net realized gain on
investments 3,838,065
Net unrealized appreciation on investments 8,160,093
-------------
Net assets $175,796,139
=============
CLASS A
Net assets applicable to outstanding shares $112,098,936
=============
Shares of capital stock outstanding 9,601,020
=============
Net asset value per share outstanding $ 11.68
Maximum sales charge (5.50% of offering price) 0.68
-------------
Maximum offering price per share outstanding $ 12.36
=============
CLASS B
Net assets applicable to outstanding shares $ 48,046,427
=============
Shares of capital stock outstanding 4,142,332
=============
Net asset value and offering price per share
outstanding $ 11.60
=============
CLASS C
Net assets applicable to outstanding shares $ 15,638,755
=============
Shares of capital stock outstanding 1,348,300
=============
Net asset value and offering price per share
outstanding $ 11.60
=============
CLASS I
Net assets applicable to outstanding shares $ 12,021
=============
Shares of capital stock outstanding 1,024
=============
Net asset value and offering price per share
outstanding $ 11.74
=============
</Table>
268 MainStay Moderate Growth Allocation 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, 2006
<Table>
INVESTMENT INCOME:
INCOME:
Dividend distributions from affiliated
investment companies $ 1,562,219
Interest 14,999
------------
Total income 1,577,218
------------
EXPENSES:
Distribution--Class B (See Note 3) 236,309
Distribution--Class C (See Note 3) 77,144
Distribution/Service--Class A (See Note 3) 168,647
Service--Class B (See Note 3) 78,770
Service--Class C (See Note 3) 25,715
Registration 60,190
Professional fees 38,357
Offering 35,097
Custodian 21,753
Shareholder communication 14,569
Transfer agent--Classes A, B and C
(See Note 3) 13,398
Directors 7,122
Miscellaneous 10,408
------------
Total expenses 787,479
------------
Net investment income 789,739
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on:
Affiliated investment company transactions 4,197,828
Capital gain distributions from affiliated
investment company transactions 689,442
------------
Net realized gain on investments 4,887,270
------------
Net change in unrealized appreciation on
investments 7,741,074
------------
Net realized and unrealized gain on investments 12,628,344
------------
Net increase in net assets resulting from
operations $13,418,083
============
</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 269
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED OCTOBER 31, 2006 AND THE PERIOD APRIL 4, 2005
(COMMENCEMENT OF OPERATIONS) THROUGH OCTOBER 31, 2005
<Table>
<Caption>
2006 2005
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 789,739 $ 17,194
Net realized gain on investments 4,887,270 17,637
Net change in unrealized
appreciation on investments 7,741,074 419,019
--------------------------
Net increase in net assets
resulting from operations 13,418,083 453,850
--------------------------
Dividends and distributions to shareholders:
From net investment income:
Class A (1,267,973) --
Class B (436,657) --
Class C (151,354) --
Class I (261) --
From net realized gain on investments:
Class A (9,235) --
Class B (6,850) --
Class C (1,442) --
Class I (3) --
--------------------------
Total dividends and distributions
to shareholders (1,873,775) --
--------------------------
Capital share transactions:
Net proceeds from sale of shares:
Class A 82,849,043 22,822,836
Class B 39,172,705 17,556,999
Class C 13,836,573 3,379,583
Class I -- 10,087
</Table>
<Table>
<Caption>
2006 2005
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions:
Class A $ 1,173,562 $ --
Class B 431,115 --
Class C 134,366 --
Class I 264 --
--------------------------
137,597,628 43,769,505
Cost of shares redeemed:
Class A (9,406,941) (498,588)
Class B (4,721,301) (240,874)
Class C (2,645,094) (56,281)
Class I -- (73)
--------------------------
(16,773,336) (795,816)
Net asset value of shares converted
(See Note 1):
Class A 7,592,701 --
Class B (7,592,701) --
Increase in net assets derived
from capital share transactions 120,824,292 42,973,689
--------------------------
Net increase in net assets 132,368,600 43,427,539
NET ASSETS:
Beginning of period 43,427,539 --
--------------------------
End of period $175,796,139 $43,427,539
==========================
Accumulated undistributed net
investment income at end of period $ -- $ 56,775
==========================
</Table>
270 MainStay Moderate Growth Allocation 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
www.mainstayfunds.com 271
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A CLASS B
---------------------------- ----------------------------
APRIL 4, APRIL 4,
2005* 2005*
YEAR ENDED THROUGH YEAR ENDED THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2006 2005 2006 2005
Net asset value at beginning of period $ 10.46 $ 10.00 $ 10.42 $ 10.00
----------- ----------- ----------- -----------
Net investment income (loss) (a) 0.11 0.03 0.04 (0.01)
Net realized and unrealized gain on investments 1.35 0.43(b) 1.33 0.43(b)
----------- ----------- ----------- -----------
Total from investment operations 1.46 0.46 1.37 0.42
----------- ----------- ----------- -----------
Less dividends and distributions:
From net investment income (0.24) -- (0.19) --
From net realized gain on investments (0.00)(c) -- (0.00)(c) --
----------- ----------- ----------- -----------
Total dividends and distributions (0.24) -- (0.19) --
----------- ----------- ----------- -----------
Net asset value at end of period $ 11.68 $ 10.46 $ 11.60 $ 10.42
=========== =========== =========== ===========
Total investment return (d) 14.20% 4.60%(e) 13.28% 4.20%(e)
Ratios (to average net assets)/Supplemental Data:
Net investment income (loss) 0.98% 0.48%+ 0.32% (0.27%)+
Net expenses (f) 0.43% 0.56%+ 1.18% 1.31% +
Expenses (before reimbursement) (f) 0.43% 1.05%+ 1.18% 1.80% +
Portfolio turnover rate 61% 2% 61% 2%
Net assets at end of period (in 000's) $112,099 $22,617 $48,046 $17,453
</Table>
<Table>
* Commencement of operations.
+ Annualized.
(a) Per share data based on average outstanding shares during the period.
(b) The amount shown for a share outstanding does not correspond with aggregate net realized
and unrealized gain (loss) on investments due to the timing of purchases and redemptions
of Fund shares in relation to fluctuating market values of the investments of the Fund
during the period.
(c) Less than one cent per share.
(d) Total return is calculated exclusive of sales charges. Class I is not subject to sales
charges.
(e) Total return is not annualized.
(f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly
bears a pro-rata share of the fees and expenses of the underlying funds in which it
invests. Such indirect expenses are not included in the above reported expense ratios.
</Table>
272 MainStay Moderate Growth Allocation 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 C CLASS I
---------------------------- ----------------------------
APRIL 4, APRIL 4,
2005* 2005*
YEAR ENDED THROUGH YEAR ENDED THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2006 2005 2006 2005
$ 10.42 $10.00 $10.47 $10.00
----------- ----------- ----------- -----------
0.03 (0.01) 0.15 0.04
1.34 0.43(b) 1.38 0.43(b)
----------- ----------- ----------- -----------
1.37 0.42 1.53 0.47
----------- ----------- ----------- -----------
(0.19) -- (0.26) --
(0.00)(c) -- (0.00)(c) --
----------- ----------- ----------- -----------
(0.19) -- (0.26) --
----------- ----------- ----------- -----------
$ 11.60 $10.42 $11.74 $10.47
=========== =========== =========== ===========
13.28% 4.20%(e) 14.86% 4.70%(e)
0.25% (0.27%)+ 1.36% 0.79%+
1.18% 1.31% + 0.17% 0.25%+
1.18% 1.80% + 0.17% 0.74%+
61% 2% 61% 2%
$15,639 $3,347 $ 12 $ 10
</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 273
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 are registered as
open-end management investment companies under the Investment Company Act of
1940, as amended, ("Investment Company Act") and together offer 18 separate
investment portfolios (collectively, referred to as the "Funds" and each
individually, referred to as a "Fund"). These notes relate only to the Funds
listed below.
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 Income Manager (formerly
known as Asset Manager) Funds
- ----------------------------------------------------------
May 3, 2004 Floating Rate Fund
- ----------------------------------------------------------
April 4, 2005 Conservative Allocation, Growth
Allocation, Moderate Allocation and
Moderate Growth Allocation Funds
- ----------------------------------------------------------
</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>
Each Fund offers one or more of the following seven classes of shares as
indicated: Class A, Class B, Class C, Class I, Class R1, Class R2 and Class R3.
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, Class R2
and Class R3 shares
- -----------------------------------------------------------
All Cap Growth, All Cap Class A, Class B, Class C
Value, Small Cap and Class I shares
Opportunity, Floating
Rate, Intermediate Term
Bond, Income Manager,
Conservative Allocation,
Growth Allocation,
Moderate Allocation, and
Moderate Growth Allocation
Funds
- -----------------------------------------------------------
Mid Cap Opportunity Fund Class A, Class B, Class C,
Class I and Class R3 shares
- -----------------------------------------------------------
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 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 up to six years of purchase of Class B shares
(four years for Floating Rate) and a 1% contingent deferred sales charge may be
imposed on redemptions made within one year of purchase of Class C shares. As
approved by the Board of Directors/Trustees in 1997, Class B shares convert to
Class A shares eight years after the date they were purchased. The first
conversion occurred December 28, 2005. The Class I, Class R1, Class R2 and Class
R3 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 Mid Cap Opportunity
Fund, Small Cap Opportunity Fund, Income Manager and Balanced Fund, which
commenced distribution operations on December 30, 2002. Distribution of Class R3
shares commenced on April 28, 2006.
Each class of shares has 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 and/or service fee rates.
Class A, Class B, Class C, Class R2 and Class R3 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, R2 and R3 shares and the Sweep Shares Class each bear
service fee payments under shareholder service plans.
The investment objective for each of the Funds is 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.
274 MainStay Funds
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.
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 BIG 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 INCOME 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 CONSERVATIVE ALLOCATION FUND seeks current income and, secondarily,
long-term growth of capital.
The GROWTH ALLOCATION FUND seeks long-term growth of capital.
The MODERATE ALLOCATION FUND seeks long-term growth of capital and, secondarily,
current income.
The MODERATE GROWTH ALLOCATION FUND seeks long-term growth of capital and,
secondarily, current income.
The Conservative Allocation, Growth Allocation, Moderate Allocation and Moderate
Growth Allocation Funds (collectively the "Asset Allocation Funds") operate as
"fund-of funds". The Asset Allocation Funds may invest in other Funds of the
Company and/or Trust as well as Funds of The MainStay Funds and ICAP Funds,
Inc., a Massachusetts business trust and a Maryland Corporation, respectively,
for which NYLIM also serves as manager ("underlying funds").
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.
The Funds also invest in foreign securities which carry certain risks that are
in addition to the usual risks inherent in domestic instruments. These risks
include those resulting from currency fluctuations, future adverse political and
economic developments and possible imposition of currency exchange blockages or
other foreign governmental laws or restrictions. Foreign securities may also be
less liquid and more volatile than U.S. securities. There may also be difficulty
in invoking legal proceedings across borders. These risks are likely to be
greater in emerging markets than in developed markets.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The Funds prepare their financial statements in accordance with accounting
principles generally accepted in the United States of America 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 each day the Funds are open for business
("Valuation date"); such securities not traded on the valuation date are valued
at the mean of the latest quoted bid and asked prices. Prices normally are taken
from the principal market in which each security trades.
Debt securities are valued at prices supplied by a pricing agent or brokers
selected by the Fund's manager, as defined in Note 3, whose prices reflect
broker/dealer supplied valuations and electronic data processing techniques, if
such prices are deemed by the Fund's Manager to be representative of market
values, at the regular close of trading of the New York Stock Exchange
(generally 4:00 p.m. Eastern time). Investments in underlying funds are valued
at their net asset value at the close of business each day. Loans are valued at
the average of bid quotations obtained from a pricing service. The Trust has
engaged an independent pricing service to provide market value quotations from
dealers in loans. As of October 31, 2006, 100% of total investments in loans
were valued based on prices from such services.
Options contracts are valued at the last posted settlement price on the market
where such options are principally traded. Futures contracts are valued at the
last posted settlement price on the market where such futures are principally
traded. Foreign currency forward contracts are valued at their fair market
values determined on the basis of the mean between the last current bid and ask
prices based on dealer or exchange quotations.
Temporary cash investments acquired over 60 days prior to maturity are valued
using the latest bid prices or using valuations based on a matrix system (which
considers such factors as security prices, yields, maturities, and ratings),
both as furnished by independent pricing services. Other temporary cash
investments are valued at amortized cost, which approximates market value.
Securities of Cash Reserves Fund are valued at their amortized cost, which
approximates market value. Securities for which market quotations are not
readily available are valued by methods deemed in good faith by the Board of
Directors/Trustees to represent fair value. Equity and non-equity securities
which may be valued in this manner include, but are not limited to: a security
the trading for which has been halted
www.mainstayfunds.com 275
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
or suspended; a debt security that has recently gone into default and for which
there is not current market quotation; a security of an issuer that has entered
into a restructuring; a security that has been de-listed from a national
exchange; a security that market price of which is not available from an
independent pricing source or, if so provided, does not, in the opinion of the
Fund's investment adviser or sub-adviser (if applicable), reflect the security's
market value; a security where the trading on that security's principal market
is temporarily closed at a time when, under normal conditions, it would be open.
At October 31, 2006, the Intermediate Term Bond Fund and the Balanced Fund held
securities with a value of $12 and $3,964, respectively, that were valued in
such manner.
Certain events 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. These events may include, but are not limited to,
situations relating to a single issue in a market sector, significant
fluctuations in U.S. or foreign markets, natural disasters, armed conflicts,
governmental actions or other developments not tied directly to the securities
markets. Should the Manager or Subadvisor conclude that such events may have
effected the accuracy of the last price reported on the local foreign market,
the Manager or Subadvisor may, pursuant to procedures adopted by the Funds,
adjust the value of the local price to reflect the impact on the price of such
securities as a result of such events. Additionally, international equity
securities are also fair valued whenever the movement of a particular index
exceeds certain amounts. In such cases, the securities are fair valued by
applying factors provided by a third party vendor in accordance with the Fund's
policies and procedures.
(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. By so doing, the Funds will be
relieved from all or substantially all of federal and state income and excise
taxes.
Investment income received by a Fund from foreign sources may be subject to
foreign income taxes. These foreign income taxes are generally 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 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, Income Manager, Conservative Allocation, Growth Allocation, Moderate
Allocation and Moderate Growth Allocation Funds, 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 dividends,
substantially all of its net investment income at least once a year, as
distributions, and net realized capital gains no more than once a year. All
dividends and distributions are reinvested in shares of the Fund, at net asset
value, unless the shareholder elects otherwise. Income dividends and capital
gain distributions are determined in accordance with federal income tax
regulations, which may differ from accounting principles generally accepted in
the United States of America. 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, 2006 are not
affected.
The reclassifications for the Funds are primarily due to paydown gain (loss),
real estate investment trusts gain (loss), foreign currency gain (loss),
reclassifications of distributions, the expiration of capital loss
carryforwards, premium amortization adjustments, excise tax payments and net
operating losses.
<Table>
<Caption>
ACCUMULATED
ACCUMULATED UNDISTRIBUTED
UNDISTRIBUTED NET REALIZED ADDITIONAL
NET INVESTMENT GAIN (LOSS) ON PAID-IN
INCOME (LOSS) INVESTMENTS CAPITAL
All Cap Growth Fund $ 1,397,920 $ -- $(1,397,920)
- -----------------------------------------------------------------------------
All Cap Value Fund 28 (28) --
- -----------------------------------------------------------------------------
Mid Cap Opportunity Fund (51,768) 51,768 --
- -----------------------------------------------------------------------------
S&P 500 Index Fund (181,460) 181,460 --
- -----------------------------------------------------------------------------
Small Cap Opportunity Fund 2,831,277 (211,108) (2,620,169)
- -----------------------------------------------------------------------------
Floating Rate Fund 185 -- (185)
- -----------------------------------------------------------------------------
Indexed Bond Fund 145,321 (145,321) --
- -----------------------------------------------------------------------------
</Table>
276 MainStay Funds
<Table>
<Caption>
ACCUMULATED
ACCUMULATED UNDISTRIBUTED
UNDISTRIBUTED NET REALIZED ADDITIONAL
NET INVESTMENT GAIN (LOSS) ON PAID-IN
INCOME (LOSS) INVESTMENTS CAPITAL
Intermediate Term Bond Fund $ 36,071 $ (36,071) --
- -----------------------------------------------------------------------------
Short Term Bond Fund 19,040 44,105 $ (63,145)
- -----------------------------------------------------------------------------
Balanced Fund (27,860) 27,858 2
- -----------------------------------------------------------------------------
Income Manager Fund (45,487) 45,487 --
- -----------------------------------------------------------------------------
Conservative Allocation Fund 135,985 (175,566) 39,581
- -----------------------------------------------------------------------------
Growth Allocation Fund 517,439 (557,020) 39,581
- -----------------------------------------------------------------------------
Moderate Allocation Fund 237,479 (277,060) 39,581
- -----------------------------------------------------------------------------
Moderate Growth Allocation
Fund 1,009,731 (1,049,312) 39,581
- -----------------------------------------------------------------------------
</Table>
(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
using the effective interest rate method. Dividends and distributions received
by the Asset Allocation Funds from the underlying funds are recorded on the
ex-dividend date. Discounts and premiums on securities, other than short-term
securities, purchased for the Funds are accreted and amortized, respectively, on
the effective interest rate method over the life of the respective securities
or, in the case of a callable security, over the period to the first date of
call. Discounts and premiums on short-term securities are accreted and
amortized, respectively, on the straight line method.
For Real Estate Investment Trusts ("REITs"), dividend income is recorded at
management's estimate of the income included in distributions from the REIT
investments. Distributions received in excess of the estimated amount are
recorded as a reduction of the cost investments. The actual amounts of income,
return of capital and capital gains are only determined by each REIT after the
fiscal year end and may differ from the estimated amounts. The Fund adjusts the
estimated amounts of the components of distributions (and consequently its net
investment income) as necessary once the issuers provide information about the
actual composition of the distributions.
Investment income and realized and unrealized gains and losses on investments of
a Fund are allocated to separate classes of shares pro rata based upon their
relative net assets on the date the income is earned or realized and unrealized
gains and losses are incurred.
(E) EXPENSES. Expenses 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 transfer agent expenses and fees incurred under the
Shareholder Services Plans and the Distribution Plans further discussed in Note
3(B) on page 282) are allocated to separate classes of shares pro rata based
upon their relative net assets on the date the expenses are incurred. The
expenses borne by each Fund, including those of related parties to the Funds,
are shown on each Fund's Statement of Operations.
In addition, each Asset Allocation Fund bears a pro rata share of the fees and
expenses of the underlying funds in which they invest. Because the underlying
funds have varied expense and fee levels and the Asset Allocation Funds may own
different proportions of the underlying funds at different times, the amount of
fees and expenses incurred indirectly by each Asset Allocation Fund will vary.
(F) USE OF ESTIMATES. In preparing financial statements in conformity with
accounting principles generally accepted in the United States of America,
management makes estimates and assumptions that affect the reported amount of
assets & liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. 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 subsequently
adjusted, and unrealized appreciation and depreciation is recorded, 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 cancelled in closing purchase transactions
are added to the proceeds or netted against the amount paid on the transaction
to determine the realized gain or loss. 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 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
www.mainstayfunds.com 277
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
call writer's maintaining liquid assets valued at greater than the exercise
price of the call written. 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. A
Fund may purchase call options to protect against an increase in the price of
the security it anticipates purchasing. A Fund may purchase put options on its
securities to protect against a decline in the value of the security 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 held by the Fund and the prices of
options relating to the securities 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 on page 286.)
(H) LOAN COMMITMENTS. The Floating Rate Fund and Income Manager Fund make 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 Funds 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 the London InterBank Offered Rate (LIBOR).
The loans made by the Fund are generally readily marketable, but may be subject
to some restrictions on resale. For example, the Fund may be contractually
obligated to receive approval from the agent bank and/or borrower prior to sale.
The Funds assume the credit risk of the borrower, the selling participant and
any other persons interpositioned between the Fund and the borrower
("Intermediate Participants"). In the event that the borrower, selling
participant or intermediate participants becomes insolvent or enters into
bankruptcy, the Funds may incur certain costs and delays in realizing payment,
or may suffer a loss of principal and/or interest.
Unfunded commitments represent the remaining obligation of the Funds to the
borrower. At any point in time, up to the maturity date of the issue, the
borrower may demand the unfunded portion. (See Note 6 on page 285.)
(I) FOREIGN CURRENCY FORWARD CONTRACTS. Certain Funds may enter into foreign
currency forward contracts which are agreements to buy or sell currencies of
different countries on a specified future date at a specified rate. During the
period the forward contract is open, changes in the value of the contract are
recognized as unrealized gains or losses by "marking to market" such contract on
a daily basis to reflect the market value of the contract at the end of each
day's trading. When the forward contract is closed, the Fund records a realized
gain or loss equal to the difference between the proceeds from (or cost of) the
closing transaction and the Fund's basis in the contract. A Fund enters into
foreign currency forward contracts primarily to hedge its foreign currency
denominated investments and receivables and payables against adverse movements
in future foreign exchange rates or to try to enhance the Fund's returns.
The use of foreign currency forward contracts involves, to varying degrees,
elements of market risk in excess of the amount recognized in the Statement of
Assets and Liabilities. The contract amount reflects the extent of a Fund's
involvement in these financial instruments. Risks arise from the possible
movements in the foreign exchange rates underlying these instruments. The
unrealized appreciation on forward contracts reflects the Fund's exposure at
period end to credit loss in the event of a counterparty's failure to perform
its obligations. (See Note 7 on page 286.)
(J) FUTURES CONTRACTS. Certain Funds may enter into futures contracts which are
agreements 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. The use of futures contracts involves, to varying
degrees, elements of market risk in excess of the amount recognized in the
Statement of Assets and Liabilities. The contract or notional amounts and
variation margin reflect the extent of the Fund's involvement in open futures
positions. Risks arise from the possible imperfect correlation in movements in
the price of futures contracts, interest
278 MainStay Funds
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. Futures contracts are used for hedging
purposes or to seek to enhance returns. (See Note 5 on page 285.)
(K) REPURCHASE AGREEMENTS. When a Fund invests in repurchase agreements, the
Fund's custodian takes possession of the collateral pledged for investments in
such repurchase agreements. The underlying collateral is valued daily on a
mark-to-market basis to determine that the value, including accrued interest,
exceeds the repurchase price. In the event of the seller's default of the
obligation to repurchase, the Fund has the right to liquidate the collateral and
apply the proceeds in satisfaction of the obligation. Under certain
circumstances, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral may be subject to
legal proceedings.
(L) FOREIGN CURRENCY TRANSACTIONS. The books and records of the Funds are kept
in U.S. dollars. Prices of securities denominated in foreign currencies 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 are presented at the exchange rates and market values
at the close of the period. The realized and unrealized changes in net assets
arising from fluctuations in exchange rates and market prices of securities are
not separately presented.
Net realized gain (loss) on foreign currency transactions represents net gains
and losses on foreign currency forward contracts, net currency gains or losses
realized as a result of differences between the amounts of securities sale
proceeds or purchase cost, dividends, interest and withholding taxes as recorded
on the Fund's books, and the U.S. dollar equivalent amount actually received or
paid. Net currency gains or losses from valuing such foreign currency
denominated assets and liabilities, other than investments at valuation date
exchange rates, are reflected in unrealized foreign exchange gains or losses.
(M) MORTGAGE DOLLAR ROLLS. 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. During the roll period, the Fund
forgoes principal and interest paid on the securities. The Fund is compensated
by the difference between the current sales price and the forward price for the
future purchase as well as by the earnings on the cash proceeds of the initial
sale. MDRs may be renewed without physical delivery of the securities subject to
the contract. The Fund maintains 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.
(N) SECURITIES LENDING. In order to realize additional income a 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. Collateral will consist of U.S. Government
securities, cash equivalents or irrevocable letters of credit. The Funds 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 Funds receive 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 Funds also continue to receive interest and dividends on the
securities loaned and any gain or loss in the market price of the securities
loaned that may occur during the term of the loan will be for the account of the
Funds. (See Note 7 on page 286.)
(O) RESTRICTED SECURITIES. Under certain conditions the Funds may purchase
restricted securities. A restricted security is a security which has been
purchased through a private offering and cannot be resold to the general public
without prior registration under the Securities Act of 1933 (the "1933 Act").
The Fund does not have the right to demand that such securities be registered.
Disposal of these securities may involve time-consuming negotiations and expense
and prompt sale at an acceptable price may be difficult. (See Note 7 on page
286.)
(P) REDEMPTION FEE. The Floating Rate Fund imposes 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
www.mainstayfunds.com 279
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
such as 401(k) plans, section 529 qualified tuition plans, accounts held in
omnibus accounts on the books of certain financial intermediary firms, wrap
program accounts, redemptions effected through the Systematic Withdrawal/
Exchange Plan 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 Floating Rate Fund for the year
ended October 31, 2006 totaled $99,928.
(Q) OFFERING COSTS. Costs incurred by a Fund in connection with the
commencement of the Funds' operations are being amortized on a straight line
basis over twelve months.
(R) INDEMNIFICATIONS. In the normal course of business the Funds enter into
contracts with third party service providers that contain a variety of
representations and warranties and which provide general indemnifications. The
Funds' maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Funds that have not yet
occurred. Based on experience, management is of the view that the risk of loss
in connection with these potential indemnification obligations is remote;
however, there can be no assurance that material liabilities related to such
obligations will not arise in the future which could adversely impact the Funds.
NOTE 3--FEES AND RELATED PARTY TRANSACTIONS:
(A) MANAGER AND SUBADVISOR. New York Life Investment Management LLC ("NYLIM" or
"Manager"), a registered investment adviser and an indirect wholly-owned
subsidiary of New York Life Insurance Company ("New York Life"), serves as the
Funds' manager. The Manager provides offices and conducts clerical,
recordkeeping and bookkeeping services, and is responsible for the financial and
accounting records required to be maintained by the Funds. The Manager also pays
the salaries and expenses of all personnel affiliated with the Funds and all the
operational expenses that are not the responsibility of the Funds. The Manager
advises the following Funds directly, without a subadvisor: Mid Cap Opportunity,
S&P 500 Index, Small Cap Opportunity, Cash Reserves, Floating Rate, Indexed
Bond, Balanced, Income Manager, Conservative Allocation, Growth Allocation,
Moderate Allocation and Moderate Growth Allocation. MacKay Shields LLC ("MacKay
Shields" or "Subadvisor"), a registered investment adviser and an indirect
wholly-owned subsidiary of New York Life, serves as subadvisor to the All Cap
Growth, All Cap Value, Intermediate Term Bond and Short Term Bond Funds pursuant
to a Sub-Advisory Agreement with the Manager.
Each Fund is contractually obligated to 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 (1) .25%
- --------------------------------------------------------------
Small Cap Opportunity Fund 1.00%
- --------------------------------------------------------------
Cash Reserves Fund (2) .45%
- --------------------------------------------------------------
Floating Rate Fund .60%
- --------------------------------------------------------------
Indexed Bond Fund (3) .35%
- --------------------------------------------------------------
Intermediate Term Bond Fund .60%
- --------------------------------------------------------------
Short Term Bond Fund .60%
- --------------------------------------------------------------
Balanced Fund (4) .75%
- --------------------------------------------------------------
Income Manager Fund .65%
- --------------------------------------------------------------
Conservative Allocation Fund .00%
- --------------------------------------------------------------
Growth Allocation Fund .00%
- --------------------------------------------------------------
Moderate Allocation Fund .00%
- --------------------------------------------------------------
Moderate Growth Allocation Fund .00%
- --------------------------------------------------------------
</Table>
(1) .25% on assets to $1 billion; .225% on next $2 billion; .20% on remainder of
assets.
(2) .45% on assets to $500 million; .40% on remainder of assets.
(3) .35% on assets to $1 billion; .30% on remainder of assets.
(4) .75% on assets to $1 billion; .70% on remainder of assets; prior to May 1,
2006 the Manager had established a contractual waiver of .02% on assets in
excess of $1 billion.
Pursuant to the terms of the Subadvisory 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 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 entered into a written expense limitation agreement to waive a
portion of a Fund's management fee or reimburse a Fund so that the following
Funds' Class I total ordinary operating expenses (total annual fund operating
expenses excluding taxes, interest, litigation, extraordinary expenses,
brokerage and other transaction expenses relating to the purchase or sale of
portfolio securities) on an annualized basis do not exceed the indicated
percentages for its Class I shares. An equivalent reduction will apply to Class
A, Class B, Class C, Class R1, Class R2 and Class R3 shares as well as Sweep
Class shares for the Cash Reserves Fund. These expense limitations may
280 MainStay Funds
be modified or terminated only with the approval of the Board of
Directors/Trustees.
<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 .43%
- --------------------------------------------------------------
Intermediate Term Bond Fund .70%
- --------------------------------------------------------------
Short Term Bond Fund .60%
- --------------------------------------------------------------
Balanced Fund .94%
- --------------------------------------------------------------
Income Manager Fund .90%*
- --------------------------------------------------------------
Conservative Allocation Fund .25%
- --------------------------------------------------------------
Growth Allocation Fund .25%
- --------------------------------------------------------------
Moderate Allocation Fund .25%
- --------------------------------------------------------------
Moderate Growth Allocation Fund .25%
- --------------------------------------------------------------
</Table>
* Effective January 2, 2006. Prior to January 2, 2006 the percentage was .94%.
For the year ended October 31, 2006, the Manager waived/reimbursed the Funds
pursuant to contractual expense limitations described above are as follows:
<Table>
All Cap Growth Fund $126,077
- -------------------------------------------------------------
All Cap Value Fund 181,402
- -------------------------------------------------------------
Mid Cap Opportunity Fund 167,242
- -------------------------------------------------------------
S&P 500 Index Fund 208,740
- -------------------------------------------------------------
Cash Reserves Fund 193,963
- -------------------------------------------------------------
Indexed Bond Fund 123,157
- -------------------------------------------------------------
Intermediate Term Bond Fund 78,088
- -------------------------------------------------------------
Short Term Bond Fund 134,399
- -------------------------------------------------------------
Balanced Fund 17,532
- -------------------------------------------------------------
Income Manager Fund 78,684
- -------------------------------------------------------------
Conservative Allocation Fund 36,386
- -------------------------------------------------------------
Growth Allocation Fund 16,114
- -------------------------------------------------------------
</Table>
It was not necessary for the Manager to reimburse the Small Cap Opportunity,
Floating Rate, Moderate Allocation, or the Moderate Growth Allocation Funds for
expenses for the year ended October 31, 2006.
The Manager has also entered into a written expense limitation agreement, under
which it agreed to reimburse the transfer agent expense of Class A, B and C
shares of the following Funds so that total ordinary operating expenses of each
Fund's Class A shares (total annual fund operating expenses excluding taxes,
interest, litigation, extraordinary expenses, brokerage and other transaction
expenses relating to the purchase or sale of portfolio securities) do not exceed
the following annualized percentages noted below. The Manager will apply an
equivalent reimbursement, in an equal amount of basis points, to each Fund's
Class B and C shares. These expense limitations may be modified or terminated
only with the approval of the Board of Directors/Trustees.
<Table>
Mid Cap Opportunity Fund 1.35%
- --------------------------------------------------------------
S&P 500 Index Fund .60%*
- --------------------------------------------------------------
Small Cap Opportunity Fund 1.70%
- --------------------------------------------------------------
Short Term Bond Fund .90%
- --------------------------------------------------------------
Intermediate Term Bond Fund 1.10%
- --------------------------------------------------------------
Income Manager Fund .99%**
- --------------------------------------------------------------
</Table>
* Effective August 1, 2006 with respect to the S&P 500 Index Fund's Class A
shares.
** Effective January 2, 2006.
For the year ended October 31, 2006 NYLIM reimbursed the Funds' as follows
pursuant to these expense limitations:
<Table>
Mid Cap Opportunity Fund $231,468
- -------------------------------------------------------------
S&P 500 Index Fund 139,822
- -------------------------------------------------------------
Short Term Bond Fund 26,774
- -------------------------------------------------------------
Intermediate Term Bond Fund 21,737
- -------------------------------------------------------------
Income Manager Fund 283,547
- -------------------------------------------------------------
</Table>
It was not necessary for the Manager to reimburse the Small Cap Opportunity Fund
for transfer agent expenses for the year ended October 31, 2006.
Under all of the expense limitations described above, the Manager may recoup the
amount of any management fee waivers or expense reimbursements from a Fund if
such action does not cause the Fund to exceed existing expense limitations and
the recoupment is made within three years after the year in which the Manager
incurred the expense.
As of October 31, 2006 the amounts of waived or reimbursed fees that are subject
to possible recoupment by
www.mainstayfunds.com 281
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the Manager and the related expiration dates are as follows:
<Table>
<Caption>
OCTOBER 31,
---------------------
2008 2009 TOTAL
All Cap Growth Fund $ 27,750 $126,077 $153,827
- -----------------------------------------------------------
All Cap Value Fund 34,914 181,402 216,316
- -----------------------------------------------------------
Mid Cap Opportunity Fund 156,672 398,710 555,382
- -----------------------------------------------------------
S&P 500 Index Fund 13,575 348,562 362,137
- -----------------------------------------------------------
Cash Reserves Fund 164,717 193,963 358,680
- -----------------------------------------------------------
Indexed Bond Fund 89,759 123,157 212,916
- -----------------------------------------------------------
Intermediate Term Bond
Fund 64,905 99,825 164,730
- -----------------------------------------------------------
Short Term Bond Fund 83,648 161,173 244,821
- -----------------------------------------------------------
Income Manager Fund 1,664 362,231 363,895
- -----------------------------------------------------------
Conservative Allocation
Fund -- 36,386 36,386
- -----------------------------------------------------------
Growth Allocation Fund -- 16,114 16,114
- -----------------------------------------------------------
</Table>
* The expense limitation agreement became effective in 2005 and the recoupments
will start to expire in 2008.
At October 31, 2006, the Small Cap Opportunity, Floating Rate, Balanced,
Moderate Allocation and Moderate Growth Allocation Funds had no amounts
available for recoupment.
Investors Bank & Trust Company, 200 Clarendon Street, P.O. Box 9130, Boston,
Massachusetts, 02116 ("IBT") provides sub-administration and sub-accounting
services to the Funds pursuant to an agreement with NYLIM. These services
include calculating daily net asset values of the Funds, maintaining general
ledger and sub-ledger accounts for the calculation of the Funds' respective net
asset values, and assisting NYLIM in conducting various aspects of the Funds'
administrative operations. For providing these services to the Fund, IBT is
compensated by NYLIM.
(B) DISTRIBUTION AND SERVICE FEES. NYLIFE Distributors LLC (the "Distributor")
serves as the Funds' distributor and principal underwriter. 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, Class R2 and
Class R3 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 Class R3 Plan, the
Distributor receives a monthly fee from the Fund at the annual rate of 0.50% of
the average daily net assets of the Fund's Class R3 shares, which is an expense
of the Class R3 shares of the Fund for distribution or service activities as
designated by the Distributor. 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 Cash Reserves Fund's Sweep Shares Class
for account sweep and other distribution-related and shareholder services.
In accordance with the Shareholder Services Plans for the Class R1, Class R2 and
Class R3 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,
Class R2 and Class R3 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, Class R2 and Class R3 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.
(C) SALES CHARGES. The Funds were advised by the Distributor that the amount of
sales charges retained on sales of Class A shares was $1,464,235 for the year
ended October 31, 2006. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class A, Class B and Class C
shares of $131,950, $630,509 and $337,916, respectively, for the year ended
October 31, 2006.
(D) TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. NYLIM
Service Company LLC ("NYLIM Service"), an affiliate of NYLIM, is the Funds
282 MainStay Funds
transfer, dividend disbursing and shareholder servicing agent. NYLIM Service has
entered into an agreement with Boston Financial Data Services pursuant to which
it performs certain services for which NYLIM Service is responsible. Transfer
agent expenses incurred by the Funds for the year ended October 31, 2006, were
as follows:
<Table>
All Cap Growth Fund $ 219,529
- -------------------------------------------------------------
All Cap Value Fund 182,768
- -------------------------------------------------------------
Mid Cap Opportunity Fund 399,525
- -------------------------------------------------------------
S&P 500 Index Fund 651,489
- -------------------------------------------------------------
Small Cap Opportunity Fund 2,143,414
- -------------------------------------------------------------
Cash Reserves Fund 15,828
- -------------------------------------------------------------
Floating Rate Fund 719,293
- -------------------------------------------------------------
Indexed Bond Fund 81,030
- -------------------------------------------------------------
Intermediate Term Bond Fund 43,626
- -------------------------------------------------------------
Short Term Bond Fund 32,816
- -------------------------------------------------------------
Balanced Fund 1,846,455
- -------------------------------------------------------------
Income Manager Fund 682,426
- -------------------------------------------------------------
Conservative Allocation Fund 13,379
- -------------------------------------------------------------
Growth Allocation Fund 13,624
- -------------------------------------------------------------
Moderate Allocation Fund 13,399
- -------------------------------------------------------------
Moderate Growth Allocation Fund 13,398
- -------------------------------------------------------------
</Table>
(E) INDEPENDENT DIRECTORS AND TRUSTEES FEES. For the year ended October 31,
2006, Non-Interested Directors and Trustees were paid an annual retainer of
$40,000 and an additional annual fee of $40,000 in connection with attendance at
Board meetings, plus reimbursement for travel and out-of-pocket expenses. The
chairman of the Board of Directors/Trustees receives an additional retainer of
$20,000 annually and the Audit Committee Chair receives an additional retainer
of $15,000 annually. The retainers are paid in the aggregate for the Company,
the Trust and ICAP Funds, Inc., a registered investment company also served by
the Directors/Trustees that is also managed by NYLIM. Prior to January 1, 2006,
Non-Interested Directors and Trustees were paid an annual retainer of $62,000
plus reimbursement for travel and out-of-pocket expenses. The Chairman and the
Audit Committee Chair each received an additional annual retainer of $10,000.
The retainers were paid in the aggregate for the Company and the Trust.
(F) CAPITAL. At October 31, 2006, New York Life and its affiliates owned a
significant number of shares of the Funds with values and percentages of net
assets as follows:
<Table>
All Cap Growth Fund $191,644,982 62.5%
- ------------------------------------------------------------------
All Cap Value Fund 49,824,907 32.7
- ------------------------------------------------------------------
Mid Cap Opportunity Fund $ 14,632 0.0*%
- ------------------------------------------------------------------
S&P 500 Index Fund 218,266,446 13.5
- ------------------------------------------------------------------
Small Cap Opportunity Fund 74,337,218 4.9
- ------------------------------------------------------------------
Cash Reserves Fund 5,890,571 1.0
- ------------------------------------------------------------------
Floating Rate Fund 24,591,030 2.4
- ------------------------------------------------------------------
Indexed Bond Fund 58,693,043 15.4
- ------------------------------------------------------------------
Intermediate Term Bond Fund 76,228,805 54.7
- ------------------------------------------------------------------
Short Term Bond Fund 60,333,541 76.3
- ------------------------------------------------------------------
Balanced Fund 17,229 0.0*
- ------------------------------------------------------------------
Income Manager Fund 83,983,172 22.6
- ------------------------------------------------------------------
Conservative Allocation Fund 11,296 0.0*
- ------------------------------------------------------------------
Growth Allocation Fund 12,345 0.0*
- ------------------------------------------------------------------
Moderate Allocation Fund 11,690 0.0*
- ------------------------------------------------------------------
Moderate Growth Allocation Fund 12,025 0.0*
- ------------------------------------------------------------------
</Table>
* Less than one tenth of one percent.
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.
(G) OTHER. Pursuant to an Amended and Restated Management Agreement between the
Funds and NYLIM, the cost of legal services provided to the Funds by the Office
of the General Counsel of NYLIM are payable directly by the Funds. For the year
ended October 31, 2006, these fees, which are included in Professional fees
shown on the Statement of Operations, were as follows:
<Table>
All Cap Growth Fund $ 23,527
- -------------------------------------------------------------
All Cap Value Fund 10,107
- -------------------------------------------------------------
Mid Cap Opportunity Fund 9,058
- -------------------------------------------------------------
S&P 500 Index Fund 113,960
- -------------------------------------------------------------
Small Cap Opportunity Fund 60,070
- -------------------------------------------------------------
Cash Reserves Fund 38,073
- -------------------------------------------------------------
Floating Rate Fund 56,762
- -------------------------------------------------------------
Indexed Bond Fund 24,067
- -------------------------------------------------------------
Intermediate Term Bond Fund 9,769
- -------------------------------------------------------------
Short Term Bond Fund 6,320
- -------------------------------------------------------------
Balanced Fund 81,894
- -------------------------------------------------------------
Income Manager Fund 25,592
- -------------------------------------------------------------
Conservative Allocation Fund 2,368
- -------------------------------------------------------------
Growth Allocation Fund 2,468
- -------------------------------------------------------------
Moderate Allocation Fund 5,073
- -------------------------------------------------------------
Moderate Growth Allocation Fund 5,022
- -------------------------------------------------------------
</Table>
www.mainstayfunds.com 283
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--FEDERAL INCOME TAXES:
As of October 31, 2006, the components of accumulated earnings on a tax basis
were as follows:
<Table>
<Caption>
ACCUMULATED OTHER UNREALIZED TOTAL
ORDINARY CAPITAL TEMPORARY APPRECIATION ACCUMULATED
INCOME GAINS (LOSSES) DIFFERENCES (DEPRECIATION) GAIN (LOSS)
All Cap Growth Fund $ -- $ (4,030,617) $ -- $ 74,588,499 $ 70,557,882
- -----------------------------------------------------------------------------------------------------------------------------
All Cap Value Fund 1,462,000 6,373,848 (582,587) 23,489,234 30,742,495
- -----------------------------------------------------------------------------------------------------------------------------
Mid Cap Opportunity
Fund 1,941,634 2,839,982 -- 13,858,801 18,640,417
- -----------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund 20,518,223 (83,458,061) -- 411,293,048 348,353,210
- -----------------------------------------------------------------------------------------------------------------------------
Small Cap
Opportunity Fund -- (3,270,908) -- 140,922,005 137,651,097
- -----------------------------------------------------------------------------------------------------------------------------
Cash Reserves Fund 27,141 (3,497) (28,544) -- (4,900)
- -----------------------------------------------------------------------------------------------------------------------------
Floating Rate Fund 1,387,042 (4,831,242) (1,764,913) (3,420,852) (8,629,965)
- -----------------------------------------------------------------------------------------------------------------------------
Indexed Bond Fund 198,744 (7,877,660) (10,169) 889,559 (6,799,526)
- -----------------------------------------------------------------------------------------------------------------------------
Intermediate Term
Bond Fund 418,077 (9,978,536) (93,977) 259,247 (9,395,189)
- -----------------------------------------------------------------------------------------------------------------------------
Short Term Bond Fund 99,492 (3,819,544) (163,002) (187,426) (4,070,480)
- -----------------------------------------------------------------------------------------------------------------------------
Income Manager Fund 2,029,715 8,832,311 -- 31,511,492 42,373,518
- -----------------------------------------------------------------------------------------------------------------------------
Balanced Fund 8,092,786 28,886,155 -- 84,152,471 121,131,412
- -----------------------------------------------------------------------------------------------------------------------------
Conservative
Allocation Fund 253,793 839,762 -- 1,565,929 2,659,484
- -----------------------------------------------------------------------------------------------------------------------------
Growth Allocation
Fund 1,250,124 1,298,761 -- 4,922,430 7,471,315
- -----------------------------------------------------------------------------------------------------------------------------
Moderate Allocation
Fund 2,091,489 2,104,422 -- 5,628,626 9,824,537
- -----------------------------------------------------------------------------------------------------------------------------
Moderate Growth
Allocation Fund 1,187,601 2,684,229 -- 8,126,328 11,998,158
- -----------------------------------------------------------------------------------------------------------------------------
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
primarily due to wash sales deferrals.
The other temporary differences are primarily due to distribution payables,
straddles and amortization of offering costs.
At October 31, 2006, 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 2012 $ 4,031
- ------------------------------------------------------------
S&P 500 Index Fund 2010 $ 26,183
2013 5,221
2014 52,054
- ------------------------------------------------------------
$ 83,458
- ------------------------------------------------------------
Small Cap Opportunity Fund 2014 $ 3,271
- ------------------------------------------------------------
Cash Reserves Fund 2012 $ 2
2013 1
- ------------------------------------------------------------
$ 3
- ------------------------------------------------------------
Floating Rate Fund 2012 $ 229
2013 3,166
2014 1,436
- ------------------------------------------------------------
$ 4,831
- ------------------------------------------------------------
</Table>
<Table>
<Caption>
CAPITAL LOSS
AVAILABLE AMOUNT
THROUGH (000'S)
Indexed Bond Fund 2007 $ 1,410
2008 1,793
2009 105
2014 4,570
- ------------------------------------------------------------
$ 7,878
- ------------------------------------------------------------
Intermediate Term Bond Fund 2007 $ 4,032
2008 3,661
2010 898
2014 1,388
- ------------------------------------------------------------
$ 9,979
- ------------------------------------------------------------
Short Term Bond Fund 2007 $ 572
2008 758
2009 159
2010 35
2011 --(a)
2012 297
2013 1,183
2014 816
- ------------------------------------------------------------
$ 3,820
- ------------------------------------------------------------
</Table>
(a) Less than one thousand.
The All Cap Growth, All Cap Value and Income Manager Funds utilized $38,647,803,
$7,768,816 and $34,124,437, respectively, of capital loss carryforwards during
the year
284 MainStay Funds
ended October 31, 2006. In addition, the Short Term Bond Fund had $63,145 of
capital loss carryforwards that expired.
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 year ended October 31, 2006 represents tax-based distributions of
ordinary income and net long-term capital gain, respectively, except for the
Funds for which the tax components of the distributions are shown below.
<Table>
<Caption>
2006 2005
----------------------------- -----------------------------
TAX-BASED TAX-BASED TAX-BASED TAX-BASED
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
FROM FROM FROM FROM
ORDINARY LONG-TERM ORDINARY LONG-TERM
INCOME GAINS INCOME GAINS
Mid Cap Opportunity Fund $ 2,605,585 $ 3,799,462 $ 232,682 $ 1,159,326
- ---------------------------------------------------------------------------------------------------------------------------
Small Cap Opportunity Fund 35,359,092 28,197,984 17,781,133 22,870,569
- ---------------------------------------------------------------------------------------------------------------------------
Balanced Fund 35,229,375 33,322,455 9,280,146 9,086,982
- ---------------------------------------------------------------------------------------------------------------------------
Conservative Allocation Fund 1,382,879 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Growth Allocation Fund 355,768 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Moderate Allocation Fund 2,070,369 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Moderate Growth Allocation 1,873,775 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
NOTE 5--FINANCIAL INSTRUMENTS:
The S&P 500 Index Fund's, Indexed Bond Fund's and Income 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 Income 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:
At October 31, 2006 the following funds had unfunded loan commitments pursuant
to the following loan agreements:
<Table>
<Caption>
FLOATING RATE FUND UNFUNDED UNREALIZED
BORROWER COMMITMENT APPRECIATION
Insight Midwest Holdings LLC, due 4/7/14 $ 501,277 $ 3,172
- ------------------------------------------------------------------------------
Wastequip, Inc., due 7/15/11 33,333 --
- ------------------------------------------------------------------------------
Lucite International US Finco, Ltd., due
7/7/13 1,167,939 8,030
- ------------------------------------------------------------------------------
$ 11,202
- ------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
INCOME MANAGER FUND
BORROWER
Lucite International US Finco, Ltd., due
7/7/13 $ 129,771 $ 892
- ------------------------------------------------------------------------------
</Table>
Each of these commitments are available until the maturity date of the security.
www.mainstayfunds.com 285
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--FUND SECURITIES LOANED, FOREIGN CURRENCY, WRITTEN OPTIONS AND RESTRICTED
SECURITIES:
As of October 31, 2006, 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 $ 22,875,969 $ 23,653,199
- -------------------------------------------------------
All Cap Value Fund 9,076,708 9,397,697
- -------------------------------------------------------
Mid Cap Opportunity
Fund 22,784,343 23,677,456
- -------------------------------------------------------
S&P 500 Index Fund 87,692,175 90,565,555
- -------------------------------------------------------
Small Cap
Opportunity Fund 292,923,347 303,160,000
- -------------------------------------------------------
Indexed Bond Fund 49,515,897 50,582,858
- -------------------------------------------------------
Intermediate Term
Bond Fund 5,731,915 5,850,087
- -------------------------------------------------------
Short Term Bond Fund 2,766,584 2,822,941
- -------------------------------------------------------
Balanced Fund 96,257,585 100,092,452
- -------------------------------------------------------
Income Manager Fund 41,986,585 43,412,303
- -------------------------------------------------------
</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. Securities purchased with collateral received are valued at amortized
cost, which approximates market value.
As of October 31, 2006, the Intermediate Term Bond Fund held the following
currencies:
<Table>
<Caption>
CURRENCY COST VALUE
Euro E 1,481 $1,887 $1,891
- -------------------------------------------------------
</Table>
During the year ended October 31, 2006 the All Cap Value Fund had the following
transactions in Written Options:
<Table>
<Caption>
NUMBER OF
CONTRACTS PREMIUM
Options outstanding
at October 31, 2005 -- $ --
- -------------------------------------------------------
Options--written (122) (37,744)
- -------------------------------------------------------
Options--canceled in
closing transactions 122 37,744
- -------------------------------------------------------
Options outstanding
at October 31, 2006 -- --
- -------------------------------------------------------
</Table>
As of October 31, 2006, the Balanced Fund held restricted securities as follows:
<Table>
<Caption>
PRINCIPAL
DATE(S) OF AMOUNT/ 10/31/06 PERCENTAGE OF
SECURITY ACQUISITION SHARES COST VALUE NET ASSETS
North Atlantic Trading Co., Inc.
Common Stock 4/21/04 130 $ 1 $ 1 0.0%(a)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) Less than one tenth of a percent.
NOTE 8--CUSTODIAN:
IBT is the custodian of cash and securities of the Fund. Custodial fees are
charged to the Fund based on the market value of securities in the Fund and the
number of certain cash transactions incurred by the Fund.
NOTE 9--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. These funds paid a commitment fee,
at an annual rate of .070%, up to September 6, 2006 at which time the rate
changed to .060% 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,
2006.
286 MainStay Funds
NOTE 10--FUND ACQUISITIONS:
(A) On February 11, 2005, Balanced Fund acquired the assets, including the
investments, and assumed the identified liabilities of Strategic Value Fund, a
series of the Mainstay Funds Trust.
This reorganization was completed after shareholders approved the plan on
February 2, 2005. The aggregate net assets of MainStay Balanced Fund immediately
before the acquisition were $639,429,462 and the combined net assets after the
acquisition was $694,383,426.
The acquisition was accomplished by a tax-free exchange of the following:
<Table>
<Caption>
SHARES VALUE
MainStay Strategic
Value Fund
- ----------------------------------------------
Class A 1,380,980 $15,888,219
- ----------------------------------------------
Class B 3,260,303 37,464,604
- ----------------------------------------------
Class C 139,338 1,601,141
- ----------------------------------------------
</Table>
In exchange for the Mainstay Strategic Value Fund shares and net assets,
Mainstay Balanced Fund issued the following number of shares:
<Table>
<Caption>
SHARES
Class A 592,705
- ----------------------------------------------
Class B 1,400,861
- ----------------------------------------------
Class C 59,858
- ----------------------------------------------
</Table>
MainStay Strategic Value 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 undistributed net investment loss:
<Table>
<Caption>
ACCUMULATED UNDISTRIBUTED
TOTAL NET UNREALIZED NET REALIZED NET INVESTMENT
ASSETS CAPITAL STOCK APPRECIATION LOSS LOSS
MainStay Strategic Value Fund $54,963,964 $49,992,302 $ 5,174,475 $ (211,049) $ (1,764)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
www.mainstayfunds.com 287
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--PURCHASE AND SALES OF SECURITIES (IN 000'S):
During the year ended October 31, 2006, purchase 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
GROWTH FUND VALUE FUND OPPORTUNITY FUND
-------------------- ------------------- --------------------
PURCHASES SALES PURCHASES SALES PURCHASES SALES
U.S. Government $ -- $ -- $ -- $ -- $ -- $ --
- ---------------------------------------------------------------------------------------------
All others 151,299 188,215 60,586 75,317 141,495 127,295
- ---------------------------------------------------------------------------------------------
Total $151,299 $188,215 $60,586 $75,317 $141,495 $127,295
- ---------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
INTERMEDIATE TERM SHORT TERM BALANCED
BOND FUND BOND FUND FUND
-------------------- ------------------- --------------------
PURCHASES SALES PURCHASES SALES PURCHASES SALES
U.S. Government $166,379 $156,982 $76,495 $91,602 $ 5 $ 5,835
- ---------------------------------------------------------------------------------------------
All others 37,477 30,651 89 5,750 843,644 658,669
- ---------------------------------------------------------------------------------------------
Total $203,856 $187,633 $76,584 $97,352 $843,649 $664,504
- ---------------------------------------------------------------------------------------------
</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 A CLASS B CLASS C CLASS I
------- ------- ------- ------- ------- ------- ------- -------
YEAR ENDED YEAR ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005
Shares sold 726 280 178 2,030 411 301 89 1,811
- ---------------------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of dividends and
distributions -- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
726 280 178 2,030 411 301 89 1,811
Shares redeemed (328) (132) (78) (4,220) (449) (50) (12) (2,494)
- ---------------------------------------------------------------------------------------------------------------------------------
Shares converted (See Note 1) 126 (128) -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 524 20 100 (2,190) (38) 251 77 (683)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MID CAP OPPORTUNITY FUND
--------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS R3+ CLASS A CLASS B CLASS C CLASS I
------- ------- ------- ------- ------------------ ------- ------- ------- -------
APRIL 28, 2006*
YEAR ENDED THROUGH YEAR ENDED
OCTOBER 31, 2006 OCTOBER 31, 2006 OCTOBER 31, 2005
Shares sold 963 275 524 485 360 1,468 820 732 405
- ---------------------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment
of dividends and
distributions 81 53 42 49 -- 10 10 7 22
- ---------------------------------------------------------------------------------------------------------------------------------
1,044 328 566 534 360 1,478 830 739 427
Shares redeemed (654) (214) (297) (559) -- (139) (100) (66) (324)
- ---------------------------------------------------------------------------------------------------------------------------------
Shares converted (See Note 1) 314 (320) -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 704 (206) 269 (25) 360 1,339 730 673 103
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
* Commencement of Operations.
+ Class R3 commenced operations on April 28, 2006.
(a) On February 11, 2005 and pursuant to shareholder approval, the assets and
liabilities of the MainStay Strategic Value Fund were acquired by the
MainStay Balanced Fund.
(b) Less than one thousand shares.
288 MainStay Funds
<Table>
<Caption>
S&P 500 SMALL CAP FLOATING RATE INDEXED BOND
INDEX FUND OPPORTUNITY FUND FUND FUND
-------------------- ----------------------- ------------------- --------------------
PURCHASES SALES PURCHASES SALES PURCHASES SALES PURCHASES SALES
$ -- $ -- $ -- $ -- $ -- $ -- $384,914 $342,093
- -----------------------------------------------------------------------------------------------
75,969 252,989 2,216,006 1,405,279 620,708 65,364 31,316 17,257
- -----------------------------------------------------------------------------------------------
$75,969 $252,989 $2,216,006 $1,405,279 $620,708 $65,364 $416,230 $359,350
- -----------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
INCOME MANAGER CONSERVATIVE GROWTH MODERATE MODERATE GROWTH
FUND ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
-------------------- ------------------- ------------------- ------------------- -------------------
PURCHASES SALES PURCHASES SALES PURCHASES SALES PURCHASES SALES PURCHASES SALES
$156,549 $156,402 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
- ----------------------------------------------------------------------------------------------------------------
402,291 394,185 49,937 14,835 109,798 46,153 155,245 50,212 187,431 66,797
- ----------------------------------------------------------------------------------------------------------------
$558,840 $550,587 $49,937 $14,835 $109,798 $46,153 $155,245 $50,212 $187,431 $66,797
- ----------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ALL CAP VALUE FUND
-----------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS A CLASS B CLASS C CLASS I
------- ------- ------- ------- ------- ------- ------- -------
YEAR ENDED YEAR ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005
442 199 116 1,339 383 344 72 1,310
- ---------------------------------------------------------------------------------
3 -- -- 81 6 1 -- 97
- ---------------------------------------------------------------------------------
445 199 116 1,420 389 345 72 1,407
(250) (91) (45) (2,449) (186) (73) (20) (2,094)
- ---------------------------------------------------------------------------------
160 (162) -- -- -- -- -- --
- ---------------------------------------------------------------------------------
355 (54) 71 (1,029) 203 272 52 (687)
- ---------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
S&P 500 INDEX FUND SMALL CAP OPPORTUNITY FUND
------------------------------------- -----------------------------------------------------------------------------
CLASS A CLASS I CLASS A CLASS I CLASS A CLASS B CLASS C CLASS I CLASS A CLASS B CLASS C CLASS I
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005 OCTOBER 31, 2006 OCTOBER 31, 2005
3,011 11,085 4,823 16,052 23,267 1,024 4,991 34,362 9,644 1,764 2,342 8,155
- -------------------------------------------------------------------------------------------------------------------------
117 689 124 588 854 250 159 1,660 206 164 49 1,634
- -------------------------------------------------------------------------------------------------------------------------
3,128 11,774 4,947 16,640 24,121 1,274 5,150 36,022 9,850 1,928 2,391 9,789
(4,191) (15,608) (4,578) (9,684) (9,605) (552) (1,416) (9,319) (1,245) (211) (173) (4,157)
- -------------------------------------------------------------------------------------------------------------------------
-- -- -- -- 834 (855) -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
(1,063) (3,834) 369 6,956 15,350 (133) 3,734 26,703 8,605 1,717 2,218 5,632
- -------------------------------------------------------------------------------------------------------------------------
</Table>
www.mainstayfunds.com 289
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--CAPITAL SHARE TRANSACTIONS (IN 000'S) (CONTINUED):
<Table>
<Caption>
CASH RESERVES FUND
-----------------------------------------
SWEEP SWEEP
SHARES SHARES
CLASS I CLASS CLASS I CLASS
------- -------- ------- --------
YEAR ENDED YEAR ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005
Shares sold 586,246 197,494 625,554 283,633
- -------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of dividends and distributions 10,564 11,198 5,646 5,082
- -------------------------------------------------------------------------------------------------------
596,810 208,692 631,200 288,715
Shares redeemed (575,982) (168,710) (645,555) (278,490)
- -------------------------------------------------------------------------------------------------------
Shares converted (See Note 1) -- -- -- --
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) 20,828 39,982 (14,355) 10,225
- -------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
INTERMEDIATE TERM BOND FUND
-----------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS A CLASS B CLASS C CLASS I
------- ------- ------- ------- ------- ------- ------- -------
YEAR ENDED YEAR ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005
Shares sold 289 70 62 2,213 380 275 140 1,933
- ---------------------------------------------------------------------------------------------------------------------------------
Share issued in connection with acquisition of
Strategic Value Fund (a) -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of dividends and
distributions 32 8 3 432 23 8 3 401
- ---------------------------------------------------------------------------------------------------------------------------------
321 78 65 2,645 403 283 143 2,334
Shares redeemed (279) (126) (91) (1,607) (384) (109) (61) (5,955)
- ---------------------------------------------------------------------------------------------------------------------------------
Shares converted (See Note 1) 101 (101) -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 143 (149) (26) 1,038 19 174 82 (3,621)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
BALANCED FUND
------------------------------------------------------------
CLASS R1 CLASS R2 CLASS R3+ CLASS R1 CLASS R2
-------- -------- ---------------- -------- --------
APRIL 28, 2006*
YEAR ENDED THROUGH YEAR ENDED
OCTOBER 31, 2006 OCTOBER 31, 2006 OCTOBER 31, 2005
Shares sold 1,445 2,354 --(b) 2,002 3,078
- --------------------------------------------------------------------------------------------------------------------------
Share issued in connection with acquisition of Strategic
Value Fund (a) -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of dividends and distributions 202 182 --(b) 65 37
- --------------------------------------------------------------------------------------------------------------------------
1,647 2,536 --(b) 2,067 3,115
Shares redeemed (630) (1,242) -- (388) (1,242)
- --------------------------------------------------------------------------------------------------------------------------
Shares converted (See Note 1) -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 1,017 1,294 --(b) 1,679 1,873
- --------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
GROWTH ALLOCATION FUND
-----------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS A CLASS B CLASS C CLASS I
------- ------- ------- ------- ------- ------- ------- -------
PERIOD FROM APRIL 4, 2005
YEAR ENDED THROUGH
OCTOBER 31, 2006 OCTOBER 31, 2005
Shares sold 3,591 1,998 764 1 1,034 785 93 1
- ---------------------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of dividends and
distributions 18 10 3 --(b) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
3,609 2,008 767 1 1,034 785 93 1
Shares redeemed (337) (243) (132) (1) (15) (7) (7) --
- ---------------------------------------------------------------------------------------------------------------------------------
Shares converted (See Note 1) 222 (223) -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase 3,494 1,542 635 --(b) 1,019 778 86 1
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
* Commencement of Operations.
+ Class R3 commenced operations on April 28, 2006.
(a) On February 11, 2005 and pursuant to shareholder approval, the assets and
liabilities of the MainStay Strategic Value Fund were acquired by the
MainStay Balanced Fund.
(b) Less than one thousand shares.
290 MainStay Funds
<Table>
<Caption>
FLOATING RATE FUND INDEXED BOND FUND
----------------------------------------------------------------------------- -------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS A CLASS B CLASS C CLASS I CLASS A CLASS I CLASS A CLASS I
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005 OCTOBER 31, 2006 OCTOBER 31, 2005
46,390 2,143 14,304 4,051 44,145 4,013 12,798 744 2,256 10,784 3,351 9,555
- -------------------------------------------------------------------------------------------------------------------------
2,287 212 670 235 933 140 280 18 194 1,265 206 925
- -------------------------------------------------------------------------------------------------------------------------
48,677 2,355 14,974 4,286 45,078 4,153 13,078 762 2,450 12,049 3,557 10,480
(31,302) (1,449) (7,372) (406) (19,862) (1,739) (4,814) (62) (3,613) (6,146) (1,877) (4,488)
- -------------------------------------------------------------------------------------------------------------------------
1,747 (1,747) -- -- -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
19,122 (841) 7,602 3,880 25,216 2,414 8,264 700 (1,163) 5,903 1,680 5,992
- -------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SHORT TERM BOND FUND BALANCED FUND
------------------------------------- -----------------------------------------------------------------------------
CLASS A CLASS I CLASS A CLASS I CLASS A CLASS B CLASS C CLASS I CLASS A CLASS B CLASS C CLASS I
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005 OCTOBER 31, 2006 OCTOBER 31, 2005
166 1,138 352 878 5,322 1,291 2,098 6,380 8,053 4,414 4,412 4,686
- -------------------------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- -- -- 593 1,401 60 --
- -------------------------------------------------------------------------------------------------------------------------
15 120 12 110 656 382 217 713 157 75 32 269
- -------------------------------------------------------------------------------------------------------------------------
181 1,258 364 988 5,978 1,673 2,315 7,093 8,803 5,890 4,504 4,955
(319) (2,586) (254) (1,787) (4,480) (1,592) (1,487) (3,627) (1,630) (693) (393) (2,033)
- -------------------------------------------------------------------------------------------------------------------------
-- -- -- -- 2,141 (2,145) -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
(138) (1,328) 110 (799) 3,639 (2,064) 828 3,466 7,173 5,197 4,111 2,922
- -------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
INCOME MANAGER FUND CONSERVATIVE ALLOCATION FUND
----------------------------------------------------------------------------- -------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS A CLASS B CLASS C CLASS I CLASS A CLASS B CLASS C CLASS I
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005 OCTOBER 31, 2006
1,485 434 324 2,774 2,069 1,305 295 2,327 2,658 965 603 55
- -------------------------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
208 61 11 803 65 20 3 267 88 23 11 1
- -------------------------------------------------------------------------------------------------------------------------
1,693 495 335 3,577 2,134 1,325 298 2,594 2,746 988 614 56
(3,054) (487) (151) (3,513) (1,009) (297) (103) (3,241) (679) (223) (151) (1)
- -------------------------------------------------------------------------------------------------------------------------
658 (665) -- -- -- -- -- -- 411 (413) -- --
- -------------------------------------------------------------------------------------------------------------------------
(703) (657) 184 64 1,125 1,028 195 (647) 2,478 352 463 55
- -------------------------------------------------------------------------------------------------------------------------
<Caption>
CONSERVATIVE ALLOCATION FUND
-------------------------------------
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
PERIOD FROM APRIL 4, 2005*
THROUGH
OCTOBER 31, 2005
1,339 920 291 1
- ---
-- -- -- --
- ---
4 2 -- --
- ---
1,343 922 291 1
(34) (28) (6) --
- ---
-- -- -- --
- ---
1,309 894 285 1
- ---
</Table>
<Table>
<Caption>
MODERATE ALLOCATION FUND MODERATE GROWTH ALLOCATION FUND
----------------------------------------------------------------------------- -------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS A CLASS B CLASS C CLASS I CLASS A CLASS B CLASS C CLASS I
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
PERIOD FROM APRIL 4, 2005*
YEAR ENDED THROUGH YEAR ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005 OCTOBER 31, 2006
7,011 2,808 1,257 8 2,445 1,954 292 1 7,479 3,558 1,255 --
- -------------------------------------------------------------------------------------------------------------------------
133 35 11 --(b) 4 1 -- -- 108 40 13 --(b)
- -------------------------------------------------------------------------------------------------------------------------
7,144 2,843 1,268 8 2,449 1,955 292 1 7,587 3,598 1,268 --(b)
(890) (506) (211) --(b) (123) (48) (6) -- (843) (432) (241) --
- -------------------------------------------------------------------------------------------------------------------------
909 (912) -- -- -- -- -- -- 695 (699) -- --
- -------------------------------------------------------------------------------------------------------------------------
7,163 1,425 1,057 8 2,326 1,907 286 1 7,439 2,467 1,027 --(b)
- -------------------------------------------------------------------------------------------------------------------------
<Caption>
MODERATE GROWTH ALLOCATION FUND
-------------------------------------
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
PERIOD FROM APRIL 4, 2005*
THROUGH
OCTOBER 31, 2005
2,209 1,698 327 1
- ---
-- -- -- --
- ---
2,209 1,698 327 1
(47) (23) (5) --
- ---
-- -- -- --
- ---
2,162 1,675 322 1
- ---
</Table>
NOTE 13--OTHER MATTERS:
The SEC 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. 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 Eclipse Funds Inc. or Eclipse Funds.
www.mainstayfunds.com 291
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--NEW ACCOUNTING PRONOUNCEMENTS:
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN
48 provides guidance for how uncertain tax provisions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Fund's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006 and is to be applied
to all open tax years as of the effective date, Management of the Funds is
currently evaluating the impact that FIN 48 will have on the Fund's financial
statements.
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement on Financial Accounting Standards (SFAS) No. 157, "Fair Value
Measurements." This standard establishes a single authoritative definition of
"fair value," sets out a framework for measuring fair value and requires
additional disclosures about fair value measurements. SFAS No. 157 applies to
fair value measurements already required or permitted by existing standards.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years.
The changes to current generally accepted accounting principles from the
application of this Statement relate to the definition of fair value, the
methods used to measure fair value, and the expanded disclosures about fair
value measurements. As of October 31, 2006, the Funds do not believe the
adoption of SFAS No. 157 will impact the amounts reported in the financial
statements, however, additional disclosures may be required about the inputs
used to develop the measurements and the effect of certain measurements reported
in the financial statements for a fiscal period.
292 MainStay Funds
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, MainStay Income Manager (formerly MainStay
Asset Manager), MainStay Conservative Allocation, MainStay Growth Allocation,
MainStay Moderate Allocation, and MainStay Moderate Growth Allocation Funds, and
Eclipse Funds, comprising the MainStay Mid Cap Opportunity, MainStay Small Cap
Opportunity and MainStay Balanced Funds, (each a "Fund" and collectively, the
"Funds"), as of October 31, 2006, and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the
years or periods in the two-year period then ended, and the financial highlights
for each of the years or periods in the four-year 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 year or period ended 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
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, 2006, 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
Fund as of October 31, 2006, the results of their operations for the year then
ended, the changes in their net assets for each of the years or periods in the
two-year period then ended, and the financial highlights for each of the years
or periods in the four-year period then ended, in conformity with U.S. generally
accepted accounting principles.
/s/ KPMG LLP
Philadelphia, Pennsylvania
December 21, 2006
www.mainstayfunds.com 293
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, 2006), 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 $ 3,799,462
- ----------------------------------------------------------------
Small Cap Opportunity Fund $ 28,197,984
- ----------------------------------------------------------------
Balanced Fund $ 33,322,455
- ----------------------------------------------------------------
</Table>
A portion of the dividends paid by the following Funds during the fiscal year
ended October 31, 2006 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, qualified interest income and for the
corporate dividend-received deduction.
<Table>
<Caption>
QDI% QII% DRD%
All Cap Value 45.7% 0.4% 50.0%
- ---------------------------------------------------------------------------
Mid Cap Opportunity 40.8% -- 52.9%
- ---------------------------------------------------------------------------
S&P 500 Index 100.0% 1.1% 100.0%
- ---------------------------------------------------------------------------
Cash Reserves -- 99.9% --
- ---------------------------------------------------------------------------
Floating Rate -- 5.8% --
- ---------------------------------------------------------------------------
Indexed Bond -- 93.1% --
- ---------------------------------------------------------------------------
Intermediate Term Bond -- 85.6% --
- ---------------------------------------------------------------------------
Short Term Bond -- 97.4% --
- ---------------------------------------------------------------------------
Balanced 31.9% 25.2% 35.9%
- ---------------------------------------------------------------------------
Income Manager 45.6% 26.3% 55.4%
- ---------------------------------------------------------------------------
Conservative Allocation 3.3% -- 3.3%
- ---------------------------------------------------------------------------
Growth Allocation 5.2% -- 4.5%
- ---------------------------------------------------------------------------
Moderate Allocation 3.9% -- 3.6%
- ---------------------------------------------------------------------------
Moderate Growth Allocation 6.3% -- 5.7%
- ---------------------------------------------------------------------------
</Table>
In January 2007, 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 2006. 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, 2006.
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
A description of the policies and procedures that NYLIM uses to vote proxies
related to the Funds' securities is available without charge, upon request, (i)
by visiting the Funds' website at www.mainstayfunds.com; and (ii) 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 also can
obtain and review copies of Form N-Q by visiting the SEC's Public Reference Room
in Washington, DC (information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330).
294 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 as of October 31, 2006, is set
forth below. Each Board Member serves until his or her successor is elected and
qualified or until his or 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.
The Statements of Additional Information applicable to the Funds include
additional information about the Board Members and are available without charge,
upon request, by calling 1-800-MAINSTAY (1-800-624-6782).
<Table>
<Caption>
TERM OF OFFICE, NUMBER OF FUNDS OTHER
POSITION(S) HELD IN FUND COMPLEX DIRECTORSHIPS
NAME AND WITH FUNDS AND PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
DATE OF BIRTH LENGTH OF SERVICE DURING PAST FIVE YEARS BOARD MEMBER BOARD MEMBER
------------------------------------------------------------------------------------------------------------------------
BOARD MEMBERS
LAWRENCE GLACKEN Indefinite; Retired. 21 Director, ICAP
10/22/27 Director since Funds, Inc., since
1990 and Trustee August 2006
since 2000
------------------------------------------------------------------------------------------------------------------------
PETER MEENAN Indefinite; Independent Consultant; President and 21 Director and Audit
12/5/41 Director and Chief Executive Officer, Babson-United, Committee Financial
Trustee since Inc. (financial services firm) (2000 to Expert, ICAP Funds,
2002 and Audit 2004); Independent Consultant (1999 to Inc., since August
Committee 2000); Head of Global Funds, Citicorp 2006
Financial Expert (1995 to 1999).
since 2003
------------------------------------------------------------------------------------------------------------------------
ROBERT P. Indefinite; Retired. 21 Director, ICAP
MULHEARN Director since Funds, Inc., since
3/11/47 1990 and Trustee August 2006
since 2000
------------------------------------------------------------------------------------------------------------------------
SUSAN B. KERLEY Indefinite; Partner, Strategic Management Advisors 21 Chairman and
8/12/51 Chairman since LLC (1990 to present). Director, ICAP
2005, Director Funds, Inc., since
since 1990 and August 2006;
Trustee since Trustee, Legg Mason
2000 Partners Funds,
Inc.
------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
TERM OF OFFICE,
POSITION(S) HELD
NAME AND WITH FUNDS AND PRINCIPAL OCCUPATION(S)
DATE OF BIRTH LENGTH OF SERVICE DURING PAST FIVE YEARS
-------------------------------------------------------------------------------------------------
OFFICERS
ROBERT A. Chief Legal Senior Managing Director, General Counsel and Secretary, New
ANSELMI Officer since York Life Investment Management LLC (including predecessor
10/19/46 2003 advisory organizations) and New York Life Investment
Management Holdings LLC; Senior Vice President, New York
Life Insurance Company; Vice President and Secretary,
McMorgan & Company LLC; Secretary, NYLIM Service Company
LLC, NYLCAP Manager LLC, Madison Capital Funding LLC and
Institutional Capital LLC (since October 2006); Chief Legal
Officer, The MainStay Funds and MainStay VP Series Fund,
Inc. (since 2003), McMorgan Funds (since 2005) and ICAP
Funds, Inc. (since August 2006); Managing Director and
Senior Counsel, Lehman Brothers Inc. (1998 to 1999); General
Counsel and Managing Director, JP Morgan Investment
Management Inc. (1986 to 1998).
-------------------------------------------------------------------------------------------------
ARPHIELA Treasurer and Managing Director, Mutual Fund Accounting (since September
ARIZMENDI Principal 2006) and Director and Manager of Fund Accounting and
10/26/56 Financial and Administration (2003 to August 2006), New York Life
Accounting Investment Management LLC; Treasurer and Principal Financial
Officer since and Accounting Officer, The MainStay Funds and McMorgan
2005 Funds (since 2005), MainStay VP Series Fund, Inc. (since
March 2006) and ICAP Funds, Inc. (since August 2006);
Assistant Treasurer, NYLIFE Distributors LLC; Assistant
Treasurer, The MainStay Funds, Eclipse Funds, Eclipse Funds
Inc., MainStay VP Series Fund, Inc., and McMorgan Funds
(1992 to 2005).
-------------------------------------------------------------------------------------------------
</Table>
www.mainstayfunds.com 295
<Table>
<Caption>
TERM OF OFFICE,
POSITION(S) HELD
NAME AND WITH FUNDS AND PRINCIPAL OCCUPATION(S)
DATE OF BIRTH LENGTH OF SERVICE DURING PAST FIVE YEARS
-------------------------------------------------------------------------------------------------
OFFICERS
CHRISTOPHER O. President since Executive Vice President, New York Life Investment
BLUNT 2005 Management LLC and New York Life Investment Management
5/13/62 Holdings LLC (since 2004); Manager and Executive Vice
President, NYLIM Product Distribution, NYLIFE Distributors
LLC (since 2005); Chairman, NYLIM Service Company LLC (since
2005); Chairman and Class C Director, New York Life Trust
Company, FSB (since 2004); Chairman, New York Life Trust
Company (since 2005); President, The MainStay Funds (since
2005), MainStay VP Series Fund, Inc. (since July 2006) and
ICAP Funds, Inc. (since August 2006); Chairman and Chief
Executive Officer, Giving Capital, Inc. (2001 to 2004);
Chief Marketing Officer--Americas, Merrill Lynch Investment
Managers (1999 to 2001); President, Mercury Funds
Distributors (1999 to 2001).
-------------------------------------------------------------------------------------------------
PATRICK G. BOYLE Executive Vice Executive Vice President (since 2002) and Senior Managing
11/24/53 President since Director (2000 to 2002), New York Life Investment Management
2003 LLC (including predecessor advisory organizations) and New
York Life Investment Management Holdings LLC; Director, New
York Life Trust Company; Member of the Board of Managers,
Madison Capital Funding LLC; Executive Vice President, ICAP
Funds, Inc. (since August 2006); Senior Vice President,
Pension Department, New York Life Insurance Company (1991 to
2000); Director, Eclipse Funds Inc. (1990 to 2003); Trustee,
New York Life Investment Management Institutional Funds
(2002 to 2003).
-------------------------------------------------------------------------------------------------
TONY H. ELAVIA Senior Vice Senior Managing Director, New York Life Investment
1/11/56 President since Management LLC; Chief Investment Officer, NYLIM Equity
2005 Investors Group; Executive Vice President, New York Life
Trust Company; Senior Vice President, New York Life
Insurance and Annuity Corporation; Senior Vice President,
ICAP Funds, Inc. (since August 2006); Managing Director and
Senior Portfolio Manager, Large Cap Growth team, Putnam
Investments (1998 to 2004).
-------------------------------------------------------------------------------------------------
SCOTT T. Vice President-- Director, New York Life Investment Management LLC (including
HARRINGTON Administration predecessor advisory organizations); Executive Vice
2/8/59 since 2005 President, New York Life Trust Company and New York Life
Trust Company, FSB (since January 2006); Vice
President--Administration, MainStay VP Series Fund, Inc.,
and The MainStay Funds (since 2005) and ICAP Funds, Inc.
(since August 2006).
-------------------------------------------------------------------------------------------------
ALAN J. Senior Vice Managing Director, Chief Operating Officer and Chief
KIRSHENBAUM President since Financial Officer of Retail Investments, New York Life
6/25/71 June 2006 Investment Management LLC (since July 2006); Senior Vice
President, The MainStay Funds and MainStay VP Series Fund,
Inc. (since June 2006) and ICAP Funds, Inc. (since August
2006); Chief Financial Officer, Bear Stearns Asset
Management (1999 to May 2006).
-------------------------------------------------------------------------------------------------
ALISON H. Vice President-- Senior Managing Director and Chief Compliance Officer (since
MICUCCI Compliance 2004 March 2006) and Managing Director and Chief Compliance
12/16/65 to 2006; Senior Officer (2003 to February 2006), New York Life Investment
Vice President Management LLC and New York Life Investment Management
and Chief Holdings LLC; Senior Managing Director, Compliance (since
Compliance March 2006) and Managing Director, Compliance (2003 to
Officer since February 2006), NYLIFE Distributors LLC; Chief Compliance
June 2006 Officer, NYLCAP Manager LLC; Senior Vice President and Chief
Compliance Officer, The MainStay Funds and MainStay VP
Series Fund, Inc. (since June 2006) and ICAP Funds, Inc.
(since August 2006); Vice President--Compliance, The
MainStay Funds and MainStay VP Series Fund, Inc. (until June
2006); Deputy Chief Compliance Officer, New York Life
Investment Management LLC (2002 to 2003); Vice President and
Compliance Officer, Goldman Sachs Asset Management (1999 to
2002).
-------------------------------------------------------------------------------------------------
MARGUERITE E. H. Secretary since Managing Director and Associate General Counsel, New York
MORRISON 2004 Life Investment Management LLC (since 2004); Managing
3/26/56 Director and Secretary, NYLIFE Distributors LLC; Secretary,
The MainStay Funds and MainStay VP Series Fund, Inc. (since
2004) and ICAP Funds, Inc. (since August 2006); Chief Legal
Officer--Mutual Funds and Vice President and Corporate
Counsel, The Prudential Insurance Company of America (2000
to 2004).
-------------------------------------------------------------------------------------------------
BRIAN A. MURDOCK Chief Executive Member of the Board of Managers and President (since 2004)
3/14/56 Officer since and Chief Executive Officer (since July 2006), New York Life
July 2006 Investment Management LLC and New York Life Investment
Management Holdings LLC; Senior Vice President, New York
Life Insurance Company (since 2004); Chairman of the Board
and President, NYLIFE Distributors LLC (since 2004); Member
of the Board of Managers, Madison Capital Funding LLC (since
2004), NYLCAP Manager LLC (since 2004) and Institutional
Capital LLC (since July 2006); Chairman and Trustee (since
September 2006) and Chief Executive Officer (since July
2006), The MainStay Funds; Chairman and Director (since
September 2006) and Chief Executive Officer (since July
2006), MainStay VP Series Fund, Inc.; Director and Chief
Executive Officer, ICAP Funds, Inc. (since August 2006);
Chief Operating Officer, Merrill Lynch Investment Managers
(2003 to 2004); Chief Investment Officer, MLIM Europe and
Asia (2001 to 2003); President, Merrill Japan and Chairman,
MLIM Pacific Region (1999 to 2001).
-------------------------------------------------------------------------------------------------
</Table>
296 MainStay Funds
This page intentionally left blank
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 Capital Appreciation Fund
MainStay Common Stock Fund
MainStay Equity Index Fund(1)
MainStay Growth Equity Fund(2)
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund
MainStay Large Cap Opportunity Fund(2)
MainStay MAP Fund
MainStay Mid Cap Growth Fund
MainStay Mid Cap Opportunity Fund
MainStay Mid Cap Value Fund
MainStay S&P 500 Index Fund
MainStay Small Cap Growth Fund
MainStay Small Cap Opportunity Fund(3)
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 Balanced Fund
MainStay Convertible Fund
MainStay Income Manager Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay Global High Income Fund
MainStay ICAP International Fund
MainStay International Equity Fund
ASSET ALLOCATION FUNDS
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
MANAGER
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
Parsippany, New Jersey
SUBADVISORS
INSTITUTIONAL CAPITAL LLC(4)
Chicago, Illinois
MACKAY SHIELDS LLC(4)
New York, New York
MARKSTON INTERNATIONAL LLC
White Plains, New York
WINSLOW CAPITAL MANAGEMENT, INC.
Minneapolis, Minnesota
LEGAL COUNSEL
DECHERT LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
PLEASE CONTACT YOUR INVESTMENT PROFESSIONAL OR CALL 1-800-MAINSTAY
(1-800-624-6782) FOR A FREE PROSPECTUS. INVESTORS ARE ASKED TO CONSIDER THE
INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES OF THE INVESTMENT
CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION
ABOUT THE INVESTMENT COMPANY. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE
INVESTING.
1. Closed to new investors and new purchases as of January 1, 2002.
2. Offered only to residents of Connecticut, Maryland, New Jersey, and New York.
3. Closed to new investors as of June 1, 2006.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Annual Report
(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 be distributed only when preceded or accompanied
by a current Fund prospectus.
www.mainstayfunds.com SEC File Number: 811-04847 (Eclipse Funds)
(C) 2006 by NYLIFE Distributors LLC. All rights reserved.
SEC File Number: 811-06175 (Eclipse Funds Inc.)
NYLIM-AO9805 (RECYCLE LOGO) MS377-06 MS11g-12/06
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"). The Code was
amended during the period covered by the report to designate new individuals as
the PEO and PFO; a copy of the amended Code is filed herewith. The Registrant
did not grant any waivers, including implicit waivers, from any provisions of
the Code to the PEO or PFO during the period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Directors 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 the fiscal year ended October 31, 2006 for
professional services rendered by KPMG LLP ("KPMG") for the audit of the
Registrant's annual financial statements or services that are normally provided
by KPMG in connection with statutory and regulatory filings or engagements for
that fiscal year were $95,119. The aggregate fees billed for the fiscal period
ended October 31, 2005 for professional services rendered by KPMG for the audit
of the Registrant's annual financial statements or services that were normally
provided by the KPMG in connection with the statutory and regulatory filings or
engagements for that fiscal year were $83,575.
(b) Audit Related Fees
The aggregate fees billed for the fiscal year ended October 31, 2006 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 $0. The aggregate fees billed
for the fiscal year ended October 31, 2005 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 $0. These audit-related services include review of financial
highlights for the Registrant's registration statements and issuance of consents
to use KPMG's reports.
(c) Tax Fees
The aggregate fees billed for professional services rendered by KPMG for
tax compliance, tax advice, and tax planning were (i) $11,892 during the fiscal
year ended October 31, 2006, and (ii) $9,500 during the fiscal year ended
October 31, 2005. These services included preparation of and advice relating to
federal, state and local income tax returns and excise tax returns, as well as
services relating to excise tax distribution requirements.
(d) All Other Fees
The aggregate fees billed for the fiscal year ended October 31, 2006 for
products and services provided by KPMG, other than the services reported in
paragraphs (a) through (c) of this Item were $0. The aggregate fees billed
for the fiscal year ended October 31, 2005 for products and services provided by
KPMG, other than the services reported in paragraphs (a) through (c) of this
Item were $0.
(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 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, 2006 and October 31, 2005 are disclosed
in 4(b)-(d) above.
The aggregate non-audit fees billed by KPMG for services rendered to the
Registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the Registrant were
approximately: (i) $25,000 for the fiscal year ended October 31, 2006 and (ii)
$15,000 for the fiscal year ended October 31, 2005.
(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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 11. 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 12. EXHIBITS.
(a) 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 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ECLIPSE FUNDS
By: /s/ Christopher O. Blunt
---------------------------------
CHRISTOPHER O. BLUNT
President
Date: January 8, 2007
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/ Christopher O. Blunt
---------------------------------
CHRISTOPHER O. BLUNT
President
Date: January 8, 2007
By: /s/ Arphiela Arizmendi
---------------------------------
ARPHIELA ARIZMENDI
Treasurer and Principal Financial
and Accounting Officer
Date: January 8, 2007
EXHIBIT INDEX
(a) 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.