================================================================================
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, 2007
================================================================================
ITEM 1. REPORTS TO STOCKHOLDERS.
(MAINSTAY INVESTMENTS LOGO)
MAINSTAY
BALANCED FUND
Message from the President
and
Annual Report
October 31, 2007
MESSAGE FROM
THE PRESIDENT
The 12-month period ended October 31, 2007, was a dynamic one for mutual fund
investors. U.S. equity markets generally advanced, with growth stocks out-
performing value stocks at all capitalization levels. Although past performance
is no guarantee of future results, international stocks as a whole provided even
stronger returns for U.S. investors.
The progress of the equity markets, however, was far from steady. In February,
weakness in Asian markets led to sharp price declines around the globe. The
correction caused many investors to reconsider whether China and other emerging
economies could sustain their rapid growth. Fortunately, strong
corporate-earnings reports and positive economic news helped the stock market
regain its footing.
In July and August, difficulties in the subprime-mortgage market led to another
stock-market correction. A number of high-profile mortgage originators either
closed their doors or were sold to larger entities. Other leading financial
services firms faced major write-offs because of subprime-mortgage exposure.
The Federal Open Market Committee (FOMC) took prompt action to increase
liquidity and stabilize the financial markets by lowering the discount rate and
the federal funds target rate during the reporting period. These Federal Reserve
moves helped calm investor concerns, and the stock market generally advanced
from August 16, 2007, the date of an unscheduled FOMC meeting, through the end
of October 2007.
Difficulties in the subprime-mortgage market led to a "flight to quality," or a
general movement toward fixed-income securities that carry lower risk. As demand
for short- and intermediate-term Treasury securities increased, yields fell
across much of the maturity spectrum. Yields rose, however, on 20-and 30-year
Treasury bonds, and the yield curve steepened during the 12-month reporting
period.
High-yield bonds rallied from November 2006 through May 2007. But in June and
July, the yield differences--or spreads--between high-yield bonds and comparable
Treasury securities began to widen. At the end of October 2007, these spreads
were wider than when the reporting period began, making high-yield securities
more attractive to investors willing to accept higher risk.
To help investors address the challenges of today's ever-changing markets, New
York Life Investment Management LLC provides access to seven institutional
investment boutiques, each with its own proprietary research and investment
culture. As advisors and subadvisors to MainStay Funds, these boutiques bring a
wealth of experience and market insight to our shareholders. The portfolio
managers of each MainStay Fund seek to consistently apply time-tested investment
principles across a wide variety of market environments.
The report that follows provides more specific information about the market
forces and investment decisions that affected your investment in MainStay Funds
from November 1, 2006, through October 31, 2007. Please read the report
carefully. As you do, bear in mind that this annual report reflects just a short
segment of your lifetime investment journey. We look forward to continuing to
work with you, wherever that journey may lead.
Sincerely,
/s/ STEPHEN P. FISHER
Stephen P. Fisher
President
Not part of the Annual Report
(MAINSTAY INVESTMENTS LOGO)
MAINSTAY
BALANCED FUND
MainStay Funds
Annual Report
October 31, 2007
TABLE OF CONTENTS
<Table>
Annual Report
- --------------------------------------------------------------------------------
Investment and Performance Comparison 5
- --------------------------------------------------------------------------------
Portfolio Management Discussion and Analysis 10
- --------------------------------------------------------------------------------
Portfolio of Investments 12
- --------------------------------------------------------------------------------
Financial Statements 20
- --------------------------------------------------------------------------------
Notes to Financial Statements 26
- --------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm 33
- --------------------------------------------------------------------------------
Federal Income Tax Information 34
- --------------------------------------------------------------------------------
Proxy Voting Policies and Procedures and Proxy Voting Record 34
- --------------------------------------------------------------------------------
Shareholder Reports and Quarterly Portfolio Disclosure 34
- --------------------------------------------------------------------------------
Special Meeting of Shareholders 34
- --------------------------------------------------------------------------------
Trustees and Officers 35
</Table>
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, AND AS A RESULT, WHEN SHARES ARE REDEEMED, THEY 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.
CLASS A SHARES--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- -----------------------------------------------
With sales charges 0.49% 9.36% 6.99%
Excluding sales charges 6.34 10.60 7.60
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY RUSSELL MIDCAP BALANCED ML CORP GOVT 1- RUSSELL MIDCAP
BALANCED FUND VALUE INDEX COMPOSITE 10 INDEX
------------- -------------- --------- --------------- --------------
10/31/97 9450.00 10000.00 10000.00 10000.00 10000.00
10170.00 10574.00 10771.00 10919.00 10446.00
10175.00 11177.00 11199.00 11018.00 12235.00
11068.00 12501.00 12319.00 11737.00 15137.00
11651.00 12329.00 12925.00 13408.00 12410.00
11875.00 11963.00 13062.00 14205.00 11414.00
14229.00 15968.00 15903.00 14941.00 15509.00
15374.00 19120.00 18029.00 15571.00 17849.00
16751.00 22848.00 20132.00 15628.00 21078.00
18484.00 27535.00 22947.00 16356.00 24748.00
10/31/07 19656.00 30213.00 24827.00 17274.00 28518.00
</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 0.56% 9.53% 6.81%
Excluding sales charges 5.56 9.81 6.81
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY RUSSELL MIDCAP BALANCED ML CORP GOVT 1- RUSSELL MIDCAP
BALANCED FUND VALUE INDEX COMPOSITE 10 INDEX
------------- -------------- --------- --------------- --------------
10/31/97 10000.00 10000.00 10000.00 10000.00 10000.00
10686.00 10574.00 10771.00 10919.00 10446.00
10613.00 11177.00 11199.00 11018.00 12235.00
11460.00 12501.00 12319.00 11737.00 15137.00
11971.00 12329.00 12925.00 13408.00 12410.00
12109.00 11963.00 13062.00 14205.00 11414.00
14404.00 15968.00 15903.00 14941.00 15509.00
15459.00 19120.00 18029.00 15571.00 17849.00
16725.00 22848.00 20132.00 15628.00 21078.00
18312.00 27535.00 22947.00 16356.00 24748.00
10/31/07 19330.00 30213.00 24827.00 17274.00 28518.00
</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 4.56% 9.81% 6.81%
Excluding sales charges 5.56 9.81 6.81
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY RUSSELL MIDCAP BALANCED ML CORP GOVT 1- RUSSELL MIDCAP
BALANCED FUND VALUE INDEX COMPOSITE 10 INDEX
------------- -------------- --------- --------------- --------------
10/31/97 10000.00 10000.00 10000.00 10000.00 10000.00
10687.00 10574.00 10771.00 10919.00 10446.00
10613.00 11177.00 11199.00 11018.00 12235.00
11462.00 12501.00 12319.00 11737.00 15137.00
11973.00 12329.00 12925.00 13408.00 12410.00
12110.00 11963.00 13062.00 14205.00 11414.00
14414.00 15968.00 15903.00 14941.00 15509.00
15466.00 19120.00 18029.00 15571.00 17849.00
16726.00 22848.00 20132.00 15628.00 21078.00
18314.00 27535.00 22947.00 16356.00 24748.00
10/31/07 19332.00 30213.00 24827.00 17274.00 28518.00
</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 maximum applicable sales charges explained in this paragraph, change in
share price, and reinvestment of dividend and capital-gain distributions. 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.
www.mainstayfunds.com 5
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- -----------------------------------------------
6.77% 11.04% 7.94%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY RUSSELL MIDCAP BALANCED ML CORP GOVT 1- RUSSELL MIDCAP
BALANCED FUND VALUE INDEX COMPOSITE 10 INDEX
------------- -------------- --------- --------------- --------------
10/31/97 10000.00 10000.00 10000.00 10000.00 10000.00
10789.00 10574.00 10771.00 10919.00 10446.00
10818.00 11177.00 11199.00 11018.00 12235.00
11798.00 12501.00 12319.00 11737.00 15137.00
12450.00 12329.00 12925.00 13408.00 12410.00
12721.00 11963.00 13062.00 14205.00 11414.00
15282.00 15968.00 15903.00 14941.00 15509.00
16573.00 19120.00 18029.00 15571.00 17849.00
18142.00 22848.00 20132.00 15628.00 21078.00
20109.00 27535.00 22947.00 16356.00 24748.00
10/31/07 21470.00 30213.00 24827.00 17274.00 28518.00
</Table>
CLASS R1 SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- -----------------------------------------------
6.64% 10.91% 7.82%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY RUSSELL MIDCAP BALANCED ML CORP GOVT 1- RUSSELL MIDCAP
BALANCED FUND VALUE INDEX COMPOSITE 10 INDEX
------------- -------------- --------- --------------- --------------
10/31/97 10000.00 10000.00 10000.00 10000.00 10000.00
10778.00 10574.00 10771.00 10919.00 10446.00
10795.00 11177.00 11199.00 11018.00 12235.00
11761.00 12501.00 12319.00 11737.00 15137.00
12398.00 12329.00 12925.00 13408.00 12410.00
12656.00 11963.00 13062.00 14205.00 11414.00
15187.00 15968.00 15903.00 14941.00 15509.00
16455.00 19120.00 18029.00 15571.00 17849.00
17990.00 22848.00 20132.00 15628.00 21078.00
19915.00 27535.00 22947.00 16356.00 24748.00
10/31/07 21238.00 30213.00 24827.00 17274.00 28518.00
</Table>
CLASS R2 SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- -----------------------------------------------
6.40% 10.63% 7.56%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY RUSSELL MIDCAP BALANCED ML CORP GOVT 1- RUSSELL MIDCAP
BALANCED FUND VALUE INDEX COMPOSITE 10 INDEX
------------- -------------- --------- --------------- --------------
10/31/97 10000.00 10000.00 10000.00 10000.00 10000.00
10751.00 10574.00 10771.00 10919.00 10446.00
10740.00 11177.00 11199.00 11018.00 12235.00
11676.00 12501.00 12319.00 11737.00 15137.00
12279.00 12329.00 12925.00 13408.00 12410.00
12503.00 11963.00 13062.00 14205.00 11414.00
14967.00 15968.00 15903.00 14941.00 15509.00
16168.00 19120.00 18029.00 15571.00 17849.00
17632.00 22848.00 20132.00 15628.00 21078.00
19473.00 27535.00 22947.00 16356.00 24748.00
10/31/07 20720.00 30213.00 24827.00 17274.00 28518.00
</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 Trustees. The Manager may recoup the amount of
certain management fee waivers or expense reimbursements from the Fund pursuant
to the contract 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
THE DISCLOSURE ON THE PRECEDING PAGE AND THE DISCLOSURE AND FOOTNOTES ON THE
FOLLOWING PAGE ARE AN INTEGRAL PART OF THE TABLES AND GRAPHS AND SHOULD BE
CAREFULLY READ IN CONJUNCTION WITH THEM.
6 MainStay Balanced Fund
CLASS R3 SHARES--NO SALES CHARGES
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- -----------------------------------------------
6.10% 10.36% 7.29%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY RUSSELL MIDCAP BALANCED ML CORP GOVT 1- RUSSELL MIDCAP
BALANCED FUND VALUE INDEX COMPOSITE 10 INDEX
------------- -------------- --------- --------------- --------------
10/31/97 10000.00 10000.00 10000.00 10000.00 10000.00
10724.00 10574.00 10771.00 10919.00 10446.00
10689.00 11177.00 11199.00 11018.00 12235.00
11588.00 12501.00 12319.00 11737.00 15137.00
12154.00 12329.00 12925.00 13408.00 12410.00
12345.00 11963.00 13062.00 14205.00 11414.00
14741.00 15968.00 15903.00 14941.00 15509.00
15891.00 19120.00 18029.00 15571.00 17849.00
17291.00 22848.00 20132.00 15628.00 21078.00
19049.00 27535.00 22947.00 16356.00 24748.00
10/31/07 20211.00 30213.00 24827.00 17274.00 28518.00
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
- --------------------------------------------------------------------------------
Russell Midcap(R) Value Index(1) 9.73% 20.36% 11.69%
Balanced Composite Index(2) 8.19 13.71 9.52
Merrill Lynch Corporate & Government 1-10 Years Bond
Index(3) 5.61 3.99 5.62
Russell Midcap(R) Index(4) 15.24 20.10 11.05
Average Lipper mixed-asset target allocation growth
fund(5) 13.51 11.74 6.61
</Table>
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 upon initial offer. Prior to 4/28/06,
the performance for Class R3 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 1/2/04, all outstanding Class L shares of the Fund were
converted to Class C shares, redesignated Class C shares or both.
1. The Russell Midcap(R) Value Index is an unmanaged index that measures the
performance of those Russell Midcap companies with lower price-to-book ratios
and lower forecasted growth values. Results 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 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%. 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.
3. 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.
4. 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.
5. Lipper Inc. is an independent monitor of fund performance. Results are based
on total returns with all dividend and capital-gain distributions reinvested.
THE DISCLOSURE ON THE PRECEDING TWO PAGES IS AN INTEGRAL PART OF THE TABLES AND
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
www.mainstayfunds.com 7
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, 2007, to October 31, 2007,
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,
2007, to October 31, 2007.
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, 2007. 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 5/1/07 10/31/07 PERIOD(1) 10/31/07 PERIOD(1)
CLASS A SHARES $1,000.00 $992.80 $ 6.43 $1,018.60 $ 6.51
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $989.35 $10.18 $1,014.85 $10.31
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $989.35 $10.18 $1,014.85 $10.31
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $994.85 $ 4.58 $1,020.45 $ 4.63
- ---------------------------------------------------------------------------------------------------------------------------
CLASS R1 SHARES $1,000.00 $994.15 $ 5.08 $1,019.95 $ 5.14
- ---------------------------------------------------------------------------------------------------------------------------
CLASS R2 SHARES $1,000.00 $993.00 $ 6.33 $1,018.70 $ 6.41
- ---------------------------------------------------------------------------------------------------------------------------
CLASS R3 SHARES $1,000.00 $991.70 $ 7.63 $1,017.40 $ 7.73
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's net annualized expense ratio of each class
(1.28% for Class A, 2.03% for Class B and Class C, 0.91% for Class I, 1.01%
for Class R1, 1.26% for Class R2 and 1.52% 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).
8 MainStay Balanced Fund
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2007
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
Common Stocks 60.6
Corporate Bonds 38.1
Short-Term Investments (collateral from securities lending 5.8
is 5.7%)
Federal Agencies 0.5
Medium-Term Note 0.3
Yankee Bond 0.0*
Futures Contracts 0.0*
Convertible Preferred Stock 0.0*
Convertible Bond 0.0*
Liabilities in Excess of Cash and Other Assets (5.3)
</Table>
* Less than one-tenth of a percent.
See Portfolio of Investments on page 12 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2007 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. First Solar, Inc.
2. Apple, Inc.
3. Bear Stearns Cos., Inc. (The), 5.30%, due
10/30/15
4. NVIDIA Corp.
5. Wynn Resorts, Ltd.
6. Ford Motor Co.
7. Monsanto Co.
8. Nabisco, Inc., 7.55%, due 6/15/15
9. Parker Hannifin Corp.
10. Goldman Sachs Group, Inc. (The)
</Table>
www.mainstayfunds.com 9
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Questions answered by portfolio managers Tony H. 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
DURING THE 12 MONTHS ENDED OCTOBER 31, 2007?
Excluding all sales charges, MainStay Balanced Fund returned 6.34% for Class A
shares, 5.56% for Class B shares and 5.56% for Class C shares for the 12 months
ended October 31, 2007. Over the same period, the Fund's Class I shares returned
6.77%, Class R1 shares returned 6.64%, Class R2 shares returned 6.40% and Class
R3 shares returned 6.10%. All share classes underperformed the 13.51% return of
the average Lipper(1) mixed-asset target allocation growth fund, the 9.73%
return of the Russell Midcap(R) Value Index,(2) and the 8.19% return of the
Fund's Balanced Composite Index(3) for the 12 months ended October 31, 2007. The
Russell Midcap(R) Value Index is the Fund's broad-based securities-market index.
See page 5 for Fund returns with sales charges.
DURING THE REPORTING PERIOD, WHICH EQUITY SECTORS WERE THE STRONGEST
CONTRIBUTORS TO THE FUND'S PERFORMANCE AND WHICH EQUITY SECTORS 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 equity sectors that
contributed the most to the Fund's absolute performance during the reporting
period were utilities, materials and industrials. The equity sectors that
contributed the least to the Fund's absolute performance were financials,
telecommunication services and consumer discretionary.
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 performance in the equity portion of
the Fund were NRG Energy, Steel Dynamics and Reliance Steel & Aluminum. The
weakest stocks in the Fund included New Century Financial, Radian Group and MGIC
Investment.
WERE THERE ANY SIGNIFICANT PURCHASES OR SALES DURING THE REPORTING PERIOD?
The Fund selects securities using a proprietary investment process, which seeks
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 Parker Hannifin and Pepsi Bottling Group.
Among the stocks the Fund sold because of unattractive valuations, weakening
operating results and deteriorating prices trends were Reliance Steel & Aluminum
and Steel Dynamics. Both stocks were sold at a profit during the reporting
period.
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 result from a combination of
stock performance and the Fund's proprietary quantitative security-selection
process. During the reporting period, the Fund's equity weightings increased
substantially relative to the Russell Midcap(R) Value Index in information
technology and utilities. Over the same period, the Fund's equity weighting in
financials declined substantially, while its equity weighting in consumer
staples decreased moderately.
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 credit, inflation,
interest-rate and maturities risk and can lose principal value when interest
rates rise.
1. See footnote on page 7 for more information on Lipper Inc.
2. See footnote on page 7 for more information on the Russell Midcap(R) Value
Index.
3. See footnote on page 7 for more information on the Fund's Balanced Composite
Index.
The opinions expressed are those of the portfolio managers as of the date of
this report and are subject to change. There is no guarantee that any forecast
made will come to pass. This material does not constitute investment advice and
is not intended as an endorsement of any specific investment.
10 MainStay Balanced Fund
HOW WAS THE EQUITY PORTION OF THE FUND POSITIONED AT THE END OF THE REPORTING
PERIOD?
As of October 31, 2007, the equity portion of the Fund was significantly
overweight relative to the Russell Midcap(R) Value Index in health care,
industrials and information technology. These overweight positions helped
performance. At the end of October, the Fund was significantly underweight in
financials, a position that detracted moderately from performance. The Fund was
also underweight in utilities, which helped the Fund's results.
WHAT FACTORS AFFECTED THE BOND PORTION OF THE FUND DURING THE REPORTING PERIOD?
The Federal Open Market Committee lowered the targeted federal funds rate from
5.25% to 4.50% during the reporting period. The yield curve remained inverted
for much of the period, with Treasury bills yielding more than the 10-year
Treasury bond.
During the reporting period, there were no significant changes in the way the
bond portion of the Fund was managed. This 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 Fund's duration
was slightly shorter than that of the Merrill Lynch U.S. Corporate/ Government
1-10 Years Index. This positioning caused the bond portion of the Fund to
underperform the index, as interest rates declined over the reporting period.
www.mainstayfunds.com 11
PORTFOLIO OF INVESTMENTS+++ OCTOBER 31, 2007
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
LONG-TERM BONDS (38.9%)+
CONVERTIBLE BOND (0.0%)++
- ---------------------------------------------------------------------------------
INTERNET (0.0%)++
At Home Corp.
4.75%, due 12/15/07 (a)(b)(c)(d)(h) $ 177,810 $ 18
--------------
Total Convertible Bond
(Cost $13,325) 18
--------------
CORPORATE BONDS (38.1%)
- ---------------------------------------------------------------------------------
AEROSPACE & DEFENSE (1.1%)
General Dynamics Corp.
4.50%, due 8/15/10 874,000 868,651
5.375%, due 8/15/15 2,200,000 2,205,760
Lockheed Martin Corp.
7.65%, due 5/1/16 1,820,000 2,067,358
United Technologies Corp.
6.50%, due 6/1/09 5,628,000 5,774,570
7.125%, due 11/15/10 3,380,000 3,593,153
--------------
14,509,492
--------------
AGRICULTURE (0.7%)
Altria Group, Inc.
7.00%, due 11/4/13 6,750,000 7,386,761
Monsanto Co.
7.375%, due 8/15/12 2,000,000 2,174,676
--------------
9,561,437
--------------
AUTO PARTS & EQUIPMENT (0.3%)
Johnson Controls, Inc.
6.30%, due 2/1/08 4,325,000 4,330,277
--------------
BANKS (4.8%)
Bank of America Corp.
7.40%, due 1/15/11 1,000,000 1,065,536
7.80%, due 2/15/10 4,500,000 4,771,377
7.80%, due 9/15/16 1,500,000 1,677,018
Bank One Corp.
7.875%, due 8/1/10 7,000,000 7,475,111
BankAmerica Corp.
7.125%, due 3/1/09 1,660,000 1,697,455
BankBoston N.A.
6.375%, due 3/25/08 1,000,000 1,004,053
FleetBoston Financial Corp.
6.375%, due 5/15/08 3,000,000 3,017,736
7.375%, due 12/1/09 1,200,000 1,253,598
JPMorgan Chase & Co.
6.75%, due 8/15/08 1,405,000 1,423,760
Mellon Funding Corp.
6.375%, due 2/15/10 $ 1,960,000 $ 2,012,983
SunTrust Banks, Inc.
6.25%, due 6/1/08 5,000,000 5,035,180
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
BANKS (CONTINUED)
U.S. Bancorp
3.125%, due 3/15/08 $ 437,000 $ 433,587
U.S. Bank N.A.
5.70%, due 12/15/08 1,747,000 1,755,132
6.30%, due 7/15/08 3,305,000 3,327,243
6.375%, due 8/1/11 2,500,000 2,605,288
Wachovia Bank N.A.
7.80%, due 8/18/10 7,525,000 8,065,069
Wachovia Corp.
6.15%, due 3/15/09 1,920,000 1,938,077
6.25%, due 8/4/08 2,317,000 2,340,207
6.375%, due 1/15/09 1,736,000 1,762,096
Wells Fargo Bank N.A.
6.45%, due 2/1/11 3,847,000 3,994,059
7.55%, due 6/21/10 5,000,000 5,310,380
--------------
61,964,945
--------------
BEVERAGES (1.3%)
Anheuser-Busch Cos., Inc.
5.375%, due 9/15/08 900,000 902,828
5.625%, due 10/1/10 (e) 1,500,000 1,541,331
5.65%, due 9/15/08 454,000 456,465
5.75%, due 4/1/10 655,000 671,937
6.00%, due 4/15/11 2,110,000 2,186,901
7.50%, due 3/15/12 4,200,000 4,579,058
9.00%, due 12/1/09 1,190,000 1,284,471
PepsiCo., Inc.
5.15%, due 5/15/12 4,000,000 4,054,688
5.75%, due 1/15/08 1,747,000 1,748,454
--------------
17,426,133
--------------
CHEMICALS (0.6%)
E.I. du Pont de Nemours & Co.
3.375%, due 11/15/07 805,000 804,626
4.75%, due 11/15/12 4,400,000 4,339,795
Praxair, Inc.
6.50%, due 3/1/08 2,536,000 2,548,746
--------------
7,693,167
--------------
COMPUTERS (1.1%)
Computer Sciences Corp.
6.25%, due 3/15/09 1,012,000 1,020,329
Hewlett-Packard Co.
5.25%, due 3/1/12 1,000,000 1,011,085
6.50%, due 7/1/12 4,017,000 4,262,471
International Business Machines Corp.
4.75%, due 11/29/12 1,500,000 1,487,150
5.375%, due 2/1/09 958,000 963,714
</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.
12 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)
- ---------------------------------------------------------------------------------
COMPUTERS (CONTINUED)
International Business Machines Corp. (Continued)
5.50%, due 1/15/09 $ 467,000 $ 471,156
7.50%, due 6/15/13 4,940,000 5,481,701
--------------
14,697,606
--------------
COSMETICS & PERSONAL CARE (0.3%)
Gillette Co. (The)
2.875%, due 3/15/08 437,000 434,269
Procter & Gamble Co. (The)
6.875%, due 9/15/09 3,877,000 4,028,102
--------------
4,462,371
--------------
DIVERSIFIED FINANCIAL SERVICES (11.6%)
American Express Credit Corp.
3.00%, due 5/16/08 874,000 866,295
5.30%, due 12/2/15 4,500,000 4,437,603
Bear Stearns Cos., Inc. (The)
V 5.30%, due 10/30/15 13,500,000 12,638,808
7.625%, due 12/7/09 3,250,000 3,380,137
CIT Group, Inc.
4.75%, due 12/15/10 655,000 631,947
5.50%, due 11/30/07 1,000,000 999,683
5.875%, due 10/15/08 1,800,000 1,797,970
6.875%, due 11/1/09 2,500,000 2,546,500
7.75%, due 4/2/12 5,600,000 5,796,622
Citicorp
6.375%, due 11/15/08 1,500,000 1,522,847
Citigroup Global Markets Holdings, Inc.
6.50%, due 2/15/08 3,500,000 3,513,741
Citigroup, Inc.
5.00%, due 9/15/14 4,000,000 3,882,544
5.85%, due 8/2/16 1,500,000 1,514,802
6.50%, due 1/18/11 1,474,000 1,535,243
7.25%, due 10/1/10 2,000,000 2,118,764
Credit Suisse First Boston USA, Inc.
6.125%, due 11/15/11 6,462,000 6,681,837
6.50%, due 6/1/08 4,500,000 4,537,157
General Electric Capital Corp.
6.875%, due 11/15/10 7,912,000 8,365,595
7.375%, due 1/19/10 5,000,000 5,246,895
Goldman Sachs Group, Inc. (The)
6.65%, due 5/15/09 2,430,000 2,481,885
7.35%, due 10/1/09 7,650,000 7,953,147
Series B
7.80%, due 1/28/10 4,000,000 4,196,956
HSBC Finance Corp.
6.375%, due 11/27/12 3,000,000 3,116,247
6.50%, due 11/15/08 3,000,000 3,038,706
6.75%, due 5/15/11 2,374,000 2,477,217
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
DIVERSIFIED FINANCIAL SERVICES (CONTINUED)
HSBC Finance Corp. (continued)
8.00%, due 7/15/10 $ 6,000,000 $ 6,409,374
International Lease Finance Corp.
4.50%, due 5/1/08 437,000 434,956
6.375%, due 3/15/09 2,000,000 2,033,332
John Deere Capital Corp.
6.00%, due 2/15/09 2,000,000 2,021,478
7.00%, due 3/15/12 200,000 214,172
JPMorgan & Co., Inc.
6.25%, due 2/15/11 262,000 269,761
JPMorgan Chase & Co.
5.25%, due 5/1/15 7,750,000 7,551,313
Lehman Brothers Holdings, Inc.
6.625%, due 1/18/12 2,491,000 2,569,887
7.875%, due 8/15/10 4,100,000 4,321,818
Lehman Brothers, Inc.
6.50%, due 4/15/08 1,600,000 1,607,606
Merrill Lynch & Co., Inc.
3.518%, due 3/2/09 (f) 437,000 428,854
6.05%, due 5/16/16 6,800,000 6,741,887
6.375%, due 10/15/08 1,112,000 1,118,302
Morgan Stanley
5.75%, due 10/18/16 5,000,000 4,945,735
6.75%, due 4/15/11 8,811,000 9,207,195
Pitney Bowes Credit Corp.
5.75%, due 8/15/08 874,000 876,910
Toyota Motor Credit Corp.
5.50%, due 12/15/08 1,477,000 1,484,131
UnitedHealth Group, Inc.
5.25%, due 3/15/11 1,000,000 1,004,095
Wells Fargo Financial, Inc.
5.875%, due 8/15/08 2,316,000 2,324,131
6.85%, due 7/15/09 109,000 112,071
--------------
150,956,156
--------------
ELECTRIC (0.6%)
Consolidated Edison Co. of New York
7.50%, due 9/1/10 5,500,000 5,848,414
Interstate Power & Light Co.
6.625%, due 8/1/09 1,311,000 1,345,380
--------------
7,193,794
--------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.6%)
Emerson Electric Co.
5.00%, due 10/15/08 262,000 261,193
5.85%, due 3/15/09 2,386,000 2,416,054
7.125%, due 8/15/10 4,500,000 4,772,786
--------------
7,450,033
--------------
ELECTRONICS (0.0%)++
Honeywell, Inc.
7.125%, due 4/15/08 131,000 132,202
--------------
</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 13
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2007 (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
- ---------------------------------------------------------------------------------
FOOD (3.5%)
Campbell Soup Co.
6.75%, due 2/15/11 $ 5,018,000 $ 5,258,006
Hershey Co. (The)
5.45%, due 9/1/16 4,449,000 4,439,386
Kellogg Co.
Series B
6.60%, due 4/1/11 7,500,000 7,831,298
Kraft Foods, Inc.
6.25%, due 6/1/12 5,150,000 5,343,990
V Nabisco, Inc.
7.55%, due 6/15/15 10,880,000 12,092,391
Sara Lee Corp.
6.00%, due 1/15/08 1,048,000 1,048,944
Sysco International Co.
6.10%, due 6/1/12 3,060,000 3,184,521
Unilever Capital Corp.
7.125%, due 11/1/10 5,700,000 6,078,115
--------------
45,276,651
--------------
FOREST PRODUCTS & PAPER (0.1%)
Kimberly-Clark Corp.
4.875%, due 8/15/15 1,200,000 1,159,430
--------------
HEALTH CARE-PRODUCTS (0.2%)
Johnson & Johnson
6.625%, due 9/1/09 2,371,000 2,462,523
--------------
HOUSEHOLD PRODUCTS & WARES (0.3%)
Kimberly-Clark Corp.
5.00%, due 8/15/13 4,050,000 4,008,961
--------------
INSURANCE (0.4%)
Allstate Corp. (The)
7.20%, due 12/1/09 1,900,000 1,984,653
John Hancock Financial Services, Inc.
5.625%, due 12/1/08 2,640,000 2,661,901
--------------
4,646,554
--------------
MACHINERY--CONSTRUCTION & MINING (0.8%)
Caterpillar, Inc.
5.70%, due 8/15/16 2,000,000 2,030,148
6.55%, due 5/1/11 3,915,000 4,095,626
7.25%, due 9/15/09 4,347,000 4,526,435
--------------
10,652,209
--------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
MACHINERY--DIVERSIFIED (1.1%)
Deere & Co.
6.95%, due 4/25/14 $ 5,000,000 $ 5,441,720
7.85%, due 5/15/10 7,808,000 8,367,350
--------------
13,809,070
--------------
MEDIA (1.1%)
Gannett Co., Inc.
6.375%, due 4/1/12 6,595,000 6,745,260
Walt Disney Co. (The)
6.375%, due 3/1/12 7,000,000 7,358,281
--------------
14,103,541
--------------
MISCELLANEOUS--MANUFACTURING (0.8%)
Honeywell International, Inc.
7.50%, due 3/1/10 6,985,000 7,398,819
Illinois Tool Works, Inc.
5.75%, due 3/1/09 3,090,000 3,136,572
--------------
10,535,391
--------------
OIL & GAS (0.8%)
Atlantic Richfield Co.
5.90%, due 4/15/09 1,000,000 1,015,887
ConocoPhillips
6.375%, due 3/30/09 2,160,000 2,204,807
8.75%, due 5/25/10 4,440,000 4,847,707
Texaco Capital, Inc.
5.50%, due 1/15/09 2,000,000 2,009,506
--------------
10,077,907
--------------
PHARMACEUTICALS (1.0%)
Eli Lilly & Co.
6.00%, due 3/15/12 950,000 986,981
Merck & Co., Inc.
4.75%, due 3/1/15 3,867,000 3,703,639
Pharmacia Corp.
5.875%, due 12/1/08 437,000 441,757
Warner-Lambert Co.
6.00%, due 1/15/08 2,218,000 2,222,556
Wyeth
5.50%, due 2/1/14 5,500,000 5,515,142
--------------
12,870,075
--------------
RETAIL (1.6%)
Costco Wholesale Corp.
5.30%, due 3/15/12 1,408,000 1,423,727
Kohl's Corp.
6.30%, due 3/1/11 612,000 631,622
Target Corp.
5.375%, due 6/15/09 2,706,000 2,719,592
5.40%, due 10/1/08 1,700,000 1,704,536
7.50%, due 8/15/10 3,034,000 3,240,998
</Table>
14 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)
- ---------------------------------------------------------------------------------
RETAIL (CONTINUED)
Wal-Mart Stores, Inc.
6.875%, due 8/10/09 $ 10,088,000 $ 10,449,463
7.25%, due 6/1/13 349,000 383,300
--------------
20,553,238
--------------
SOFTWARE (0.4%)
First Data Corp.
5.625%, due 11/1/11 661,000 680,579
5.80%, due 12/15/08 (e) 1,725,000 1,743,958
6.375%, due 12/15/07 2,133,000 2,135,705
--------------
4,560,242
--------------
TELECOMMUNICATIONS (2.8%)
AT&T Corp.
7.30%, due 11/15/11 7,000,000 7,553,679
BellSouth Corp.
6.00%, due 10/15/11 2,000,000 2,059,052
GTE North, Inc.
6.375%, due 2/15/10 (e) 437,000 449,468
Motorola, Inc.
8.00%, due 11/1/11 6,000,000 6,550,386
New York Telephone Co.
6.125%, due 1/15/10 874,000 893,955
Southwestern Bell Telephone Corp.
7.00%, due 7/1/15 5,000,000 5,440,540
Verizon Communications, Inc.
6.50%, due 9/15/11 5,000,000 5,195,660
Verizon Global Funding Corp.
7.375%, due 9/1/12 7,000,000 7,659,386
--------------
35,802,126
--------------
TEXTILES (0.2%)
Cintas Corp. No. 2
6.00%, due 6/1/12 3,095,000 3,199,549
--------------
Total Corporate Bonds
(Cost $497,943,048) 494,095,080
--------------
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 1,028,014
Series 2003-32, Class PG
5.00%, due 10/25/27 437,000 434,563
--------------
1,462,577
--------------
FEDERAL FARM CREDIT BANK (0.0%)++
3.875%, due 5/7/10 655,000 647,179
--------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
FEDERAL HOME LOAN BANK (0.1%)
3.75%, due 4/1/10 $ 655,000 $ 645,713
3.875%, due 2/12/10 220,000 217,683
--------------
863,396
--------------
FREDDIE MAC (COLLATERALIZED MORTGAGE OBLIGATIONS) (0.2%)
Series 2734, Class JC
3.50%, due 11/15/23 587,535 579,935
Series 2579, Class PG
4.00%, due 3/15/27 756 755
Series 2719, Class WB
4.50%, due 8/15/21 1,030,211 994,680
Series 2589, Class GD
5.00%, due 9/15/28 437,000 437,253
Series 2600, Class MJ
5.00%, due 9/15/29 437,000 426,171
--------------
2,438,794
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(COLLATERALIZED MORTGAGE OBLIGATION) (0.1%)
Series 2003-50, Class PC
5.50%, due 3/16/32 874,000 876,267
--------------
Total Federal Agencies
(Cost $6,453,633) 6,288,213
--------------
YANKEE BOND (0.0%)++ (G)
- ---------------------------------------------------------------------------------
CHEMICALS (0.0%)++
Dow Capital B.V.
8.50%, due 6/8/10 495,000 537,364
--------------
Total Yankee Bond
(Cost $542,734) 537,364
--------------
MEDIUM-TERM NOTE (0.3%)
- ---------------------------------------------------------------------------------
AEROSPACE & DEFENSE (0.3%)
McDonnell Douglas Corp.
9.75%, due 4/1/12 3,600,000 4,241,902
--------------
Total Medium-Term Note
(Cost $4,231,655) 4,241,902
--------------
Total Long-Term Bonds
(Cost $509,184,395) 505,162,577
--------------
<Caption>
SHARES
COMMON STOCKS (60.6%)
- ---------------------------------------------------------------------------------
AEROSPACE & DEFENSE (2.1%)
Lockheed Martin Corp. 78,079 8,591,813
Northrop Grumman Corp. 107,203 8,964,315
</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
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2007 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- ---------------------------------------------------------------------------------
AEROSPACE & DEFENSE (CONTINUED)
Raytheon Co. 143,137 $ 9,104,945
--------------
26,661,073
--------------
AGRICULTURE (1.1%)
Altria Group, Inc. 119,465 8,712,581
North Atlantic Trading Co., Inc. (a)(b)(d)(h) 130 1
Reynolds American, Inc. (e) 85,533 5,510,891
--------------
14,223,473
--------------
AIRLINES (0.2%)
Delta Air Lines, Inc. (a) 97,516 2,028,333
--------------
AUTO MANUFACTURERS (0.9%)
V Ford Motor Co. (a)(e) 1,385,188 12,286,618
--------------
AUTO PARTS & EQUIPMENT (0.6%)
Autoliv, Inc. 114,203 7,215,346
--------------
BANKS (1.8%)
Bank of America Corp. 158,188 7,637,317
Huntington Bancshares, Inc. 163,017 2,919,634
KeyCorp 34,025 968,011
UnionBanCal Corp. 76,918 4,154,341
Wells Fargo & Co. 224,935 7,650,039
--------------
23,329,342
--------------
BEVERAGES (0.8%)
Pepsi Bottling Group, Inc. (The) 238,608 10,279,233
--------------
BIOTECHNOLOGY (0.2%)
Vertex Pharmaceuticals, Inc. (a) 79,260 2,563,268
--------------
CHEMICALS (1.8%)
Celanese Corp. Class A 133,720 5,610,891
V Monsanto Co. 125,351 12,238,018
Mosaic Co. (The) (a)(e) 76,459 5,336,838
--------------
23,185,747
--------------
COMMERCIAL SERVICES (0.5%)
McKesson Corp. 101,764 6,726,600
--------------
COMPUTERS (2.7%)
V Apple, Inc. (a) 68,571 13,025,061
EMC Corp. (a) 199,503 5,065,381
Hewlett-Packard Co. 158,829 8,208,283
International Business Machines Corp. 73,566 8,542,484
--------------
34,841,209
--------------
</Table>
<Table>
<Caption>
SHARES VALUE
DISTRIBUTION & WHOLESALE (0.6%)
Tech Data Corp. (a) 205,760 $ 8,092,541
--------------
DIVERSIFIED FINANCIAL SERVICES (1.6%)
Discover Financial Services 71,102 1,372,269
V Goldman Sachs Group, Inc. (The) 46,191 11,451,673
JPMorgan Chase & Co. 179,525 8,437,675
--------------
21,261,617
--------------
ELECTRIC (4.1%)
Alliant Energy Corp. 163,368 6,534,720
Dominion Resources, Inc. 92,674 8,491,719
Entergy Corp. 79,578 9,539,015
FirstEnergy Corp. 129,709 9,040,717
Mirant Corp. (a) 196,679 8,331,322
Northeast Utilities 60,375 1,861,361
NRG Energy, Inc. (a) 206,763 9,440,799
--------------
53,239,653
--------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.7%)
Emerson Electric Co. 177,350 9,270,085
--------------
ELECTRONICS (0.3%)
Avnet, Inc. (a) 75,829 3,163,586
Tyco Electronics, Ltd. 6,698 238,918
--------------
3,402,504
--------------
ENERGY--ALTERNATE SOURCES (1.0%)
V First Solar, Inc. (a)(e) 84,211 13,373,549
--------------
ENGINEERING & CONSTRUCTION (1.2%)
Foster Wheeler, Ltd. (a) 75,584 11,205,328
McDermott International, Inc. (a) 80,969 4,943,967
--------------
16,149,295
--------------
FOOD (1.4%)
Dean Foods Co. 67,082 1,862,867
H.J. Heinz Co. 134,837 6,307,675
Hormel Foods Corp. 167,843 6,122,913
Kroger Co. (The) 124,421 3,656,733
--------------
17,950,188
--------------
GAS (0.8%)
Energen Corp. (e) 154,866 9,911,424
--------------
HAND & MACHINE TOOLS (0.6%)
Black & Decker Corp. 93,412 8,398,673
--------------
HEALTH CARE-PRODUCTS (0.7%)
Covidien, Ltd. 6,698 278,637
Johnson & Johnson 132,006 8,602,831
--------------
8,881,468
--------------
</Table>
16 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)
- ---------------------------------------------------------------------------------
HEALTH CARE-SERVICES (1.9%)
Aetna, Inc. 165,936 $ 9,320,625
Health Net, Inc. (a) 140,856 7,551,290
WellPoint, Inc. (a) 105,970 8,396,003
--------------
25,267,918
--------------
HOUSEHOLD PRODUCTS & WARES (0.9%)
Kimberly-Clark Corp. 117,699 8,343,682
Scotts Miracle-Gro Co. (The) Class A 67,747 3,108,910
--------------
11,452,592
--------------
INSURANCE (5.0%)
ACE, Ltd. 140,705 8,528,130
Arch Capital Group, Ltd. (a) 118,979 8,896,060
Assurant, Inc. 81,586 4,767,886
Axis Capital Holdings, Ltd. 237,106 9,422,592
Chubb Corp. (The) 160,103 8,541,495
CIGNA Corp. 151,698 7,962,628
Everest Re Group, Ltd. 45,611 4,859,396
PartnerRe, Ltd. 2,021 168,248
Transatlantic Holdings, Inc. 32,180 2,398,375
Travelers Cos., Inc. (The) 158,801 8,291,000
XL Capital, Ltd. Class A 11,122 800,228
--------------
64,636,038
--------------
INTERNET (1.6%)
Amazon.com, Inc. (a) 126,487 11,276,316
Google, Inc. Class A (a) 14,358 10,151,106
--------------
21,427,422
--------------
IRON & STEEL (0.7%)
AK Steel Holding Corp. (a) 25,450 1,275,809
Nucor Corp. 11,200 694,624
United States Steel Corp. 67,003 7,229,624
--------------
9,200,057
--------------
LODGING (0.9%)
V Wynn Resorts, Ltd. 76,160 12,294,509
--------------
MACHINERY--DIVERSIFIED (0.7%)
Flowserve Corp. 109,514 8,647,225
--------------
MEDIA (2.4%)
CBS Corp. Class B 171,766 4,929,684
Central European Media
Enterprises, Ltd. Class A (a) 70,314 8,068,532
Clear Channel Communications, Inc. 222,796 8,415,005
Liberty Global, Inc. Class A (a) 229,842 9,021,299
Walt Disney Co. (The) 22,499 779,140
--------------
31,213,660
--------------
</Table>
<Table>
<Caption>
SHARES VALUE
METAL FABRICATE & HARDWARE (0.4%)
Commercial Metals Co. 147,786 $ 4,637,525
--------------
MINING (0.7%)
Southern Copper Corp. (e) 68,652 9,590,684
--------------
MISCELLANEOUS--MANUFACTURING (3.4%)
3M Co. 15,602 1,347,389
Eaton Corp. 106,034 9,816,628
Honeywell International, Inc. 146,750 8,865,168
Illinois Tool Works, Inc. 17,173 983,326
Ingersoll-Rand Co., Ltd. Class A 19,148 964,102
V Parker Hannifin Corp. 148,662 11,947,965
SPX Corp. 101,434 10,275,264
--------------
44,199,842
--------------
OFFICE & BUSINESS EQUIPMENT (0.3%)
Xerox Corp. (a) 229,428 4,001,224
--------------
OIL & GAS (3.4%)
Chevron Corp. 95,916 8,777,273
ExxonMobil Corp. 97,897 9,005,545
Marathon Oil Corp. 160,291 9,478,007
Sunoco, Inc. 108,614 7,993,990
Valero Energy Corp. 123,701 8,712,261
--------------
43,967,076
--------------
OIL & GAS SERVICES (0.4%)
Schlumberger, Ltd. 47,653 4,601,850
--------------
PHARMACEUTICALS (0.7%)
AmerisourceBergen Corp. 178,340 8,401,597
Gilead Sciences, Inc. (a) 18,594 858,857
--------------
9,260,454
--------------
PIPELINES (0.7%)
Williams Cos., Inc. 261,915 9,557,278
--------------
REAL ESTATE INVESTMENT TRUSTS (2.1%)
Boston Properties, Inc. 97,266 10,537,798
Duke Realty Corp. 21,669 696,658
Hospitality Properties Trust 133,457 5,284,897
ProLogis 41,087 2,947,581
Vornado Realty Trust (e) 26,433 2,953,095
Weingarten Realty Investors (e) 112,956 4,321,697
--------------
26,741,726
--------------
RETAIL (2.7%)
AnnTaylor Stores Corp. (a) 93,309 2,891,646
AutoNation, Inc. (a) 50,082 885,951
Dollar Tree Stores, Inc. (a) 62,821 2,406,044
Family Dollar Stores, Inc. (e) 199,825 5,065,564
</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 17
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2007 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- ---------------------------------------------------------------------------------
RETAIL (CONTINUED)
GameStop Corp. Class A (a) 97,413 $ 5,768,798
Home Depot, Inc. (The) 241,002 7,593,973
OfficeMax, Inc. (e) 44,282 1,401,525
Wal-Mart Stores, Inc. 189,921 8,586,328
--------------
34,599,829
--------------
SAVINGS & LOANS (0.7%)
Hudson City Bancorp, Inc. 605,884 9,488,143
--------------
SEMICONDUCTORS (2.4%)
Advanced Micro Devices, Inc. (a)(e) 698,196 9,132,404
Intel Corp. 347,656 9,351,946
V NVIDIA Corp. (a) 350,948 12,416,540
--------------
30,900,890
--------------
TELECOMMUNICATIONS (1.7%)
CenturyTel, Inc. 184,191 8,113,614
Level 3 Communications, Inc. (a)(e) 1,357,923 4,114,507
Qwest Communications
International, Inc. (a)(e) 1,120,467 8,044,953
SBA Communications Corp. Class A (a) 45,525 1,620,690
--------------
21,893,764
--------------
TOYS, GAMES & HOBBIES (1.2%)
Hasbro, Inc. 277,732 8,290,300
Mattel, Inc. 335,418 7,006,882
--------------
15,297,182
--------------
Total Common Stocks
(Cost $713,611,238) 786,148,127(k)
--------------
CONVERTIBLE PREFERRED STOCK (0.0%)++
- ---------------------------------------------------------------------------------
TELECOMMUNICATIONS (0.0%)++
Neon Communications Group, Inc.
6.00% (a)(b)(d) 1,182 5,479
--------------
Total Convertible Preferred Stock
(Cost $3,240) 5,479
--------------
SHORT-TERM INVESTMENTS (5.8%)
- ---------------------------------------------------------------------------------
INVESTMENT COMPANY (5.7%)
State Street Navigator Securities Lending Prime
Portfolio (i) 74,163,384 74,163,384
--------------
Total Investment Company
(Cost $74,163,384) 74,163,384
--------------
<Caption>
PRINCIPAL
AMOUNT VALUE
U.S. GOVERNMENT (0.1%)
United States Treasury Bills
3.85%, due 1/10/08 $ 500,000 $ 496,293
3.865%, due 1/24/08 (j) 1,100,000 1,090,213
--------------
Total U.S. Government
(Cost $1,586,247) 1,586,506
--------------
Total Short-Term Investments
(Cost $75,749,631) 75,749,890
--------------
Total Investments
(Cost $1,298,548,504) 105.3% 1,367,066,073(m)
Liabilities in Excess of
Cash and Other Assets (5.3) (69,106,697)
------------ --------------
Net Assets 100.0% $1,297,959,376
============ ==============
</Table>
<Table>
<Caption>
CONTRACTS UNREALIZED
LONG APPRECIATION (L)
FUTURES CONTRACTS (0.0%) ++
- -----------------------------------------------------------------------------
Standard & Poor's 500 Index
Mini December 2007 20 $ 25,146
-------------------
Total Futures Contracts
(Settlement Value $1,554,900) (k) $ 25,146
===================
</Table>
<Table>
++ Less than one-tenth of a percent.
+++ All 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. These
securities are marked-to-market daily and reviewed against
the value of the Fund's "senior securities" holdings to
ensure proper coverage for these transactions.
(a) Non-income producing security.
(b) Illiquid security. The total market value of these
securities at October 31, 2007 is $5,498, which represents
0.0% of the Fund's net assets.
(c) Issue in default.
(d) Fair valued security. The total market value of these
securities at October 31, 2007 is $5,498, which reflects
0.0% of the Fund's net assets.
(e) Represents a security, or a portion thereof, which is out on
loan. The aggregate market value of such securities is
$70,363,945; cash collateral of $74,163,384 (included in
liabilities) was received with which the Fund purchased
highly liquid short-term investments.
(f) Floating rate. Rate shown is the rate in effect at October
31, 2007.
(g) Yankee Bond--dollar-denominated bond issued in the United
States by a foreign bank or corporation.
(h) Restricted security.
(i) Represents a security, or a portion thereof, purchased with
cash collateral received for securities on loan.
(j) Represents a security, or a portion thereof, which is
segregated or designated as collateral for futures
contracts.
</Table>
18 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>
(k) The combined market value of common stocks and settlement
value of Standard & Poor's 500 Index futures contracts
represents 60.7% of net assets.
(l) Represents the difference between the value of the contracts
at the time they were opened and the value at October 31,
2007.
(m) At October 31, 2007, cost is $1,299,395,135 for federal
income tax purposes and net unrealized appreciation is as
follows:
</Table>
<Table>
Gross unrealized appreciation $ 92,687,507
Gross unrealized depreciation (25,016,569)
------------
Net unrealized appreciation $ 67,670,938
============
</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 19
STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2007
<Table>
ASSETS:
Investment in securities, at value
(identified cost $1,298,548,504) including
$70,363,945 market value of securities
loaned $1,367,066,073
Cash 15,899
Receivables:
Dividends and interest 9,181,740
Fund shares sold 865,707
Variation margin on futures contracts 24,990
Other assets 40,455
--------------
Total assets 1,377,194,864
--------------
LIABILITIES:
Securities lending collateral 74,163,384
Payables:
Fund shares redeemed 3,004,300
Manager (See Note 3) 838,906
Transfer agent (See Note 3) 484,948
NYLIFE Distributors (See Note 3) 396,577
Shareholder communication 230,578
Professional fees 71,422
Custodian 18,613
Trustees 11,067
Accrued expenses 15,693
--------------
Total liabilities 79,235,488
--------------
Net assets $1,297,959,376
==============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share)
1 billion shares authorized $ 456,755
Additional paid-in capital 1,150,790,063
--------------
1,151,246,818
Accumulated undistributed net investment
income 1,187,421
Accumulated net realized gain on investments
and futures transactions 76,982,422
Net unrealized appreciation on investments
and futures contracts 68,542,715
--------------
Net assets $1,297,959,376
==============
CLASS A
Net assets applicable to outstanding shares $ 405,911,603
==============
Shares of capital stock outstanding 14,281,805
==============
Net asset value per share outstanding $ 28.42
Maximum sales charge (5.50% of offering
price) 1.65
--------------
Maximum offering price per share outstanding $ 30.07
==============
CLASS B
Net assets applicable to outstanding shares $ 145,918,908
==============
Shares of capital stock outstanding 5,148,617
==============
Net asset value and offering price per share
outstanding $ 28.34
==============
CLASS C
Net assets applicable to outstanding shares $ 161,162,621
==============
Shares of capital stock outstanding 5,688,402
==============
Net asset value and offering price per share
outstanding $ 28.33
==============
CLASS I
Net assets applicable to outstanding shares $ 410,355,203
==============
Shares of capital stock outstanding 14,414,413
==============
Net asset value and offering price per share
outstanding $ 28.47
==============
CLASS R1
Net assets applicable to outstanding shares $ 69,473,953
==============
Shares of capital stock outstanding 2,442,579
==============
Net asset value and offering price per share
outstanding $ 28.44
==============
CLASS R2
Net assets applicable to outstanding shares $ 105,100,306
==============
Shares of capital stock outstanding 3,698,363
==============
Net asset value and offering price per share
outstanding $ 28.42
==============
CLASS R3
Net assets applicable to outstanding shares $ 36,782
==============
Shares of capital stock outstanding 1,295
==============
Net asset value and offering price per share
outstanding $ 28.41*
==============
</Table>
* Difference in the NAV recalculation and NAV stated is caused by rounding
differences.
20 MainStay Balanced Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2007
<Table>
INVESTMENT INCOME:
INCOME:
Interest $ 26,087,198
Dividends 15,234,765
Income from securities loaned--net 110,465
------------
Total income 41,432,428
------------
EXPENSES:
Manager (See Note 3) 10,115,287
Transfer agent--Classes A, B and C (See Note
3) 1,745,225
Transfer agent--Classes I, R1, R2 and R3
(See Note 3) 950,636
Distribution--Class B (See Note 3) 1,171,069
Distribution--Class C (See Note 3) 1,302,833
Distribution--Class R3 (See Note 3) 42
Distribution/Service--Class A (See Note 3) 1,074,526
Service--Class B (See Note 3) 390,355
Service--Class C (See Note 3) 434,277
Distribution/Service--Class R2 (See Note 3) 277,999
Distribution/Service--Class R3 (See Note 3) 42
Shareholder communication 284,746
Shareholder service--Class R1 (See Note 3) 109,453
Shareholder service--Class R2 (See Note 3) 111,200
Shareholder service--Class R3 (See Note 3) 17
Professional fees 205,333
Registration 154,663
Trustees 61,576
Custodian 60,230
Miscellaneous 92,597
------------
Total expenses before waiver 18,542,106
Expense waiver from Manager (See Note 3) (274,906)
------------
Net expenses 18,267,200
------------
Net investment income 23,165,228
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on:
Security transactions 78,050,305
Futures transactions 268,742
------------
Net realized gain on investments and futures
transactions 78,319,047
------------
Net change in unrealized appreciation on:
Security transactions (17,203,624)
Futures contracts 25,146
------------
Net change in unrealized appreciation on
investments and futures contracts (17,178,478)
------------
Net realized and unrealized gain on
investments and futures transactions 61,140,569
------------
Net increase in net assets resulting from
operations $ 84,305,797
============
</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 21
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2007 AND OCTOBER 31, 2006
<Table>
<Caption>
2007 2006
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 23,165,228 $ 19,638,196
Net realized gain on investments
and futures transactions 78,319,047 34,390,286
Net change in unrealized
appreciation on investments and
futures contracts (17,178,478) 64,933,429
-------------------------------
Net increase in net assets
resulting from operations 84,305,797 118,961,911
-------------------------------
Dividends and distributions to shareholders:
From net investment income:
Class A (7,647,310) (5,714,660)
Class B (1,634,527) (1,306,124)
Class C (1,807,832) (1,232,741)
Class I (8,567,992) (6,313,349)
Class R1 (2,177,517) (1,838,678)
Class R2 (2,017,792) (1,449,904)
Class R3 (250) (72)
-------------------------------
(23,853,220) (17,855,528)
-------------------------------
From net realized gain on investments:
Class A (10,882,648) (14,375,637)
Class B (4,100,776) (9,718,702)
Class C (4,451,148) (6,839,672)
Class I (9,741,269) (12,867,732)
Class R1 (2,831,505) (3,523,938)
Class R2 (2,863,815) (3,370,621)
Class R3 (270) --
-------------------------------
(34,871,431) (50,696,302)
-------------------------------
Total dividends and
distributions to shareholders (58,724,651) (68,551,830)
-------------------------------
Capital share transactions:
Net proceeds from sale of shares 329,366,505 508,553,545
Net asset value of shares issued
to shareholders in reinvestment
of dividends and distributions 54,105,110 62,211,470
Cost of shares redeemed (452,830,566) (352,249,569)
Net asset value of shares converted (See Note
1):
Class A 11,105,573 56,462,591
Class B (11,105,573) (56,462,591)
-------------------------------
Increase (decrease) in net
assets derived from capital
share transactions (69,358,951) 218,515,446
-------------------------------
Net increase (decrease) in net
assets (43,777,805) 268,925,527
NET ASSETS:
Beginning of year 1,341,737,181 1,072,811,654
-------------------------------
End of year $1,297,959,376 $1,341,737,181
===============================
Accumulated undistributed net
investment income at end of year $ 1,187,421 $ 2,268,530
===============================
</Table>
22 MainStay Balanced Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
This page intentionally left blank
www.mainstayfunds.com 23
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A
-----------------------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2007 2006 2005 2004
Net asset value at beginning of period $ 27.92 $ 26.90 $ 25.41 $ 24.45
-------- -------- -------- -----------
Net investment income 0.49 (a) 0.44 0.35 0.19
Net realized and unrealized gain on investments 1.25 2.23 1.91 0.96
-------- -------- -------- -----------
Total from investment operations 1.74 2.67 2.26 1.15
-------- -------- -------- -----------
Less dividends and distributions:
From net investment income (0.51) (0.40) (0.31) (0.19)
From net realized gain on investments (0.73) (1.25) (0.46) --
-------- -------- -------- -----------
Total dividends and distributions (1.24) (1.65) (0.77) (0.19)
-------- -------- -------- -----------
Net asset value at end of period $ 28.42 $ 27.92 $ 26.90 $ 25.41
======== ======== ======== ===========
Total investment return (b) 6.34% 10.35% 8.96% 4.70%(c)
Ratios (to average net assets)/Supplemental Data:
Net investment income 1.74% 1.63% 1.32% 0.99%+
Net expenses 1.28% 1.32% 1.32% 1.34%+#
Expenses (before waiver) 1.28% 1.32% 1.32% 1.34%+#
Portfolio turnover rate 68% 55% 93% 42%
Net assets at end of period (in 000's) $405,912 $420,694 $307,538 $108,204
</Table>
<Table>
<Caption>
CLASS I
----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2007 2006 2005 2004 2003
Net asset value at beginning of period $ 27.96 $ 26.94 $ 25.43 $ 24.07 $ 20.41
-------- -------- -------- -------- --------
Net investment income 0.60 (a) 0.53 0.45 0.34 0.38 (a)
Net realized and unrealized gain on investments 1.25 2.27 1.94 1.68 3.67
-------- -------- -------- -------- --------
Total from investment operations 1.85 2.80 2.39 2.02 4.05
-------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income (0.61) (0.53) (0.42) (0.34) (0.39)
From net realized gain on investments (0.73) (1.25) (0.46) (0.32) --
-------- -------- -------- -------- --------
Total dividends and distributions (1.34) (1.78) (0.88) (0.66) (0.39)
-------- -------- -------- -------- --------
Net asset value at end of period $ 28.47 $ 27.96 $ 26.94 $ 25.43 $ 24.07
======== ======== ======== ======== ========
Total investment return (b) 6.77% 10.84% 9.46% 8.45% 20.13%
Ratios (to average net assets)/Supplemental Data:
Net investment income 2.10% 2.11% 1.77% 1.42% 1.78%
Net expenses 0.91% 0.85% 0.86% 0.91%# 0.99%#
Expenses (before waiver) 0.95% 0.85% 0.86% 0.91%# 1.03%#
Portfolio turnover rate 68% 55% 93% 42% 51%
Net assets at end of period (in 000's) $410,355 $376,763 $269,652 $180,262 $147,519
</Table>
<Table>
* Commencement of operations.
+ Annualized.
# Includes transfer agent fees paid indirectly which amounted to 0.02% and 0.05% of average
net assets for the years or periods ended October 31, 2004 and October 31, 2003,
respectively.
(a) Per share data based on average shares outstanding during the period.
(b) Total return is calculated exclusive of sales charges. Classes I, Class R1, Class R2 and
Class R3 are not subject to sales charges.
(c) Total return is not annualized.
</Table>
24 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*
OCTOBER 31, THROUGH
YEAR ENDED OCTOBER 31, THROUGH YEAR ENDED OCTOBER 31, OCTOBER 31,
2007 2006 2005 2004 2007 2006 2005 2004 2003
$ 27.84 $ 26.84 $ 25.37 $24.46 $ 27.83 $ 26.83 $ 25.37 $ 24.08 $20.27
-------- -------- -------- ----------- -------- -------- -------- ------- ------------
0.28 (a) 0.23 0.18 0.08 0.28 (a) 0.24 0.17 0.13 0.15 (a)
1.24 2.22 1.89 0.93 1.24 2.21 1.89 1.62 3.76
-------- -------- -------- ----------- -------- -------- -------- ------- ------------
1.52 2.45 2.07 1.01 1.52 2.45 2.06 1.75 3.91
-------- -------- -------- ----------- -------- -------- -------- ------- ------------
(0.29) (0.20) (0.14) (0.10) (0.29) (0.20) (0.14) (0.14) (0.10)
(0.73) (1.25) (0.46) -- (0.73) (1.25) (0.46) (0.32) --
-------- -------- -------- ----------- -------- -------- -------- ------- ------------
(1.02) (1.45) (0.60) (0.10) (1.02) (1.45) (0.60) (0.46) (0.10)
-------- -------- -------- ----------- -------- -------- -------- ------- ------------
$ 28.34 $ 27.84 $ 26.84 $25.37 $ 28.33 $ 27.83 $ 26.83 $ 25.37 $24.08
======== ======== ======== =========== ======== ======== ======== ======= ============
5.56% 9.49% 8.19% 4.13%(c) 5.56% 9.49% 8.15% 7.30% 19.32%(c)
0.99% 0.94% 0.57% 0.24%+ 0.99% 0.89% 0.57% 0.24% 0.78%+
2.03% 2.07% 2.07% 2.09%+# 2.03% 2.07% 2.07% 2.09%# 1.98%+#
2.03% 2.07% 2.07% 2.09%+# 2.03% 2.07% 2.07% 2.09%# 2.03%+#
68% 55% 93% 42% 68% 55% 93% 42% 51%
$145,919 $156,284 $206,074 $62,931 $161,163 $169,609 $141,279 $29,301 $ 372
</Table>
<Table>
<Caption>
CLASS R1 CLASS R2
- -------------------------------------------------------- ----------------------------------------------------
JANUARY 2, JANUARY 2,
2004* 2004*
THROUGH THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31, YEAR ENDED OCTOBER 31, OCTOBER 31,
2007 2006 2005 2004 2007 2006 2005 2004
$ 27.94 $ 26.93 $ 25.43 $24.45 $ 27.91 $ 26.90 $ 25.41 $ 24.45
------- -------- ------- ----------- -------- -------- ------- -----------
0.57 (a) 0.53 0.43 0.23 0.50 (a) 0.46 0.39 0.18
1.25 2.23 1.93 0.98 1.25 2.23 1.90 0.97
------- -------- ------- ----------- -------- -------- ------- -----------
1.82 2.76 2.36 1.21 1.75 2.69 2.29 1.15
------- -------- ------- ----------- -------- -------- ------- -----------
(0.59) (0.50) (0.40) (0.23) (0.51) (0.43) (0.34) (0.19)
(0.73) (1.25) (0.46) -- (0.73) (1.25) (0.46) --
------- -------- ------- ----------- -------- -------- ------- -----------
(1.32) (1.75) (0.86) (0.23) (1.24) (1.68) (0.80) (0.19)
------- -------- ------- ----------- -------- -------- ------- -----------
$ 28.44 $ 27.94 $ 26.93 $25.43 $ 28.42 $ 27.91 $ 26.90 $ 25.41
======= ======== ======= =========== ======== ======== ======= ===========
6.64% 10.70% 9.33% 4.96%(c) 6.40% 10.44% 9.05% 4.71%(c)
2.02% 1.99% 1.68% 1.32%+ 1.76% 1.75% 1.43% 1.07%+
1.01% 0.95% 0.96% 1.01%+# 1.26% 1.20% 1.21% 1.26%+#
1.05% 0.95% 0.96% 1.01%+# 1.30% 1.20% 1.21% 1.26%+#
68% 55% 93% 42% 68% 55% 93% 42%
$69,474 $108,739 $77,397 $30,394 $105,100 $109,637 $70,872 $19,324
<Caption>
CLASS R3
- --- ----------------------------
APRIL 28,
YEAR 2006*
ENDED THROUGH
OCTOBER 31, OCTOBER 31,
2007 2006
$27.91 $27.25
----------- -----------
0.41 (a) 0.20
1.26 0.66
----------- -----------
1.67 0.86
----------- -----------
(0.44) (0.20)
(0.73) --
----------- -----------
(1.17) (0.20)
----------- -----------
$28.41 $27.91
=========== ===========
6.10% 3.18%(c)
1.46% 1.36%+
1.52% 1.48%+
1.56% 1.48%+
68% 55%
$ 37 $ 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 25
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BUSINESS:
Eclipse Funds (the "Trust") was organized on July 30, 1986 as a Massachusetts
business trust. The Trust is registered under the Investment Company Act of
1940, as amended, (the "1940 Act"), as an open-end management investment company
and is comprised of three funds (collectively referred to as the "Funds"). These
financial statements and notes relate only to the MainStay Balanced Fund (the
"Fund"), a diversified fund.
The Fund currently offers seven classes of shares. Class I shares commenced on
May 1, 1989. Class C shares commenced on December 30, 2002. Class A shares,
Class B shares, Class R1 shares and Class R2 shares commenced on January 2,
2004. Class R3 shares commenced on April 28, 2006. Class A shares are offered at
net asset value per share plus an initial sales charge. No sales charge applies
on investments of $1 million or more (and certain other qualified purchases) in
Class A shares, but a contingent deferred sales charge is imposed on certain
redemptions of such shares within one year of the date of purchase. Class B
shares and Class C shares are offered without an initial sales charge, although
a declining contingent deferred sales charge may be imposed on redemptions made
within up to six years of purchase of Class B shares and a 1% contingent
deferred sales charge may be imposed on redemptions made within one year of
purchase of Class C shares. Class I, Class R1, Class R2 and Class R3 shares are
not subject to a sales charge. As approved by the Board of Trustees in 1997,
Class B shares convert to Class A shares eight years after the date they were
purchased. The seven classes of shares bear the same voting (except for issues
that relate solely to one class), dividend, liquidation and other rights and
conditions except that Class B and Class C shares are subject to higher
distribution fee rates than Class A, Class R2 and Class R3 shares under a
distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I and Class
R1 shares are not subject to a distribution or service fee. Class R1, Class R2
and Class R3 shares are authorized to pay to New York Life Investment Management
LLC, its affiliates, or third-party service providers, as compensation for
services rendered to shareholders of Class R1, Class R2 or Class R3 shares, a
shareholder service fee.
The Fund's investment objective is to seek high total return.
The ability of issuers of debt securities held by the Fund to meet their
obligations may be affected by economic developments in a specific industry or
region.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The Fund prepares its financial statements in accordance with accounting
principles generally accepted in the United States of America and follows the
significant accounting policies described below.
(A) SECURITIES VALUATION. 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) on each day the Fund is open
for business.
Equity securities are valued at the latest quoted sales prices as of the close
of trading on the New York Stock Exchange on each day the Fund is open for
business ("valuation date"). Securities that are not traded on the valuation
date are valued at the mean of the latest quoted bid and asked prices. Prices
normally are taken from the principal market in which each security trades.
Futures contracts are valued at the last posted settlement price on the market
where such futures are primarily traded. Investments in mutual funds are valued
at their net asset value as of the close of the New York Stock Exchange on the
date of valuation.
Temporary cash investments acquired over 60 days prior to maturity are valued
using the latest bid prices or using valuations based on a matrix system (which
considers such factors as security prices, yields, maturities, and ratings),
both as furnished by independent pricing services. Other temporary cash
investments which mature 60 days or less are valued at amortized cost. The
amortized cost method involves valuing a security at its cost on the date of
purchase and thereafter assuming a constant amortization to maturity of the
difference between the principal amount due at maturity and cost.
Securities for which market quotations are not readily available are valued by
methods deemed in good faith by the Fund's Board of 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 or suspended; a debt security that has recently gone into default and for
which there is not a 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 the market price of which is not available from an
independent pricing source or, if so provided, does not, in the opinion of the
Fund's 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, 2007, the Fund held securities with a value of $5,498, that were
valued in such a manner.
(B) FEDERAL INCOME TAXES. The Fund's 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
26 MainStay Balanced Fund
the Fund within the allowable time limits. Therefore, no federal income tax
provision is required.
(C) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
of net investment income and distributions of net realized capital and currency
gains, if any, quarterly. All dividends and distributions are reinvested in
shares of the Fund, at net asset value, unless the shareholder elects otherwise.
Dividends and distributions to shareholders are determined in accordance with
federal income tax regulations and may differ from generally accepted accounting
principles in the United States of America. Permanent book/tax differences
relating to income and gains are reclassified amongst undistributed net
investment income, accumulated net realized gain or loss and paid-in-capital.
(D) SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method and include gains
and losses from repayments of principal on mortgage-backed securities. Dividend
income is recognized on the ex-dividend date and interest income is accrued as
earned using the effective interest rate method. Discounts and premiums on
securities purchased, other than short-term securities, for the Fund are
accreted and amortized, respectively, on the effective interest rate method over
the life of the respective securities or, in the case of a callable security,
over the period to the first date of call. Discounts and premiums on short-term
securities are accreted and amortized, respectively, on the straight line
method.
Investment income and realized and unrealized gains and losses on investments of
the Fund are allocated to separate classes of shares pro rata based upon their
relative net assets on the date the income is earned or realized and unrealized
gains and losses are incurred.
(E) EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except where direct allocations of expenses can be made. Expenses
(other than transfer agent expenses and fees incurred under the shareholder
services plans and the distribution plans further discussed in Note 3 (B) on
page 28) are allocated to separate classes of shares pro rata based upon their
relative net assets value on the date the expenses are incurred. The expenses
borne by the Fund, including those of related parties to the Fund, are shown in
the Statement of Operations.
(F) USE OF ESTIMATES. In preparing financial statements in conformity with
accounting principles generally accepted in the United States of America,
management makes estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
(G) FUTURES CONTRACTS. A futures contract is an agreement to purchase or sell a
specified quantity of an underlying instrument at a specified future date and
price, or to make or receive a cash payment based on the value of a securities
index. During the period the futures contract is open, changes in the value of
the contract are recognized as unrealized gains or losses by "marking to market"
such contract on a daily basis to reflect the market value of the contract at
the end of each day's trading. The Fund agrees to receive from or pay to the
broker an amount of cash equal to the daily fluctuation in the value of the
contract. Such receipts or payments are known as "variation margin". When the
futures contract is closed, the Fund records a realized gain or loss equal to
the difference between the proceeds from (or cost of) the closing transaction
and the Fund's basis in the contract. The Fund invests in stock index futures
contracts to gain full exposure to changes in stock market prices to fulfill its
investment objective.
The use of futures contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the Statement of Assets and
Liabilities. The contract or notional amounts and variation margin reflect the
extent of the Fund's involvement in open futures positions. Risks arise from the
possible imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets, and the possible inability of
counterparties to meet the terms of their contracts. However, the Fund's
activities in futures contracts are conducted through regulated exchanges which
minimize counterparty credit risks.
(H) SECURITIES LENDING. In order to realize additional income the 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 Fund may bear
the risk of delay in recovery of, or loss of rights in, the securities loaned
should the borrower of the securities experience financial difficulty. The Fund
receives compensation for lending its securities in the form of fees or it
retains a portion of interest on the investment of any cash received as
collateral. The Fund also continues to receive interest and dividends on the
securities loaned and any gain or loss in the market price of the securities
loaned that may occur during the term of the loan will be for the account of the
Fund.
(I) 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 Fund may not
have the right to demand that such securities be registered. Disposal of these
securities may involve time-consuming negotiations and expenses and it
www.mainstayfunds.com 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
may be difficult to obtain a prompt sale at an acceptable price. (See Note 5 on
page 30.)
(J) INDEMNIFICATIONS. In the normal course of business, the Fund enters into
contracts with third party service providers that contain a variety of
representations and warranties and which provide general indemnifications. The
Fund's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Fund that have not yet
occurred. Based on experience, management is of the view that the risk of loss
in connection with these potential indemnification obligations is remote.
However, there can be no assurance that material liabilities related to such
obligations will not arise in the future which could adversely impact the Fund.
NOTE 3--FEES AND RELATED PARTY TRANSACTIONS:
(A) MANAGER. New York Life Investment Management LLC ("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 Fund's Manager.
NYLIM provides offices and conducts clerical, recordkeeping and bookkeeping
services, and is responsible for the financial and accounting records required
to be maintained by the Fund. NYLIM also pays the salaries and expenses of all
personnel affiliated with the Fund and all the operational expenses that are not
the responsibility of the Fund. The Fund is advised by NYLIM directly, without a
subadvisor.
The Fund is contractually obligated to pay NYLIM a monthly fee for services
performed and facilities furnished at an annual rate of the Fund's average daily
net assets as follows: 0.75% on assets up to $1 billion and 0.70% on assets in
excess of $1 billion.
Effective March 1, 2007, NYLIM has entered into a written expense limitation
agreement under which it has agreed to waive a portion of the Fund's management
fee or reimburse the expenses of the appropriate class of the Fund so that the
class' total ordinary operating expenses (total annual operating expenses
excluding taxes, interest, litigation, extraordinary expenses, and brokerage and
other transaction expenses relating to the purchase or sale of portfolio
investments) do not exceed the following amounts of average daily net assets for
each class: Class A, 1.40%; Class B, 2.15%; Class C, 2.15%; Class I, 0.94%;
Class R1, 1.04%; Class R2, 1.29%; and Class R3, 1.54%. This expense limitation
may be modified or terminated only with the approval of the Board of Trustees.
NYLIM may recoup the amount of any management fee waivers or expense
reimbursements from the Fund pursuant to the 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 NYLIM incurred the expense.
For the year ended October 31, 2007, NYLIM earned fees from the Fund in the
amount of $10,115,287 and waived its fees in the amount of $274,906.
As of October 31, 2007, the amounts of waived fees that are subject to possible
recoupment by NYLIM, and the related expiration dates are as follows:
<Table>
<Caption>
OCTOBER 31,
2010 TOTAL
$274,906 $274,906
-----------------------------------------------------------
</Table>
Prior to March 1, 2007, NYLIM had an agreement in place under which it had
agreed to waive a portion of the Fund's management fee or reimburse the expenses
of the Fund so that the Fund's total ordinary operating expenses did not exceed
0.94% of the Fund's average daily net assets for its Class I shares. NYLIM also
applied an equivalent waiver or reimbursement, in an equal amount of basis
points, to the other share classes of the Fund.
State Street Bank & Trust Company ("SSBT"), One Lincoln Street, Boston,
Massachusetts, 02111, provides sub-administration and sub-accounting services to
the Fund pursuant to an agreement with NYLIM. These services include calculating
daily net asset values of the Fund, maintaining general ledger and sub-ledger
accounts for the calculation of the Fund's respective net asset values, and
assisting NYLIM in conducting various aspects of the Fund's administrative
operations. For providing these services to the Fund, SSBT is compensated by
NYLIM.
(B) DISTRIBUTION, SERVICE AND SHAREHOLDER SERVICE FEES. The Trust, on behalf of
the Fund, has a Distribution Agreement with NYLIFE Distributors LLC (the
"Distributor"), an indirect wholly-owned subsidiary of New York Life. The Fund,
with respect to Class A, Class B, Class C, Class R2 and Class R3 shares, has
adopted distribution plans (the "Plans") in accordance with the provisions of
Rule 12b-1 under the 1940 Act.
Pursuant to the Class A and Class R2 Plans, the Distributor receives a monthly
distribution fee from the Fund at an annual rate of 0.25% of the average daily
net assets of the Fund's Class A and Class R2 shares, 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, the
Fund pays the Distributor a monthly distribution fee, which is an expense of the
Class B and Class C shares of the Fund, at the annual rate of 0.75% of the
average daily net assets of the Fund's Class B and Class C shares. The Plans
provide that the Class B and Class C shares of the Fund also incur a service fee
at the annual rate of 0.25% of the average daily net asset value of the Class B
and Class C shares of the Fund. Pursuant to the Class R3 Plan, the Distributor
28 MainStay Balanced Fund
receives a monthly distribution 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. Class I and Class R1 shares are not subject to a
distribution or service fee.
The Plans provide that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
In accordance with the Shareholder Services Plans for the Class R1, Class R2 and
Class R3 shares, the Manager has agreed to provide, through its affiliates or
independent third parties, various shareholder and administrative support
services to shareholders of the Class R1, Class R2 and Class R3 shares. For its
services, the Manager is entitled to a Shareholder Service Fee accrued daily and
paid monthly at an annual rate of 0.10% of the average daily net assets
attributable to the Class R1, Class R2 and Class R3 shares.
(C) SALES CHARGES. The Fund was advised by the Distributor that the amount of
sales charges retained on sales of Class A shares was $171,530 for the year
ended October 31, 2007. 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 $23,098, $270,336 and $29,328, respectively, for the year ended
October 31, 2007.
(D) TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. NYLIM
Service Company LLC ("NYLIM Service"), an affiliate of NYLIM, is the Fund's
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 Fund, for the year ended October 31, 2007,
amounted to $2,695,861.
(E) SMALL ACCOUNT FEES. Shareholders with small accounts adversely impact the
cost of providing transfer agency services. In an effort to reduce total
transfer agency expenses, the Fund has implemented a small account fee on
certain types of accounts, effective March 1, 2007. Shareholders with an account
balance of less than $1,000 are charged an annual per account fee of $20
(assessed semi-annually).
(F) CAPITAL. At October 31, 2007, New York Life and its affiliates held
beneficially shares of the Fund with the following values and percentages of net
assets as follows:
<Table>
Class A $ 1,605 0.0*%
- ----------------------------------------------------------
Class B 1,299 0.0*
- ----------------------------------------------------------
Class C 1,747 0.0*
- ----------------------------------------------------------
Class R1 1,346 0.0*
- ----------------------------------------------------------
Class R2 1,335 0.0*
- ----------------------------------------------------------
Class R3 10,947 29.8
- ----------------------------------------------------------
</Table>
* Less than one-tenth of a percent.
(G) OTHER. Pursuant to an Amended and Restated Management Agreement between the
Fund and NYLIM, the cost of legal services provided to the Fund by the Office of
the General Counsel of NYLIM are payable directly by the Fund. For the year
ended October 31, 2007, these fees, which are included in professional fees
shown on the Statement of Operations, were $66,737.
NOTE 4--FEDERAL INCOME TAX:
As of October 31, 2007, the components of accumulated gain/loss on a tax basis
were as follows:
<Table>
<Caption>
ACCUMULATED OTHER UNREALIZED TOTAL
ORDINARY CAPITAL GAIN TEMPORARY APPRECIATION ACCUMULATED
INCOME (LOSS) DIFFERENCES (DEPRECIATION) GAIN(LOSS)
$15,409,891.. $63,631,729 $-- $ 67,670,938 $146,712,558
------------------------------------------------------------------------
</Table>
The difference between book-basis and tax basis unrealized appreciation is
primarily due to wash sale deferrals.
The following table discloses the current year reclassifications between
accumulated undistributed net investment income and accumulated net realized
gain on investments, arising from permanent differences; net assets at October
31, 2007 are not affected.
<Table>
<Caption>
ACCUMULATED
ACCUMULATED UNDISTRIBUTED NET
UNDISTRIBUTED NET REALIZED ADDITIONAL
INVESTMENT GAIN(LOSS) ON PAID-IN
INCOME(LOSS) INVESTMENTS CAPITAL
$(393,117) $ 393,117 $ --
---------------------------------------------------------
</Table>
The reclassifications for the Fund are primarily due to paydown gain (loss),
return of capital, reclassifications of distributions and real estate investment
trust gain (loss).
www.mainstayfunds.com 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The tax character of distributions paid during the years ended October 31, 2007
and October 31, 2006, shown in the Statement of Changes in Net Assets, was as
follows:
<Table>
<Caption>
2007 2006
Distributions paid from:
Ordinary Income $29,801,713 $35,229,375
Long-Term Capital Gains 28,922,938 33,322,455
---------------------------
$58,724,651 $68,551,830
===========================
</Table>
NOTE 5--RESTRICTED SECURITIES:
As of October 31, 2007, the Fund held restricted securities as follows:
<Table>
<Caption>
DATE(S) OF 10/31/07 PERCENTAGE OF
SECURITY ACQUISITION SHARES COST VALUE NET ASSETS
At Home Corp.
Convertible Bond 7/25/01 177,810 $13,325 $ 18 0.0%(a)
Northern Atlantic
Trading Co., Inc.
Common Stock 4/21/04 130 1 1 0.0(a)
----------------------------------
$13,326 $ 19 0.0%(a)
- ---------------------------------------------------------------------------------
</Table>
(a) Less than one-tenth of one percent.
NOTE 6--CUSTODIAN:
SSBT 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 7--LINE OF CREDIT:
The Fund, and certain affiliated funds, 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 pay a commitment fee, at an annual rate of .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 made or outstanding on the line of credit during the year ended
October 31, 2007.
NOTE 8--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended October 31, 2007, purchases and sales of U.S. Government
securities were $0 and $439, respectively. Purchases and sales of securities,
other than U.S. Government securities and short-term securities, were $919,047
and $1,008,884, respectively.
NOTE 9--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<Table>
<Caption>
CLASS A SHARES AMOUNT
Year ended October 31, 2007:
Shares sold 2,610 $ 73,813
Shares issued to shareholders in
reinvestment of dividends and
distributions 589 16,514
Shares redeemed (4,381) (123,675)
----------------------
Net decrease in shares outstanding
before conversion (1,182) (33,348)
Shares converted from Class B (See Note
1) 394 11,106
----------------------
Net decrease (788) $ (22,242)
======================
Year ended October 31, 2006:
Shares sold 5,322 $ 143,120
Shares issued to shareholders in
reinvestment of dividends and
distributions 656 17,368
Shares redeemed (4,480) (120,943)
----------------------
Net increase in shares outstanding
before conversion 1,498 39,545
Shares converted from Class B (See Note
1) 2,141 56,463
----------------------
Net increase 3,639 $ 96,008
======================
</Table>
<Table>
<Caption>
CLASS B SHARES AMOUNT
Year ended October 31, 2007:
Shares sold 751 $20,389
Shares issued to shareholders in
reinvestment of dividends and
distributions 181 5,061
Shares redeemed (1,002) (27,452)
------------------
Net decrease in shares outstanding
before conversion (70) (2,002)
Shares reacquired upon conversion into
Class A (See Note 1) (395) (11,106)
------------------
Net decrease (465) $(13,108)
==================
Year ended October 31, 2006:
Shares sold 1,291 $34,696
Shares issued to shareholders in
reinvestment of dividends and
distributions 382 10,056
Shares redeemed (1,592) (42,678)
------------------
Net increase (decrease) in shares
outstanding before conversion 81 2,074
Shares reacquired upon conversion into
Class A (See Note 1) (2,145) (56,463)
------------------
Net decrease (2,064) $(54,389)
==================
</Table>
30 MainStay Balanced Fund
<Table>
<Caption>
CLASS C SHARES AMOUNT
Year ended October 31, 2007:
Shares sold 1,065 $30,048
Shares issued to shareholders in
reinvestment of dividends and
distributions 162 4,510
Shares redeemed (1,633) (45,863)
------------------
Net decrease (406) $(11,305)
==================
Year ended October 31, 2006:
Shares sold 2,098 $56,355
Shares issued to shareholders in
reinvestment of dividends and
distributions 217 5,698
Shares redeemed (1,487) (39,999)
------------------
Net increase 828 $22,054
==================
</Table>
<Table>
<Caption>
CLASS I SHARES AMOUNT
Year ended October 31, 2007:
Shares sold 4,300 $ 120,632
Shares issued to shareholders in
reinvestment of dividends and
distributions 646 18,130
Shares redeemed (4,007) (113,096)
---------------------
Net increase 939 $ 25,666
=====================
Year ended October 31, 2006:
Shares sold 6,380 $ 172,050
Shares issued to shareholders in
reinvestment of dividends and
distributions 713 18,921
Shares redeemed (3,627) (98,124)
---------------------
Net increase 3,466 $ 92,847
=====================
</Table>
<Table>
<Caption>
CLASS R1 SHARES AMOUNT
Year ended October 31, 2007:
Shares sold 1,683 $47,287
Shares issued to shareholders in
reinvestment of dividends and
distributions 179 5,009
Shares redeemed (3,310) (94,001)
------------------
Net decrease (1,448) $(41,705)
==================
Year ended October 31, 2006:
Shares sold 1,445 $38,769
Shares issued to shareholders in
reinvestment of dividends and
distributions 202 5,363
Shares redeemed (630) (17,016)
------------------
Net increase 1,017 $27,116
==================
</Table>
<Table>
<Caption>
CLASS R2 SHARES AMOUNT
Year ended October 31, 2007:
Shares sold 1,319 $37,172
Shares issued to shareholders in
reinvestment of dividends and
distributions 174 4,881
Shares redeemed (1,723) (48,744)
------------------
Net decrease (230) $(6,691)
==================
Year ended October 31, 2006:
Shares sold 2,354 $63,554
Shares issued to shareholders in
reinvestment of dividends and
distributions 182 4,805
Shares redeemed (1,242) (33,490)
------------------
Net increase 1,294 $34,869
==================
</Table>
<Table>
<Caption>
CLASS R3 SHARES AMOUNT
Year ended October 31, 2007:
Shares sold 1 $ 26
Shares issued to shareholders in
reinvestment of dividends and
distributions --(a) --(a)
Shares redeemed (--)(a) (--)(a)
------------------
Net increase 1 $ 26
==================
Year ended October 31, 2006:
Shares sold --(a) $ 10
Shares issued to shareholders in
reinvestment of dividends and
distributions --(a) --(a)
------------------
Net increase --(a) $ 10
==================
</Table>
(a) Less than one thousand.
NOTE 10--NEW ACCOUNTING PRONOUNCEMENTS:
In July 2006, the Financial Accounting Standards Board (the "FASB") issued
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes," an
interpretation of FASB Statement No. 109 (the "Interpretation"). The
Interpretation establishes for all entities, including pass-through entities
such as the Fund, a minimum threshold for financial statement recognition of the
benefit of positions taken in filing tax returns (including whether an entity is
taxable in a particular jurisdiction), and requires certain expanded tax
disclosures. The Interpretation becomes effective for the Fund's 2008 fiscal
year, and is to be applied to all open tax years as of the date of
effectiveness. Based on Management's analysis, the determination has been made
that the adoption of the interpretation on November 1, 2007, did not have an
impact on the Fund's financial statements upon adoption. Management continually
reviews the Fund's tax positions and such conclusions under the Interpretation
based on factors, including, but not limited
www.mainstayfunds.com 31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
to, ongoing analyses of tax laws, regulations and interpretations, thereof.
In September 2006, 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, 2007, the Fund does not believe
the adoption of SFAS No. 157 will impact the amounts reported in the Fund's
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.
32 MainStay Balanced Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders of
Eclipse Funds:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the MainStay Balanced Fund ("the Fund"), one of
the funds constituting Eclipse Funds as of October 31, 2007, and the related
statement 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 five-year
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2007, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
MainStay Balanced Fund of Eclipse Funds as of October 31, 2007, the results of
its operations for the year then ended, the changes in its 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 five-year period then ended,
in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Philadelphia, Pennsylvania
December 20, 2007
www.mainstayfunds.com 33
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
The Fund is required by the Internal Revenue Code to advise shareholders within
60 days of the Fund's fiscal year end (October 31, 2007) as to the federal tax
status of dividends paid by the Fund during such fiscal year. Accordingly, the
Fund paid long-term capital gain distributions of $28,922,938.
The dividends paid by the Fund during the fiscal year ended October 31, 2007,
should be multiplied by 31.7% to arrive at the amount eligible for qualified
dividend income 66.1% for qualified interest income and 35.4% for the corporate
dividends received deduction.
In January 2008, shareholders will receive an IRS Form 1099-DIV or substitute
Form 1099 the federal tax status of the distributions received by shareholders
in calendar year 2007. 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 Fund's fiscal year ended October
31, 2007.
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 Fund's 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 Fund is required to file with the SEC its proxy voting record for the
12-month period ending June 30 on Form N-PX. The Fund's most recent Form N-PX is
available free of charge upon request 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).
SPECIAL MEETING OF SHAREHOLDERS
Pursuant to notice, a special meeting of shareholders of Eclipse Funds (the
"Trust") was held on May 4, 2007, at the offices of New York Life Investment
Management LLC in Parsippany, New Jersey. The purpose of the meeting was to
elect the following individuals to the Board of Trustees of the Trust:
- Susan B. Kerley
- Alan R. Latshaw
- Peter Meenan
- Richard H. Nolan, Jr.
- Richard S. Trutanic
- Roman L. Weil
- John A. Weisser
- Brian A. Murdock (Interested Trustee)
There are no other Trustees of the Trust.
No other business came before the special meeting. The proposal to elect
Trustees was passed by the shareholders of the Fund as shown below:
<Table>
<Caption>
VOTES VOTES
BALANCED FUND FOR WITHHELD ABSTENTIONS TOTAL
Susan B.
Kerley 35,848,337.083 72,796.135 48,485.000 35,969,618.218
- ----------------------------------------------------------------------------
Alan R.
Latshaw 35,847,093.807 74,039.411 48,485.000 35,969,618.218
- ----------------------------------------------------------------------------
Peter Meenan 35,849,409.437 71,723.781 48,485.000 35,969,618.218
- ----------------------------------------------------------------------------
Richard H.
Nolan, Jr. 35,847,555.736 73,577.482 48,485.000 35,969,618.218
- ----------------------------------------------------------------------------
Richard S.
Trutanic 35,845,646.120 75,487.098 48,485.000 35,969,618.218
- ----------------------------------------------------------------------------
Roman L. Weil 35,847,476.090 73,657.128 48,485.000 35,969,618.218
- ----------------------------------------------------------------------------
John A.
Weisser 35,848,166.366 72,966.852 48,485.000 35,969,618.218
- ----------------------------------------------------------------------------
Brian A.
Murdock 35,846,772.847 74,360.371 48,485.000 35,969,618.218
- ----------------------------------------------------------------------------
</Table>
This resulted in approval of the proposal.
34 MainStay Balanced Fund
TRUSTEES AND OFFICERS
The Trustees oversee the Fund and the Manager. Pursuant to notice, a Special
Meeting of Shareholders of the Trust was held on May 4, 2007, at NYLIM's offices
in Parsippany, New Jersey. The Trustees listed below were elected to serve the
Trust effective June 7, 2007.
Each Trustee serves until his or her successor is elected and qualified or until
his or her resignation, death or removal. The Retirement Policy provides that a
Trustee shall tender his or her resignation upon reaching age 72. A Trustee
reaching the age of 72 may continue for additional one-year periods with the
approval of the Board's Nominating and Governance Committee, except that no
Trustee shall serve on the Board past his or her 75th birthday. Officers serve a
term of one year and are elected annually by the Trustees. The business address
of each Trustee and officer listed below is 51 Madison Avenue, New York, New
York 10010.
The Statement of Additional Information applicable to the Fund includes
additional information about the Trustees and is available without charge, upon
request, by calling 1-800-MAINSTAY (1-800-624-6782).
<Table>
<Caption>
TERM OF OFFICE, NUMBER OF FUNDS
POSITION(S) HELD IN FUND COMPLEX
NAME AND WITH THE TRUST AND PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
DATE OF BIRTH LENGTH OF SERVICE DURING PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
-----------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
BRIAN A. MURDOCK Indefinite; Member of the Board of Managers 73 Director, Eclipse Funds Inc.
3/14/56 Trustee since June and President (since 2004) and since June 2007 (22 funds);
2007 and Chief Chief Executive Officer (since Director, MainStay VP Series
Executive Officer 2006), New York Life Investment Fund, Inc., since 2006 (24
since 2006 Management LLC and New York portfolios); Director, ICAP
Life Investment Management Funds, Inc., since 2006 (3
Holdings LLC; Senior Vice funds); Trustee, The MainStay
President, New York Life Funds since 2006 (21 funds)
Insurance Company (since 2004);
Chairman of the Board and
President, NYLIFE Distributors
LLC (since 2004); Member of the
Board of Managers, NYLCAP
Manager LLC and Madison Capital
Funding LLC (since 2004),
MacKay Shields LLC and
Institutional Capital LLC
(since 2006), and McMorgan &
Company LLC (since 2007); Chief
Executive Officer, Eclipse
Funds Inc. (since 2006);
Chairman (2006 to 2007) and
Trustee and Chief Executive
Officer (since 2006), The
MainStay Funds; Chairman (2006
to 2007) and Director and Chief
Executive Officer (since 2006),
MainStay VP Series Fund, Inc.;
Director and Chief Executive
Officer, ICAP Funds, Inc.
(since 2006); Chief Investment
Officer, MLIM Europe and Asia
(2001 to 2003); President of
Merrill Japan and Chairman of
MLIM's Pacific Region (1999 to
2001)
-----------------------------------------------------------------------------------------------------------------------
</Table>
* This Trustee considered to be an "interested person" of the Trust within the
meaning of the 1940 Act because of his affiliation with New York Life
Insurance Company, New York Life Investment Management LLC, MacKay Shields
LLC, Institutional Capital LLC, Markston International, LLC, Winslow Capital
Management, Inc., McMorgan & Company LLC, NYLIFE Securities Inc. and/or NYLIFE
Distributors LLC, as described in detail above in the column "Principal
Occupation(s) During Past Five Years."
www.mainstayfunds.com 35
<Table>
<Caption>
TERM OF OFFICE, NUMBER OF FUNDS
POSITION(S) HELD IN FUND COMPLEX
NAME AND WITH THE TRUST AND PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
DATE OF BIRTH LENGTH OF SERVICE DURING PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
-----------------------------------------------------------------------------------------------------------------------
NON-INTERESTED TRUSTEES
SUSAN B. KERLEY Indefinite; Partner, Strategic Management 73 Chairman since 2005 and
8/12/51 Chairman since Advisors LLC (since 1990) Director since 1990, Eclipse
2005 and Trustee Funds Inc. (22 funds); Chairman
since 2000 and Director, ICAP Funds, Inc.,
since 2006 (3 funds); Chairman
and Trustee, The MainStay
Funds, since June 2007 (21
funds); Chairman and Director,
MainStay VP Series Fund, Inc.,
since June 2007 (24
portfolios); Trustee, Legg
Mason Partners Funds, Inc.,
since 1991 (30 portfolios)
-----------------------------------------------------------------------------------------------------------------------
ALAN R. LATSHAW Indefinite; Retired; Partner, Ernst & Young 73 Director, Eclipse Funds Inc.
3/27/51 Trustee and Audit LLP (2002 to 2003); Partner, since June 2007 (22 funds);
Committee Arthur Andersen LLP (1989 to Director, ICAP Funds, Inc.,
Financial Expert 2002); Consultant to the Audit since June 2007 (3 funds);
since June 2007 and Compliance Committee of The Trustee, The MainStay Funds
MainStay Funds (2004 to 2006) since 2006 (21 funds);
Director, MainStay VP Series
Fund, Inc., since June 2007 (24
portfolios); Trustee, State
Farm Associates Funds Trusts
since 2005 (3 portfolios);
Trustee, State Farm Mutual Fund
Trust since 2005 (15
portfolios); Trustee, State
Farm Variable Product Trust
since 2005 (9 portfolios)
-----------------------------------------------------------------------------------------------------------------------
PETER MEENAN Indefinite; Independent Consultant; 73 Director, Eclipse Funds Inc.
12/5/41 Trustee since 2002 President and Chief Executive since 2002 (22 funds);
Officer, Babson-United, Inc. Director, ICAP Funds, Inc.,
(financial services firm) (2000 since June 2007 (3 funds);
to 2004); Independent Trustee, The MainStay Funds
Consultant (1999 to 2000); Head since June 2007 (21 funds);
of Global Funds, Citicorp (1995 Director, MainStay VP Series
to 1999) Fund, Inc., since June 2007 (24
portfolios)
-----------------------------------------------------------------------------------------------------------------------
RICHARD H. Indefinite; Managing Director, ICC Capital 73 Director, Eclipse Funds Inc.
NOLAN, JR. Trustee since June Management; President--Shields/ since June 2007 (22 funds);
11/16/46 2007 Alliance, Alliance Capital Director, ICAP Funds, Inc.,
Management (1994 to 2004) since June 2007 (3 funds);
Trustee, The MainStay Funds
since June 2007 (21 funds);
Director, MainStay VP Series
Fund, Inc., since 2006 (24
portfolios)
-----------------------------------------------------------------------------------------------------------------------
RICHARD S. Indefinite; Chairman (since 1990) and Chief 73 Director, Eclipse Funds Inc.
TRUTANIC Trustee since June Executive Officer (1990 to since June 2007 (22 funds);
2/13/52 2007 1999), Somerset Group Director, ICAP Funds, Inc.,
(financial advisory firm); since June 2007 (3 funds);
Managing Director and Advisor, Trustee, The MainStay Funds
The Carlyle Group (private since 1994 (21 funds);
investment firm) (2002 to Director, MainStay VP Series
2004); Senior Managing Director Fund, Inc., since June 2007 (24
and Partner, Groupe Arnault portfolios)
S.A. (private investment firm)
(1999
to 2002)
-----------------------------------------------------------------------------------------------------------------------
</Table>
36 MainStay Balanced Fund
<Table>
<Caption>
TERM OF OFFICE, NUMBER OF FUNDS
POSITION(S) HELD IN FUND COMPLEX
NAME AND WITH THE TRUST AND PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
DATE OF BIRTH LENGTH OF SERVICE DURING PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
-----------------------------------------------------------------------------------------------------------------------
NON-INTERESTED TRUSTEE
ROMAN L. WEIL Indefinite; V. Duane Rath Professor of 73 Director, Eclipse Funds Inc.
5/22/40 Trustee and Audit Accounting, Graduate School of since June 2007 (22 funds);
Committee Business, University of Director, ICAP Funds, Inc.,
Financial Expert Chicago; President, Roman L. since June 2007 (3 funds);
since June 2007 Weil Associates, Inc. Trustee, The MainStay Funds
(consulting firm) since June 2007 (21 funds);
Director, MainStay VP Series
Fund, Inc., since 1994 (24
portfolios)
-----------------------------------------------------------------------------------------------------------------------
JOHN A. WEISSER Indefinite; Retired. Managing Director of 73 Director, Eclipse Funds Inc.
10/22/41 Trustee since June Salomon Brothers, Inc. (1971 to since June 2007 (22 funds);
2007 1995) Director, ICAP Funds, Inc.,
since June 2007 (3 funds);
Trustee, The MainStay Funds
since June 2007 (21 funds);
Director, MainStay VP Series
Fund, Inc., since 1997 (24
portfolios); Trustee, Direxion
Funds (69 funds) and Direxion
Insurance Trust (45 funds)
since March 2007
-----------------------------------------------------------------------------------------------------------------------
</Table>
Lawrence Glacken and Robert P. Mulhearn resigned as Trustees of the Trust
effective June 7, 2007.
At a meeting of the Board of Trustees held on June 7 and 8, 2007, the following
individuals were appointed to serve as Officers of the Trust effective June 7,
2007:
<Table>
<Caption>
POSITION(S) HELD
NAME AND WITH THE TRUST 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 2004 York Life Investment Management LLC (including predecessor
10/19/46 advisory organizations) (since 2000); Secretary (since 2001)
and General Counsel (since 2004), New York Life Investment
Management Holdings LLC; Senior Vice President, New York
Life Insurance Company (since 2000); Vice President and
Secretary, McMorgan & Company LLC (since 2001); Secretary,
NYLIM Service Company LLC (since 2005), NYLCAP Manager LLC
(since 2004), Madison Capital Funding LLC (since 2002) and
Institutional Capital LLC (since 2006); Chief Legal Officer,
Eclipse Funds Inc., The MainStay Funds and MainStay VP
Series Fund, Inc. (since 2004), McMorgan Funds (since 2005)
and ICAP Funds, Inc. (since 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)
--------------------------------------------------------------------------------------------------
JACK R. Treasurer and Managing Director, New York Life Investment Management LLC
BENINTENDE Principal (since June 2007); Treasurer and Principal Financial and
5/12/64 Financial and Accounting Officer, Eclipse Funds Inc., The MainStay Funds,
Accounting Officer MainStay VP Series Fund, Inc., and ICAP Funds, Inc. (since
since June 2007 June 2007); Vice President, Prudential Investments (2000 to
2007); Assistant Treasurer, JennisonDryden Family of Funds,
Target Portfolio Trust, The Prudential Series Fund and
American Skandia Trust (2006 to 2007); Treasurer and
Principal Financial Officer, The Greater China Fund (2007)
--------------------------------------------------------------------------------------------------
STEPHEN P. President since Senior Managing Director and Chief Marketing Officer, New
FISHER March 2007 York Life Investment Management LLC (since 2005); Managing
2/22/59 Director--Retail Marketing, New York Life Investment
Management LLC (2003 to 2005); President, Eclipse Funds
Inc., The MainStay Funds, MainStay VP Series Fund, Inc., and
ICAP Funds, Inc. (since March 2007); Managing Director, UBS
Global Asset Management (1999 to 2003)
--------------------------------------------------------------------------------------------------
SCOTT T. Vice President-- Director, New York Life Investment Management LLC (including
HARRINGTON Administration predecessor advisory organizations) (since 2000); Executive
2/8/59 since 2005 Vice President, New York Life Trust Company (since 2006);
Vice President--Administration, Eclipse Funds Inc., MainStay
VP Series Fund, Inc., and The MainStay Funds (since 2005)
and ICAP Funds, Inc. (since 2006)
--------------------------------------------------------------------------------------------------
</Table>
www.mainstayfunds.com 37
<Table>
<Caption>
POSITION(S) HELD
NAME AND WITH THE TRUST AND PRINCIPAL OCCUPATION(S)
DATE OF BIRTH LENGTH OF SERVICE DURING PAST FIVE YEARS
--------------------------------------------------------------------------------------------------
OFFICERS
ALISON H. Senior Vice Senior Managing Director and Chief Compliance Officer (since
MICUCCI President and 2006) and Managing Director and Chief Compliance Officer
12/16/65 Chief Compliance (2003 to 2006), New York Life Investment Management LLC and
Officer since 2006 New York Life Investment Management Holdings LLC; Senior
Managing Director, Compliance (since 2006) and Managing
Director, Compliance (2003 to 2006), NYLIFE Distributors
LLC; Chief Compliance Officer, NYLCAP Manager LLC (since
2006); Senior Vice President and Chief Compliance Officer,
Eclipse Funds Inc., The MainStay Funds, MainStay VP Series
Fund, Inc., and ICAP Funds, Inc. (since 2006); Vice
President--Compliance, Eclipse Funds Inc., The MainStay
Funds and MainStay VP Series Fund, Inc. (2004 to 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 2005); Managing
3/26/56 Director and Secretary, NYLIFE Distributors LLC (since
2005); Secretary, Eclipse Funds Inc., The MainStay Funds and
MainStay VP Series Fund, Inc. (since 2004) and ICAP Funds,
Inc. (since 2006); Chief Legal Officer--Mutual Funds and
Vice President and Corporate Counsel, The Prudential
Insurance Company of America (2000 to 2004)
--------------------------------------------------------------------------------------------------
</Table>
* In addition to serving as Secretary to the Trust, effective January 1, 2008,
Marguerite E.H. Morrison will assume the role as Chief Legal Officer to the
Trust.
Arphiela Arizmendi resigned as Treasurer and Principal Financial and Accounting
Officer of the Trust effective June 7, 2007.
Christopher O. Blunt resigned as President of the Trust effective March 10,
2007.
Patrick G. Boyle resigned as Executive Vice President of the Trust effective
June 7, 2007.
Tony H. Elavia resigned as Senior Vice President of the Trust effective June 7,
2007.
Alan J. Kirshenbaum resigned as Senior Vice President of the Trust effective
March 19, 2007.
38 MainStay Balanced Fund
MAINSTAY FUNDS
MAINSTAY OFFERS A WIDE RANGE OF FUNDS FOR VIRTUALLY ANY INVESTMENT NEED. THE
FULL ARRAY OF MAINSTAY OFFERINGS IS LISTED HERE, WITH INFORMATION ABOUT THE
MANAGER, SUBADVISORS, LEGAL COUNSEL, AND INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM.
EQUITY FUNDS
MainStay 130/30 Core Fund
MainStay 130/30 Growth Fund
MainStay All Cap Growth 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
MainStay Small Cap Value Fund
MainStay Value Fund
INCOME FUNDS
MainStay 130/30 High Yield Fund(2)
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 Institutional Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Money Market Fund
MainStay Principal Preservation Fund
MainStay Short Term Bond Fund
MainStay Tax Free Bond Fund
BLENDED FUNDS
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Manager Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay 130/30 International Fund
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
RETIREMENT FUNDS
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
MANAGER
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
New York, New York
SUBADVISORS
INSTITUTIONAL CAPITAL LLC(3)
Chicago, Illinois
MACKAY SHIELDS LLC(3)
New York, New York
MARKSTON INTERNATIONAL LLC
White Plains, New York
MCMORGAN & COMPANY LLC(3)
San Francisco, California
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. 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 Eclipse Funds
(C) 2007 by NYLIFE Distributors LLC. All rights reserved.
SEC File Number: 811-04847
NYLIM-AO11871 (RECYCLE LOGO) MS329-07 MSBL11-12/07
B7
(MAINSTAY INVESTMENTS LOGO)
MAINSTAY
MID CAP OPPORTUNITY FUND
Message from the President
and
Annual Report
October 31, 2007
MESSAGE FROM
THE PRESIDENT
The 12-month period ended October 31, 2007, was a dynamic one for mutual fund
investors. U.S. equity markets generally advanced, with growth stocks out-
performing value stocks at all capitalization levels. Although past performance
is no guarantee of future results, international stocks as a whole provided even
stronger returns for U.S. investors.
The progress of the equity markets, however, was far from steady. In February,
weakness in Asian markets led to sharp price declines around the globe. The
correction caused many investors to reconsider whether China and other emerging
economies could sustain their rapid growth. Fortunately, strong
corporate-earnings reports and positive economic news helped the stock market
regain its footing.
In July and August, difficulties in the subprime-mortgage market led to another
stock-market correction. A number of high-profile mortgage originators either
closed their doors or were sold to larger entities. Other leading financial
services firms faced major write-offs because of subprime-mortgage exposure.
The Federal Open Market Committee (FOMC) took prompt action to increase
liquidity and stabilize the financial markets by lowering the discount rate and
the federal funds target rate during the reporting period. These Federal Reserve
moves helped calm investor concerns, and the stock market generally advanced
from August 16, 2007, the date of an unscheduled FOMC meeting, through the end
of October 2007.
Difficulties in the subprime-mortgage market led to a "flight to quality," or a
general movement toward fixed-income securities that carry lower risk. As demand
for short- and intermediate-term Treasury securities increased, yields fell
across much of the maturity spectrum. Yields rose, however, on 20-and 30-year
Treasury bonds, and the yield curve steepened during the 12-month reporting
period.
High-yield bonds rallied from November 2006 through May 2007. But in June and
July, the yield differences--or spreads--between high-yield bonds and comparable
Treasury securities began to widen. At the end of October 2007, these spreads
were wider than when the reporting period began, making high-yield securities
more attractive to investors willing to accept higher risk.
To help investors address the challenges of today's ever-changing markets, New
York Life Investment Management LLC provides access to seven institutional
investment boutiques, each with its own proprietary research and investment
culture. As advisors and subadvisors to MainStay Funds, these boutiques bring a
wealth of experience and market insight to our shareholders. The portfolio
managers of each MainStay Fund seek to consistently apply time-tested investment
principles across a wide variety of market environments.
The report that follows provides more specific information about the market
forces and investment decisions that affected your investment in MainStay Funds
from November 1, 2006, through October 31, 2007. Please read the report
carefully. As you do, bear in mind that this annual report reflects just a short
segment of your lifetime investment journey. We look forward to continuing to
work with you, wherever that journey may lead.
Sincerely,
/s/ STEPHEN P. FISHER
Stephen P. Fisher
President
Not part of the Annual Report
(MAINSTAY INVESTMENTS LOGO)
MAINSTAY
MID CAP OPPORTUNITY FUND
MainStay Funds
Annual Report
October 31, 2007
TABLE OF CONTENTS
<Table>
Annual Report
- --------------------------------------------------------------------------------
Investment and Performance Comparison 5
- --------------------------------------------------------------------------------
Portfolio Management Discussion and Analysis 9
- --------------------------------------------------------------------------------
Portfolio of Investments 10
- --------------------------------------------------------------------------------
Financial Statements 13
- --------------------------------------------------------------------------------
Notes to Financial Statements 18
- --------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm 24
- --------------------------------------------------------------------------------
Federal Income Tax Information 25
- --------------------------------------------------------------------------------
Proxy Voting Policies and Procedures and Proxy Voting Record 25
- --------------------------------------------------------------------------------
Shareholder Reports and Quarterly Portfolio Disclosure 25
- --------------------------------------------------------------------------------
Special Meeting of Shareholders 25
- --------------------------------------------------------------------------------
Trustees and Officers 26
</Table>
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, AND AS A RESULT, WHEN SHARES ARE REDEEMED, THEY 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.
CLASS A SHARES--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
With sales charges 1.65% 14.05% 8.39%
Excluding sales charges 7.56 15.35 9.01
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY MID CAP OPPORTUNITY
FUND CLASS A RUSSELL MIDCAP VALUE INDEX
---------------------------- --------------------------
10/31/97 9450 10000
10311 10574
10306 11177
11326 12501
11032 12329
10965 11963
14281 15968
16090 19120
18438 22848
20816 27535
10/31/07 22390 30213
</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 1.76% 14.26% 8.17%
Excluding sales charges 6.76 14.49 8.17
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY MID CAP OPPORTUNITY
FUND CLASS B RUSSELL MIDCAP VALUE INDEX
---------------------------- --------------------------
10/31/97 10000 10000
10827 10574
10724 11177
11688 12501
11300 12329
11148 11963
14410 15968
16106 19120
18330 22848
20545 27535
10/31/07 21933 30213
</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 5.72% 14.51% 8.18%
Excluding sales charges 6.72 14.51 8.18
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
MAINSTAY MID CAP OPPORTUNITY
FUND CLASS C RUSSELL MIDCAP VALUE INDEX
---------------------------- --------------------------
10/31/97 10000 10000
10834 10574
10725 11177
11689 12501
11307 12329
11148 11963
14435 15968
16126 19120
18345 22848
20563 27535
10/31/07 21946 30213
</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 maximum applicable sales charges explained in this paragraph, change in
share price, and reinvestment of dividend and capital-gain distributions. 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. The Manager may recoup the
amount of certain management fee waivers or expense reimbursements from the Fund
pursuant to the contract 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,
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 5
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
7.87% 15.71% 9.31%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY MID CAP OPPORTUNITY
FUND CLASS I RUSSELL MIDCAP VALUE INDEX
---------------------------- --------------------------
10/31/97 10000 10000
10941 10574
10958 11177
12073 12501
11788 12329
11744 11963
15336 15968
17326 19120
19944 22848
22585 27535
10/31/07 24362 30213
</Table>
CLASS R3 SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
7.24% 15.02% 8.66%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY MID CAP OPPORTUNITY
FUND CLASS R3 RUSSELL MIDCAP VALUE INDEX
---------------------------- --------------------------
10/31/97 10000 10000
10875 10574
10828 11177
11858 12501
11509 12329
11397 11963
14794 15968
16613 19120
19009 22848
21394 27535
10/31/07 22943 30213
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
- -------------------------------------------------------------------------------
Russell Midcap(R) Value Index(1) 9.73% 20.36% 11.69%
Average Lipper mid-cap value fund(2) 12.87 18.92 10.49
</Table>
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 upon
initial offer. 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 capital-ization. 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. Lipper Inc. is an independent monitor of fund performance. Results are based
on total returns with all dividend and capital-gain distributions reinvested.
THE DISCLOSURE ON THE PRECEDING PAGE IS AN INTEGRAL PART OF THE TABLES AND
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
6 MainStay Mid Cap Opportunity Fund
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, 2007, to October 31, 2007,
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,
2007, to October 31, 2007.
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, 2007. 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 5/1/07 10/31/07 PERIOD(1) 10/31/07 PERIOD(1)
CLASS A SHARES $1,000.00 $949.15 $ 6.63 $1,018.25 $ 6.87
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $945.70 $10.30 $1,014.50 $10.66
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $945.30 $10.30 $1,014.50 $10.66
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $950.70 $ 5.11 $1,019.80 $ 5.29
- ---------------------------------------------------------------------------------------------------------------------------
CLASS R3 SHARES $1,000.00 $947.80 $ 8.05 $1,016.80 $ 8.34
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's net 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).
www.mainstayfunds.com 7
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2007
(COMPOSITION PIE CHART)
<Table>
Common Stocks 99.90
Short-Term Investments (collateral from securities lending 20.30
is 19.9%)
Futures Contracts (0.00)*
Liabilities in Excess of Cash and Other Assets (20.20)
</Table>
* Less than one-tenth of a percent.
See Portfolio of Investments on page 10 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2007 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. Edison International
2. Reliant Energy, Inc.
3. Liberty Media Holding Corp. Capital Class A
4. Parker Hannifin Corp.
5. Ameriprise Financial, Inc.
6. Ford Motor Co.
7. Pepsi Bottling Group, Inc. (The)
8. Chesapeake Energy Corp.
9. Assurant, Inc.
10. Vornado Realty Trust
</Table>
8 MainStay Mid Cap Opportunity Fund
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 ITS
BENCHMARK FOR THE 12-MONTH REPORTING PERIOD?
Excluding all sales charges, MainStay Mid Cap Opportunity Fund returned 7.56%
for Class A shares, 6.76% for Class B shares, and 6.72% for Class C shares for
the 12 months ended October 31, 2007. Over the same period, Class I shares
returned 7.87% and Class R3 shares returned 7.24%. All share classes
underperformed the 12.87% return of the average Lipper(1) mid-cap value fund and
the 9.73% return of the Russell Midcap(R) Value Index(2) for the 12 months ended
October 31, 2007. The Russell Midcap(R) Value Index is the Fund's broad-based
securities-market index. See page 5 for Fund returns with sales charges.
WHAT FACTORS AFFECTED THE FUND'S RELATIVE PERFORMANCE DURING THE REPORTING
PERIOD?
The Fund's relative performance was primarily due to positive contributions from
stock selection in the materials and industrials sectors that were offset by
negative contributions from stock selection in financials and health care. The
Fund's exposure to value factors, which are part of the Fund's proprietary
model, detracted from to the Fund's performance.
WHICH FUND SECTORS WERE THE STRONGEST PERFORMERS DURING THE REPORTING PERIOD AND
WHICH SECTORS WERE THE WEAKEST?
In terms of absolute performance, the Fund's strongest-performing sectors were
materials, energy and industrials. The Fund's weakest-performing sectors were
health care, financials and telecommunication services.
DURING THE REPORTING PERIOD, WHICH STOCKS WERE THE FUND'S BEST PERFORMERS AND
WHICH ONES WERE THE WEAKEST?
The strongest individual contributions to the Fund's performance during the
reporting period came from United States Steel, NRG Energy and Entergy. The
weakest individual contributors were New Century Financial, Radian Group and
Circuit City Stores. New Century Financial Corporation and Radian Group
experienced losses because of difficulties in the subprime lending market.
Circuit City declined with the slowdown in consumer spending.
WERE THERE ANY SIGNIFICANT PURCHASES OR SALES DURING THE REPORTING PERIOD?
The Fund looks for stocks with 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 Frontier Oil and Cummins.
Among the stocks the Fund sold because of unattractive relative valuations,
weakening operating results and deteriorating price trends were Steel Dynamics
and American Electric Power.
WERE THERE ANY NOTABLE CHANGES IN THE FUND'S WEIGHTINGS DURING THE REPORTING
PERIOD?
Weighting changes in the Fund result from a combination of security performance
and the Fund's proprietary quantitative security-selection process. During the
reporting period, the Fund's weighting relative to the Russell Midcap(R) Value
Index increased in consumer discretionary and energy. Over the same period, the
Fund's weightings decreased in health care and financials.
HOW WAS THE FUND POSITIONED AT THE END OF THE REPORTING PERIOD?
As of October 31, 2007, the Fund was moderately overweight relative to the
Russell Midcap(R) Value Index in consumer discretionary and industrials. As of
the same date, the Fund was moderately underweight in health care 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 rate 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. See footnote on page 6 for more information on Lipper Inc.
2. See footnote on page 6 for more information on the Russell Midcap(R) Value
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.
www.mainstayfunds.com 9
PORTFOLIO OF INVESTMENTS+++ OCTOBER 31, 2007
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (99.9%)+
- ------------------------------------------------------------------------------
AUTO COMPONENTS (2.7%)
Autoliv, Inc. 29,437 $ 1,859,830
BorgWarner, Inc. 17,148 1,812,715
------------
3,672,545
------------
AUTOMOBILES (1.9%)
V Ford Motor Co. (a)(b) 283,609 2,515,612
------------
BEVERAGES (1.9%)
V Pepsi Bottling Group, Inc. (The) 58,334 2,513,029
------------
BUILDING PRODUCTS (0.6%)
Armstrong World Industries, Inc. (a) 18,932 776,401
------------
CAPITAL MARKETS (3.4%)
V Ameriprise Financial, Inc. 41,075 2,586,904
BlackRock, Inc. (b) 9,722 2,011,968
------------
4,598,872
------------
CHEMICALS (4.6%)
Air Products & Chemicals, Inc. 20,101 1,966,883
Celanese Corp. Class A 44,280 1,857,989
FMC Corp. 37,024 2,128,880
PPG Industries, Inc. 3,133 234,160
------------
6,187,912
------------
COMMERCIAL BANKS (5.3%)
Comerica, Inc. 35,188 1,642,576
Huntington Bancshares, Inc. 93,312 1,671,218
KeyCorp 26,212 745,731
UnionBanCal Corp. 27,726 1,497,481
Wachovia Corp. 35,533 1,624,924
------------
7,181,930
------------
COMMERCIAL SERVICES & SUPPLIES (1.2%)
Steelcase, Inc. Class A 92,864 1,659,480
------------
COMMUNICATIONS EQUIPMENT (1.7%)
JDS Uniphase Corp. (a)(b) 66,367 1,012,760
Juniper Networks, Inc. (a) 35,096 1,263,456
------------
2,276,216
------------
COMPUTERS & PERIPHERALS (1.2%)
Seagate Technology (b) 58,464 1,627,638
------------
DIVERSIFIED FINANCIAL SERVICES (2.3%)
CIT Group, Inc. 25,560 900,734
Leucadia National Corp. (b) 43,595 2,208,523
------------
3,109,257
------------
</Table>
<Table>
<Caption>
SHARES VALUE
DIVERSIFIED TELECOMMUNICATION SERVICES (2.1%)
CenturyTel, Inc. 33,913 $ 1,493,868
Embarq Corp. 85 4,498
Qwest Communications
International, Inc. (a)(b) 194,348 1,395,419
------------
2,893,785
------------
ELECTRIC UTILITIES (5.8%)
V Edison International 58,157 3,378,340
V Reliant Energy, Inc. (a) 100,233 2,758,412
Sierra Pacific Resources 99,520 1,678,902
------------
7,815,654
------------
ELECTRICAL EQUIPMENT (2.2%)
Cooper Industries, Ltd. Class A 18,270 957,165
First Solar, Inc. (a)(b) 12,595 2,000,212
------------
2,957,377
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.8%)
Avnet, Inc. (a) 25,940 1,082,217
------------
ENERGY EQUIPMENT & SERVICES (2.1%)
ENSCO International, Inc. (b) 5,186 287,771
National Oilwell Varco, Inc. (a) 18,394 1,347,177
Patterson-UTI Energy, Inc. 62,715 1,250,537
------------
2,885,485
------------
FOOD & STAPLES RETAILING (0.7%)
Kroger Co. (The) 18,320 538,425
Safeway, Inc. 13,611 462,774
------------
1,001,199
------------
FOOD PRODUCTS (2.4%)
H.J. Heinz Co. 20,752 970,779
Hormel Foods Corp. 49,182 1,794,159
Wm. Wrigley Jr. Co. 6,695 412,881
------------
3,177,819
------------
GAS UTILITIES (1.2%)
UGI Corp. 61,856 1,646,607
------------
HEALTH CARE PROVIDERS & SERVICES (0.5%)
Health Net, Inc. (a) 1,648 88,349
Universal Health Services, Inc. Class B 12,252 597,285
------------
685,634
------------
</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.
10 MainStay Mid Cap Opportunity Fund The notes to the financial statements
are an integral part of, and should be read in conjunction with, the financial
statements.
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- ------------------------------------------------------------------------------
HOUSEHOLD DURABLES (2.8%)
Black & Decker Corp. 18,549 $ 1,667,741
Mohawk Industries, Inc. (a)(b) 18,000 1,536,120
Stanley Works (The) 9,913 570,493
------------
3,774,354
------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (2.1%)
Mirant Corp. (a) 53,243 2,255,373
NRG Energy, Inc. (a)(b) 13,933 636,181
------------
2,891,554
------------
INSURANCE (11.2%)
Arch Capital Group, Ltd. (a) 22,939 1,715,149
V Assurant, Inc. 41,406 2,419,767
Axis Capital Holdings, Ltd. 46,126 1,833,047
Endurance Specialty Holdings, Ltd. 5,608 219,890
Everest Re Group, Ltd. 17,275 1,840,479
PartnerRe, Ltd. (b) 21,061 1,753,328
RenaissanceRe Holdings, Ltd. 28,322 1,652,305
Transatlantic Holdings, Inc. 22,459 1,673,869
XL Capital, Ltd. Class A (b) 28,523 2,052,230
------------
15,160,064
------------
INTERNET SOFTWARE & SERVICES (1.3%)
VeriSign, Inc. (a)(b) 27,815 948,213
WebMD Health Corp. Class A (a)(b) 16,766 770,733
------------
1,718,946
------------
IT SERVICES (0.9%)
Electronic Data Systems Corp. 56,486 1,219,533
------------
LEISURE EQUIPMENT & PRODUCTS (1.3%)
Hasbro, Inc. 58,735 1,753,240
------------
MACHINERY (6.0%)
Cummins, Inc. 12,347 1,481,146
Eaton Corp. 25,717 2,380,880
V Parker Hannifin Corp. (b) 33,567 2,697,780
Trinity Industries, Inc. (b) 44,381 1,603,929
------------
8,163,735
------------
MEDIA (4.0%)
Discovery Holding Co. Class A (a) 66,550 1,897,341
Gannett Co., Inc. 19,511 827,462
V Liberty Media Holding Corp. Capital Class A (a) 21,961 2,744,686
------------
5,469,489
------------
METALS & MINING (2.5%)
Commercial Metals Co. 38,611 1,211,613
United States Steel Corp. (b) 19,424 2,095,850
------------
3,307,463
------------
</Table>
<Table>
<Caption>
SHARES VALUE
MULTILINE RETAIL (0.6%)
Big Lots, Inc. (a)(b) 7,235 $ 173,495
Dollar Tree Stores, Inc. (a) 16,651 637,733
------------
811,228
------------
MULTI-UTILITIES (4.1%)
Alliant Energy Corp. 46,289 1,851,560
OGE Energy Corp. 42,678 1,634,567
Sempra Energy 33,867 2,083,159
------------
5,569,286
------------
OIL, GAS & CONSUMABLE FUELS (6.2%)
V Chesapeake Energy Corp. 61,903 2,443,930
Frontier Oil Corp. 44,632 2,043,699
Sunoco, Inc. 23,514 1,730,630
Williams Cos., Inc. 58,195 2,123,536
------------
8,341,795
------------
PERSONAL PRODUCTS (0.1%)
NBTY, Inc. (a) 3,282 116,839
------------
REAL ESTATE INVESTMENT TRUSTS (7.4%)
Annaly Capital Management, Inc. 105,285 1,799,321
General Growth Properties, Inc. (b) 31,793 1,728,267
Hospitality Properties Trust 41,020 1,624,392
iStar Financial, Inc. (b) 20,143 614,563
ProLogis 8,456 606,633
Rayonier, Inc. 25,404 1,226,759
V Vornado Realty Trust (b) 21,639 2,417,509
------------
10,017,444
------------
ROAD & RAIL (0.3%)
CSX Corp. 8,963 401,274
------------
SPECIALTY RETAIL (2.5%)
AutoNation, Inc. (a) 74,694 1,321,337
Gap, Inc. (The) 25,432 480,665
Sherwin-Williams Co. (The) (b) 25,089 1,603,689
------------
3,405,691
------------
THRIFTS & MORTGAGE FINANCE (0.8%)
Hudson City Bancorp, Inc. 67,828 1,062,186
------------
TRADING COMPANIES & DISTRIBUTORS (1.2%)
W.W. Grainger, Inc. 18,238 1,639,961
------------
Total Common Stocks
(Cost $128,610,742) 135,088,751
------------
</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 11
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2007 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
SHORT-TERM INVESTMENTS (20.3%)
- ------------------------------------------------------------------------------
INVESTMENT COMPANY (19.9%)
State Street Navigator Securities Lending Prime
Portfolio (c) 26,988,823 $ 26,988,823
------------
Total Investment Company
(Cost 26,988,823) 26,988,823
------------
<Caption>
PRINCIPAL
AMOUNT
U.S. GOVERNMENT (0.4%)
United States Treasury Bills
3.85%, due 1/10/08 $ 100,000 99,259
3.865%, due 1/24/08 (d) 400,000 396,441
------------
Total U.S. Government
(Cost $495,551) 495,700
------------
Total Short-Term Investments
(Cost $27,484,374) 27,484,523
------------
Total Investments
(Cost $156,095,116) 120.2% 162,573,274(f)
Liabilities in Excess of
Cash and Other Assets (20.2) (27,293,444)
----------- ------------
Net Assets 100.0% $135,279,830
=========== ============
</Table>
<Table>
<Caption>
CONTRACTS UNREALIZED
LONG DEPRECIATION (e)
FUTURES CONTRACTS (-0.0%)++
- -----------------------------------------------------------------------------------
Standard & Poor's 500 Index
Mini December 2007 6 $ (3,028)
-------------------
Total Futures Contracts
(Settlement Value $466,470) $ (3,028)
===================
</Table>
<Table>
++ Less than one-tenth of a percent.
+++ All of the Fund's assets are maintained to cover "senior
securities transactions" which may include, but not limited
to, forwards, TBA's, options and futures. These securities
are marked-to-market daily and reviewed 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. The aggregate market value of such securities is
$26,115,408; cash collateral of $26,988,823 (included in
liabilities) was received with which the Fund purchased
highly liquid short-term investments.
(c) Represents a security, or a portion thereof, purchased with
cash collateral received for securities on loan.
(d) Segregated as collateral for futures contracts.
(e) Represents the difference between the value of the contracts
at the time they were opened and the value at October 31,
2007.
(f) At October 31, 2007, cost is $156,152,421 for federal income
tax purposes and net unrealized appreciation is as follows:
</Table>
<Table>
Gross unrealized appreciation $12,986,110
Gross unrealized depreciation (6,565,257)
-----------
Net unrealized appreciation $ 6,420,853
===========
</Table>
12 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 ASSETS AND LIABILITIES AS OF OCTOBER 31, 2007
<Table>
ASSETS:
Investment in securities, at value (identified
cost $156,095,116) including $26,115,408
market value of securities loaned $162,573,274
Cash 24,366
Receivables:
Dividends and interest 88,226
Fund shares sold 60,382
Variation margin on futures contracts 5,670
Other assets 18,209
-------------
Total assets 162,770,127
-------------
LIABILITIES:
Securities lending collateral 26,988,823
Payables:
Fund shares redeemed 250,196
Transfer agent (See Note 3) 81,458
NYLIFE Distributors (See Note 3) 57,676
Manager (See Note 3) 55,119
Shareholder communication 27,687
Professional fees 17,124
Custodian 6,131
Trustees 1,079
Accrued expenses 5,004
-------------
Total liabilities 27,490,297
-------------
Net assets $135,279,830
=============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.01 per share) 1
billion shares authorized $ 47,146
Additional paid-in capital 111,716,154
-------------
111,763,300
Accumulated undistributed net investment
income 623,655
Accumulated undistributed net realized gain on
investments and futures transactions 16,417,745
Net unrealized appreciation on investments and
futures contracts 6,475,130
-------------
Net assets $135,279,830
=============
CLASS A
Net assets applicable to outstanding shares $ 69,082,297
=============
Shares of capital stock outstanding 2,387,647
=============
Net asset value per share outstanding $ 28.93
Maximum sales charge (5.50% of offering price) 1.68
-------------
Maximum offering price per share outstanding $ 30.61
=============
CLASS B
Net assets applicable to outstanding shares $ 21,376,112
=============
Shares of capital stock outstanding 760,620
=============
Net asset value and offering price per share
outstanding $ 28.10
=============
CLASS C
Net assets applicable to outstanding shares $ 24,485,325
=============
Shares of capital stock outstanding 871,742
=============
Net asset value and offering price per share
outstanding $ 28.09
=============
CLASS I
Net assets applicable to outstanding shares $ 20,255,905
=============
Shares of capital stock outstanding 691,793
=============
Net asset value and offering price per share
outstanding $ 29.28
=============
CLASS R3
Net assets applicable to outstanding shares $ 80,191
=============
Shares of capital stock outstanding 2,774
=============
Net asset value and offering price per share
outstanding $ 28.91
=============
</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 13
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2007
<Table>
INVESTMENT INCOME:
INCOME:
Dividends $3,067,166
Interest 176,422
Income from securities loaned--net 31,095
----------
Total income 3,274,683
----------
EXPENSES:
Manager (See Note 3) 1,314,997
Transfer agent--Classes A, B and C
(See Note 3) 409,142
Transfer agent--Class I and R3 (See Note 3) 27,241
Distribution--Class B (See Note 3) 170,386
Distribution--Class C (See Note 3) 215,332
Distribution--Class R3 (See Note 3) 171
Distribution/Service--Class A (See Note 3) 175,466
Service--Class B (See Note 3) 56,796
Service--Class C (See Note 3) 71,777
Distribution/Service--Class R3 (See Note 3) 171
Registration 79,181
Shareholder communication 61,117
Professional fees 48,681
Custodian 18,359
Trustees 7,056
Shareholder service--Class R3 (See Note 3) 69
Miscellaneous 18,835
----------
Total expenses before waiver/reimbursement 2,674,777
Expense waiver/reimbursement from Manager
(See Note 3) (392,067)
----------
Net expenses 2,282,710
----------
Net investment income 991,973
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on:
Security transactions 16,466,847
Futures transactions 145,003
----------
Net realized gain on investments and futures
transactions 16,611,850
----------
Net change in unrealized appreciation on:
Security transactions (7,639,560)
Futures contracts (3,028)
----------
Net change in unrealized appreciation on
investments and futures contracts (7,642,588)
----------
Net realized and unrealized gain on
investments and futures transactions 8,969,262
----------
Net increase in net assets resulting from
operations $9,961,235
==========
</Table>
14 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 CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2007 AND OCTOBER 31, 2006
<Table>
<Caption>
2007 2006
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 991,973 $ 374,908
Net realized gain on investments
and futures transactions 16,611,850 4,501,239
Net change in unrealized
appreciation on investments and
futures contracts (7,642,588) 10,036,285
---------------------------
Net increase in net assets
resulting from operations 9,961,235 14,912,432
---------------------------
Dividends and distributions to shareholders:
From net investment income:
Class A (258,589) (138,208)
Class I (124,722) (150,367)
Class R3 (5) --
---------------------------
(383,316) (288,575)
---------------------------
From net realized gain on investments:
Class A (2,138,909) (2,305,129)
Class B (729,507) (1,353,450)
Class C (1,039,189) (1,261,301)
Class I (793,862) (1,196,592)
Class R3 (339) --
---------------------------
(4,701,806) (6,116,472)
---------------------------
Total dividends and distributions
to shareholders (5,085,122) (6,405,047)
---------------------------
Capital share transactions:
Net proceeds from sale of shares 34,729,708 60,026,855
Net asset value of shares issued
to shareholders in reinvestment
of dividends and distributions 4,502,170 5,765,205
Cost of shares redeemed (50,467,394) (46,032,740)
Net asset value of shares
converted (See Note 1):
Class A 1,908,866 8,166,742
Class B (1,908,866) (8,166,742)
---------------------------
Increase (decrease) in net
assets derived from capital
share transactions (11,235,516) 19,759,320
---------------------------
Net increase (decrease) in net
assets (6,359,403) 28,266,705
NET ASSETS:
Beginning of year 141,639,233 113,372,528
---------------------------
End of year $135,279,830 $141,639,233
===========================
Accumulated undistributed net
investment income at end of year $ 623,655 $ 80,209
===========================
</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
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A
--------------------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2007 2006 2005 2004
Net asset value at beginning
of period $ 27.91 $ 26.10 $ 23.45 $21.93
------- ------- ------- -----------
Net investment income (loss) 0.26(a) 0.12 0.06 (0.01)
Net realized and unrealized
gain on investments 1.81 3.12 3.34 1.53
------- ------- ------- -----------
Total from investment
operations 2.07 3.24 3.40 1.52
------- ------- ------- -----------
Less dividends and
distributions:
From net investment income (0.11) (0.08) (0.04) --
From net realized gain on
investments (0.94) (1.35) (0.71) --
------- ------- ------- -----------
Total dividends and
distributions (1.05) (1.43) (0.75) --
------- ------- ------- -----------
Net asset value at end of
period $ 28.93 $ 27.91 $ 26.10 $23.45
======= ======= ======= ===========
Total investment return (c) 7.56% 12.89% 14.59% 6.93%(d)
Ratios (to average net
assets)/Supplemental Data:
Net investment income (loss) 0.89% 0.47% 0.32% (0.21%)+
Net expenses 1.35% 1.35% 1.50% 1.53% +#
Expenses (before
waiver/reimbursement) 1.65% 1.68% 1.78% 2.13% +#
Portfolio turnover rate 150% 94% 153% 43%
Net assets at end of period
(in 000's) $69,082 $64,829 $42,239 $6,554
</Table>
<Table>
<Caption>
CLASS C
---------------------------------------------------------------
DECEMBER 30,
2002*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2007 2006 2005 2004 2003
Net asset value at beginning
of period $ 27.21 $ 25.59 $ 23.14 $20.86 $15.87
------- ------- ------- ------ ------------
Net investment income (loss) 0.04(a) (0.05) (0.08) (0.07) (0.06)(a)
Net realized and unrealized
gain on investments 1.78 3.02 3.25 2.50 5.05
------- ------- ------- ------ ------------
Total from investment
operations 1.82 2.97 3.17 2.43 4.99
------- ------- ------- ------ ------------
Less dividends and
distributions:
From net investment income -- -- (0.01) -- --
From net realized gain on
investments (0.94) (1.35) (0.71) (0.15) --
------- ------- ------- ------ ------------
Total dividends and
distributions (0.94) (1.35) (0.72) (0.15) --
------- ------- ------- ------ ------------
Net asset value at end of
period $ 28.09 $ 27.21 $ 25.59 $23.14 $20.86
======= ======= ======= ====== ============
Total investment return (c) 6.72% 12.09% 13.76% 11.71% 31.44%(d)
Ratios (to average net
assets)/Supplemental Data:
Net investment income (loss) 0.15% (0.26%) (0.43%) (0.96%) (0.53%)+
Net expenses 2.10% 2.10% 2.25% 2.28%# 2.13% +#
Expenses (before
waiver/reimbursement) 2.39% 2.43% 2.53% 2.88%# 2.37% +#
Portfolio turnover rate 150% 94% 153% 43% 90%
Net assets at end of period
(in 000's) $24,485 $31,445 $22,687 $4,951 $ 1
</Table>
<Table>
* Commencement of operations.
+ Annualized.
# Includes transfer agent fees paid indirectly which amounted to 0.02% and 0.09% of average
net assets for the years or periods ended October 31, 2004 and October 31, 2003,
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. Classes I and R3 are not subject to
sales charges.
(d) Total return is not annualized.
</Table>
16 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,
2007 2006 2005 2004
$ 27.23 $ 25.60 $ 23.14 $21.79
------- ------- ------- -----------
0.04(a) (0.08) (0.10) (0.07)
1.77 3.06 3.28 1.42
------- ------- ------- -----------
1.81 2.98 3.18 1.35
------- ------- ------- -----------
-- -- (0.01) --
(0.94) (1.35) (0.71) --
------- ------- ------- -----------
(0.94) (1.35) (0.72) --
------- ------- ------- -----------
$ 28.10 $ 27.23 $ 25.60 $23.14
======= ======= ======= ===========
6.76% 12.09% 13.81% 6.20%(d)
0.15% (0.18%) (0.43%) (0.96%)+
2.10% 2.10% 2.25% 2.28% +#
2.40% 2.43% 2.53% 2.88% +#
150% 94% 153% 43%
$21,376 $21,047 $25,068 $5,756
</Table>
<Table>
<Caption>
CLASS I CLASS R3
----------------------------------------------------------- ----------------------------
APRIL 28,
2006*
YEAR ENDED THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31, OCTOBER 31,
2007 2006 2005 2004 2003 2007 2006
$ 28.18 $ 26.34 $ 23.57 $ 21.01 $ 16.16 $27.87 $27.81
------- ------- ------- ------- ------- ----------- -----------
0.35(a) 0.24 0.12 0.05 0.08(a) 0.15(a) (0.00)(b)
1.83 3.11 3.42 2.66 4.84 1.84 0.06
------- ------- ------- ------- ------- ----------- -----------
2.18 3.35 3.54 2.71 4.92 1.99 0.06
------- ------- ------- ------- ------- ----------- -----------
(0.14) (0.16) (0.06) -- (0.07) (0.01) --
(0.94) (1.35) (0.71) (0.15) -- (0.94) --
------- ------- ------- ------- ------- ----------- -----------
(1.08) (1.51) (0.77) (0.15) (0.07) (0.95) --
------- ------- ------- ------- ------- ----------- -----------
$ 29.28 $ 28.18 $ 26.34 $ 23.57 $ 21.01 $28.91 $27.87
======= ======= ======= ======= ======= =========== ===========
7.87% 13.24% 15.11% 12.97% 30.59% 7.24% 0.22%(d)
1.20% 0.81% 0.78% 0.26% 0.47% 0.50% (0.02%)+
1.04% 1.04% 1.04% 1.06%# 1.13%# 1.64% 1.64% +
1.17% 1.16% 1.27% 1.66%# 1.37%# 1.77% 1.77% +
150% 94% 153% 43% 90% 150% 94%
$20,256 $24,309 $23,379 $18,508 $13,617 $ 80 $ 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 17
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BUSINESS:
Eclipse Funds (the "Trust") was organized on July 30, 1986 as a Massachusetts
business trust. The Trust is registered under the Investment Company Act of
1940, as amended, (the "1940 Act"), as an open-end management investment company
and is comprised of three funds (collectively referred to as the "Funds"). These
financial statements and notes relate only to the MainStay Mid Cap Opportunity
Fund (the "Fund"), a diversified fund.
The Fund currently offers five classes of shares. Class I shares commenced on
December 27, 1994. Class C shares commenced on December 30, 2002. Class A shares
and Class B shares commenced on January 2, 2004. Class R3 shares commenced on
April 28, 2006. Class A shares are offered at net asset value per share plus an
initial sales charge. No sales charge applies on investments of $1 million or
more (and certain other qualified purchases) in Class A shares, but a contingent
deferred sales charge is imposed on certain redemptions of such shares within
one year of the date of purchase. Class B shares and Class C shares are offered
without an initial sales charge, although a declining contingent deferred sales
charge may be imposed on redemptions made within up to six years of purchase of
Class B shares and a 1% contingent deferred sales charge may be imposed on
redemptions made within one year of purchase of Class C shares. Class I and
Class R3 shares are not subject to a sales charge. As approved by the Board of
Trustees in 1997, Class B shares convert to Class A shares eight years after the
date they were purchased. The five classes of shares bear the same voting
(except for issues that relate solely to one class), dividend, liquidation and
other rights and conditions except that Class B and Class C shares are subject
to higher distribution fee rates than Class A and Class R3 shares under a
distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I shares are
not subject to a distribution or service fee. Class R3 shares are authorized to
pay to New York Life Investment Management LLC, its affiliates, or third-party
service providers, as compensation for services rendered to shareholders of
Class R3 shares, a shareholder service fee.
The Fund's investment objective is to seek high total return.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The Fund prepares its financial statements in accordance with accounting
principles generally accepted in the United States of America and follows 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 Fund is open for business
("valuation date"). Securities that are not traded on the valuation date are
valued at the mean of the latest quoted bid and asked prices. Prices normally
are taken from the principal market in which each security trades. Futures
contracts are valued at the last posted settlement price on the market where
such futures are primarily traded. Investments in mutual funds are valued at
their net asset value as of the close of the New York Stock Exchange on the date
of valuation.
Temporary cash investments acquired over 60 days prior to maturity are valued
using the latest bid prices or using valuations based on a matrix system (which
considers such factors as security prices, yields, maturities, and ratings),
both as furnished by independent pricing services. Other temporary cash
investments which mature 60 days or less are valued at amortized cost. The
amortized cost method involves valuing a security at its cost on the date of
purchase and thereafter assuming a constant amortization to maturity of the
difference between the principal amount due at maturity and cost.
Securities for which market quotations are not readily available are valued by
methods deemed in good faith by the Fund's Board of 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 or suspended; a debt security that has recently gone into default and for
which there is not a 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 the market price of which is not available from an
independent pricing source or, if so provided, does not, in the opinion of the
Fund's 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, 2007, the Fund did not hold securities that were valued in such a
manner.
(B) FEDERAL INCOME TAXES. The Fund's 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 the Fund within the
allowable time limits. Therefore, no federal income tax provision is required.
(C) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
of net investment income and distributions of net realized capital and currency
gains, if any, annually. All dividends and distributions are reinvested in
shares of the Fund, at net asset value, unless the shareholder elects otherwise.
Dividends and distributions to shareholders are determined in accordance with
federal income tax regulations and may differ from generally accepted accounting
principles in the United States of America. Permanent book/tax differences
relating to income and gains are
18 MainStay Mid Cap Opportunity Fund
reclassified amongst undistributed net investment income, accumulated net
realized gain or loss and paid-in-capital.
(D) SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is accrued as earned
using the effective interest rate method. Discounts and premiums on short-term
securities are accreted and amortized, respectively, on the straight line
method.
Investment income and realized and unrealized gains and losses on investments of
the Fund are allocated to separate classes of shares pro rata based upon their
relative net assets on the date the income is earned or realized and unrealized
gains and losses are incurred.
(E) EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except where direct allocations of expenses can be made. Expenses
(other than transfer agent expenses and fees incurred under the shareholder
services plans and the distribution plans further discussed in Note 3 (B) on
page 20) are allocated to separate classes of shares pro rata based upon their
relative net assets value on the date the expenses are incurred. The expenses
borne by the Fund, including those of related parties to the Fund, are shown in
the Statement of Operations.
(F) USE OF ESTIMATES. In preparing financial statements in conformity with
accounting principles generally accepted in the United States of America,
management makes estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
(G) FUTURES CONTRACTS. A futures contract is an agreement to purchase or sell a
specified quantity of an underlying instrument at a specified future date and
price, or to make or receive a cash payment based on the value of a securities
index. During the period the futures contract is open, changes in the value of
the contract are recognized as unrealized gains or losses by "marking to market"
such contract on a daily basis to reflect the market value of the contract at
the end of each day's trading. The Fund agrees to receive from or pay to the
broker an amount of cash equal to the daily fluctuation in the value of the
contract. Such receipts or payments are known as "variation margin". When the
futures contract is closed, the Fund records a realized gain or loss equal to
the difference between the proceeds from (or cost of) the closing transaction
and the Fund's basis in the contract. The Fund invests in stock index futures
contracts to gain full exposure to changes in stock market prices to fulfill its
investment objectives.
The use of futures contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the Statement of Assets and
Liabilities. The contract or notional amounts and variation margin reflect the
extent of the Fund's involvement in open futures positions. Risks arise from the
possible imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets, and the possible inability of
counterparties to meet the terms of their contracts. However, the Fund's
activities in futures contracts are conducted through regulated exchanges which
minimize counterparty credit risks.
(H) SECURITIES LENDING. In order to realize additional income the 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 Fund may bear
the risk of delay in recovery of, or loss of rights in, the securities loaned
should the borrower of the securities experience financial difficulty. The Fund
receives compensation for lending its securities in the form of fees or it
retains a portion of interest on the investment of any cash received as
collateral. The Fund also continues to receive interest and dividends on the
securities loaned and any gain or loss in the market price of the securities
loaned that may occur during the term of the loan will be for the account of the
Fund.
(I) INDEMNIFICATIONS. In the normal course of business, the Fund enters into
contracts with third party service providers that contain a variety of
representations and warranties and which provide general indemnifications. The
Fund's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Fund that have not yet
occurred. Based on experience, management is of the view that the risk of loss
in connection with these potential indemnification obligations is remote.
However, there can be no assurance that material liabilities related to such
obligations will not arise in the future which could adversely impact the Fund.
NOTE 3--FEES AND RELATED PARTY TRANSACTIONS:
(A) MANAGER. New York Life Investment Management LLC ("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 Fund's Manager.
NYLIM provides offices and conducts clerical, recordkeeping and bookkeeping
services, and is responsible for the financial and accounting records required
to be maintained by the Fund. NYLIM also pays the salaries and expenses of all
personnel affiliated with the Fund and all the operational expenses that are not
the
www.mainstayfunds.com 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
responsibility of the Fund. The Fund is advised by the Manager directly, without
a subadvisor.
The Fund is contractually obligated to pay NYLIM a monthly fee for services
performed and facilities furnished at an annual rate of 0.90% of the average
daily net assets of the Fund.
Effective March 1, 2007, NYLIM has entered into a written expense limitation
agreement under which it has agreed to waive a portion of the Fund's management
fee or reimburse the expenses of the appropriate class of the Fund so that the
class' total ordinary operating expenses (total annual operating expenses
excluding taxes, interest, litigation, extraordinary expenses, and brokerage and
other transaction expenses relating to the purchase or sale of portfolio
investments) do not exceed the following amounts of average daily net assets for
each class: Class A, 1.35%; Class B, 2.10%; Class C, 2.10%; Class I, 1.04%; and
Class R3, 1.64%. This expense limitation may be modified or terminated only with
the approval of the Board of Trustees. NYLIM may recoup the amount of any
management fee waivers or expense reimbursements from the Fund pursuant to the
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 NYLIM incurred the expense.
For the year ended October 31, 2007, NYLIM earned fees from the Fund in the
amount of $1,314,997 and waived its fees in the amount of $309,722. For the
period November 1, 2006 through February 28, 2007, NYLIM reimbursed the transfer
agency fees of Class A, Class B and Class C shares of the Fund in the amount of
$82,345.
As of October 31, 2007, the amounts of waived/reimbursed fees that are subject
to possible recoupment by NYLIM, and the related expiration dates are as
follows:
<Table>
<Caption>
OCTOBER 31,
2008* 2009 2010 TOTAL
$156,672 $398,710 $392,067 $947,449
- --------------------------------------
</Table>
* The expense limitation agreement became effective in 2005 and the recoupments
will start to expire in 2008.
Prior to March 1, 2007, NYLIM had an agreement in place under which it had
agreed to waive a portion of the Fund's management fee or reimburse the expenses
of the Fund so that the Fund's total ordinary operating expenses did not exceed
1.04% of the Fund's average daily net assets for its Class I shares. NYLIM also
applied an equivalent waiver or reimbursement, in an equal amount of basis
points, to the other share classes of the Fund. In addition, NYLIM also had an
agreement in place under which it had agreed to reimburse the transfer agency
fees of the Class A shares of the Fund so that total ordinary operating expenses
did not exceed 1.35% of the average daily net assets for Class A shares. NYLIM
also applied an equivalent reimbursement, in an equal amount of basis points, to
the Fund's Class B and Class C shares.
State Street Bank & Trust Company ("SSBT"), One Lincoln Street, Boston,
Massachusetts, 02111, provides sub-administration and sub-accounting services to
the Fund pursuant to an agreement with NYLIM. These services include calculating
daily net asset values of the Fund, maintaining general ledger and sub-ledger
accounts for the calculation of the Fund's respective net asset values, and
assisting NYLIM in conducting various aspects of the Fund's administrative
operations. For providing these services to the Fund, SSBT is compensated by
NYLIM.
(B) DISTRIBUTION, SERVICE AND SHAREHOLDER SERVICE FEES. The Trust, on behalf of
the Fund, has a Distribution Agreement with NYLIFE Distributors LLC (the
"Distributor"), an indirect wholly-owned subsidiary of New York Life. The Fund,
with respect to Class A, Class B, Class C and Class R3 shares, has adopted
distribution plans (the "Plans") in accordance with the provisions of Rule 12b-1
under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly distribution
fee from the Fund at an annual rate of 0.25% of the average daily net assets of
the Fund's Class A shares, which is an expense of the Class A shares of the Fund
for distribution or service activities as designated by the Distributor.
Pursuant to the Class B and Class C Plans, the Fund pays the Distributor a
monthly distribution fee, which is an expense of the Class B and Class C shares
of the Fund, at the annual rate of 0.75% of the average daily net assets of the
Fund's Class B and Class C shares. The Plans provide that the Class B and Class
C shares of the Fund also incur a service fee at the annual rate of 0.25% of the
average daily net asset value of the Class B and Class C shares of the Fund.
Pursuant to the Class R3 Plan, the Distributor receives a monthly distribution
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.
Class I shares are not subject to a distribution or service fee.
The Plans provide that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
In accordance with the Shareholder Services Plan for the Class R3 shares, the
Manager has agreed to provide, through its affiliates or independent third
parties, various shareholder and administrative support services to shareholders
of the Class R3 shares. For its services, the Manager is entitled to a
Shareholder Service Fee accrued daily and paid monthly at an annual rate of
0.10% of the average daily net assets attributable to the Class R3 shares.
20 MainStay Mid Cap Opportunity Fund
(C) SALES CHARGES. The Fund was advised by the Distributor that the amount of
sales charges retained on sales of Class A shares was $38,554 for the year ended
October 31, 2007. 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 $869, $40,374 and $6,546, respectively, for the year ended October 31,
2007.
(D) TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. NYLIM
Service Company LLC ("NYLIM Service"), an affiliate of NYLIM, is the Fund's
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 Fund, for the year ended October 31, 2007,
amounted to $436,383.
(E) SMALL ACCOUNT FEES. Shareholders with small accounts adversely impact the
cost of providing transfer agency services. In an effort to reduce total
transfer agency expenses, the Fund has implemented a small account fee on
certain types of accounts, effective March 1, 2007. Shareholders with an account
balance of less than $1,000 are charged an annual per account fee of $20
(assessed semi-annually).
(F) CAPITAL. At October 31, 2007, New York Life and its affiliates held
beneficially shares of the Fund with the following values and percentages of net
assets as follows:
<Table>
Class A $1,488 0.0*%
- ------------------------------------------------------------
Class B 1,446 0.0*
- ------------------------------------------------------------
Class R3 10,747 13.4
- ------------------------------------------------------------
</Table>
* Less than one-tenth of a percent.
(G) OTHER. Pursuant to an Amended and Restated Management Agreement between the
Fund and NYLIM, the cost of legal services provided to the Fund by the Office of
the General Counsel of NYLIM are payable directly by the Fund. For the year
ended October 31, 2007, these fees, which are included in professional fees
shown on the Statement of Operations, were $7,081.
NOTE 4--FEDERAL INCOME TAX:
As of October 31, 2007, the components of accumulated gain/(loss) on a tax basis
were as follows:
<Table>
<Caption>
ACCUMULATED OTHER UNREALIZED TOTAL
ORDINARY CAPITAL TEMPORARY APPRECIATION ACCUMULATED
INCOME GAIN(LOSS) DIFFERENCES (DEPRECIATION) GAIN(LOSS)
$3,774,293 $13,321,384 $ -- $6,420,853 $23,516,530
---------------------------------------------------------------------
</Table>
The difference between book-basis and tax basis unrealized appreciation is
primarily due to wash sales deferrals.
The following table discloses the current year reclassifications between
accumulated undistributed net investment income and accumulated undistributed
net realized gain on investments, arising from permanent differences; net assets
at October 31, 2007 are not affected.
<Table>
<Caption>
ACCUMULATED
ACCUMULATED UNDISTRIBUTED UNDISTRIBUTED NET ADDITIONAL
NET INVESTMENT REALIZED GAIN (LOSS) PAID-IN
INCOME (LOSS) ON INVESTMENTS CAPITAL
$(65,211) $65,211 $--
-------------------------------------------------------------
</Table>
The reclassifications for the Fund are primarily due to real estate investment
trust gain (loss) and reclassification of distribution.
The tax character of distributions paid during the years ended October 31, 2007
and October 31, 2006, shown in the Statement of Changes in Net Assets, was as
follows:
<Table>
<Caption>
2007 2006
Distributions paid from:
Ordinary Income $2,211,645 $2,605,585
Long-Term Capital Gains 2,873,477 3,799,462
- -------------------------------------------------------------
$5,085,122 $6,405,047
- -------------------------------------------------------------
</Table>
NOTE 5--CUSTODIAN:
SSBT 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 6--LINE OF CREDIT:
The Fund, and certain affiliated funds, 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 pay a commitment fee, at an annual rate of .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 made or outstanding on the line of credit during the year ended
October 31, 2007.
NOTE 7--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended October 31, 2007, purchases and sales of securities, other
than short-term securities, were $212,946 and $229,805, respectively.
www.mainstayfunds.com 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--CAPITAL SHARE TRANSACTIONS
(IN 000'S):
<Table>
<Caption>
CLASS A SHARES AMOUNT
Year ended October 31, 2007:
Shares sold 744 $ 21,741
Shares issued to shareholders in
reinvestment of dividends and
distributions 73 2,061
Shares redeemed (817) (23,699)
--------------------
Net increase (decrease) in shares
outstanding before conversion (--)(a) 103
Shares converted from Class B (See Note
1) 65 1,909
--------------------
Net increase 65 $ 2,012
====================
Year ended October 31, 2006:
Shares sold 963 $ 25,833
Shares issued to shareholders in
reinvestment of dividends and
distributions 81 2,099
Shares redeemed (654) (17,551)
--------------------
Net increase in shares outstanding
before conversion 704 10,381
Shares converted from Class B (See Note
1) 314 8,167
--------------------
Net increase 704 $ 18,548
====================
</Table>
<Table>
<Caption>
CLASS B SHARES AMOUNT
Year ended October 31, 2007:
Shares sold 199 $ 5,674
Shares issued to shareholders in
reinvestment of dividends and
distributions 26 709
Shares redeemed (170) (4,802)
--------------------
Net increase in shares outstanding
before conversion 55 1,581
Shares reacquired upon conversion into
Class A (See Note 1) (67) (1,909)
--------------------
Net decrease (12) $ (328)
====================
Year ended October 31, 2006:
Shares sold 275 $ 7,227
Shares issued to shareholders in
reinvestment of dividends and
distributions 53 1,324
Shares redeemed (214) (5,606)
--------------------
Net increase (decrease) in shares
outstanding before conversion 114 2,945
Shares reacquired upon conversion into
Class A (See Note 1) (320) (8,167)
--------------------
Net decrease (206) $ (5,222)
====================
</Table>
<Table>
<Caption>
CLASS C SHARES AMOUNT
Year ended October 31, 2007:
Shares sold 148 $ 4,206
Shares issued to shareholders in
reinvestment of dividends and
distributions 31 844
Shares redeemed (462) (13,072)
--------------------
Net decrease (283) $ (8,022)
====================
Year ended October 31, 2006:
Shares sold 524 $ 13,714
Shares issued to shareholders in
reinvestment of dividends and
distributions 42 1,054
Shares redeemed (297) (7,810)
--------------------
Net increase 269 $ 6,958
====================
</Table>
<Table>
<Caption>
CLASS I SHARES AMOUNT
Year ended October 31, 2007:
Shares sold 103 $ 3,011
Shares issued to shareholders in
reinvestment of dividends and
distributions 31 888
Shares redeemed (305) (8,864)
--------------------
Net decrease (171) $ (4,965)
====================
Year ended October 31, 2006:
Shares sold 485 $ 13,243
Shares issued to shareholders in
reinvestment of dividends and
distributions 49 1,288
Shares redeemed (559) (15,066)
--------------------
Net decrease (25) $ (535)
====================
</Table>
<Table>
<Caption>
CLASS R3 SHARE AMOUNT
Year ended October 31, 2007:
Shares sold 4 $ 98
Shares issued to shareholders in
reinvestment of dividends and
distributions (--)(a) (--)(a)
Shares redeemed (1) (31)
------------------
Net increase 3 $ 67
==================
Year ended October 31, 2006*
Shares sold 360 $ 10
------------------
Net increase 360 $ 10
==================
</Table>
* The Class commenced operations on April 28, 2006.
(a) Less than one thousand.
NOTE 9--NEW ACCOUNTING PRONOUNCEMENTS:
In July 2006, the Financial Accounting Standards Board (the "FASB") issued
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes," an
interpretation of FASB
22 MainStay Mid Cap Opportunity Fund
Statement No. 109 (the "Interpretation"). The Interpretation establishes for all
entities, including pass-through entities such as the Fund, a minimum threshold
for financial statement recognition of the benefit of positions taken in filing
tax returns (including whether an entity is taxable in a particular
jurisdiction), and requires certain expanded tax disclosures. The Interpretation
becomes effective for the Fund's 2008 fiscal year, and is to be applied to all
open tax years as of the date of effectiveness. Based on Management's analysis,
the determination has been made that the adoption of the interpretation on
November 1, 2007, did not have an impact on the Fund's financial statements upon
adoption. Management continually reviews the Fund's tax positions and such
conclusions under the Interpretation based on factors, including, but not
limited to, ongoing analyses of tax laws, regulations and interpretations,
thereof.
In September 2006, 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, 2007, the Fund does not believe
the adoption of SFAS No. 157 will impact the amounts reported in the Fund's
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.
www.mainstayfunds.com 23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders of
Eclipse Funds:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the MainStay Mid Cap Opportunity Fund ("the
Fund"), one of the funds constituting Eclipse Funds as of October 31, 2007, and
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the years or periods in the five-year
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2007, 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 the
MainStay Mid Cap Opportunity Fund of Eclipse Funds as of October 31, 2007, the
results of its operations for the year then ended, the changes in its net assets
for each of the years in the two-year period then ended, and the financial
highlights for each of the years or periods in the five-year period then ended,
in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Philadelphia, Pennsylvania
December 20, 2007
24 MainStay Mid Cap Opportunity Fund
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
The Fund is required by the Internal Revenue Code to advise shareholders within
60 days of the Fund's fiscal year end (October 31, 2007) as to the federal tax
status of dividends paid by the Fund during such fiscal year. Accordingly, the
Fund paid long-term capital gain distributions of $2,873,477.
The dividends paid by the Fund during the fiscal year ended October 31, 2007,
should be multiplied by 42.0% to arrive at the amount eligible for qualified
dividend income, 29.0% for qualified interest income and 47.2% for the corporate
dividends received deduction.
In January 2008, shareholders will receive an IRS Form 1099-DIV or substitute
Form 1099 the federal tax status of the distributions received by shareholders
in calendar year 2007. 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 Fund's fiscal year ended October
31, 2007.
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 Fund's 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 Fund is required to file with the SEC its proxy voting record for the
12-month period ending June 30 on Form N-PX. The Fund's most recent Form N-PX is
available free of charge upon request 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).
SPECIAL MEETING OF SHAREHOLDERS
Pursuant to notice, a special meeting of shareholders of Eclipse Funds (the
"Trust") was held on May 4, 2007, at the offices of New York Life Investment
Management LLC in Parsippany, New Jersey. The purpose of the meeting was to
elect the following individuals to the Board of Trustees of the Trust:
- Susan B. Kerley
- Alan R. Latshaw
- Peter Meenan
- Richard H. Nolan, Jr.
- Richard S. Trutanic
- Roman L. Weil
- John A. Weisser
- Brian A. Murdock (Interested Trustee)
There are no other Trustees of the Trust.
No other business came before the special meeting. The proposal to elect
Trustees was passed by the shareholders of the Fund as shown below:
<Table>
<Caption>
MID CAP
OPPORTUNITY VOTES VOTES
FUND FOR WITHHELD ABSTENTIONS TOTAL
Susan B.
Kerley 3,018,963.221 7,725.825 7,223.000 3,033,912.046
- ------------------------------------------------------------------------
Alan R.
Latshaw 3,018,963.221 7,725.825 7,223.000 3,033,912.046
- ------------------------------------------------------------------------
Peter Meenan 3,017,382.342 9,306.704 7,223.000 3,033,912.046
- ------------------------------------------------------------------------
Richard H.
Nolan, Jr. 3,018,022.221 8,666.825 7,223.000 3,033,912.046
- ------------------------------------------------------------------------
Richard S.
Trutanic 3,018,716.837 7,972.209 7,223.000 3,033,912.046
- ------------------------------------------------------------------------
Roman L. Weil 3,017,382.342 9,306.704 7,223.000 3,033,912.046
- ------------------------------------------------------------------------
John A.
Weisser 3,017,382.342 9,306.704 7,223.000 3,033,912.046
- ------------------------------------------------------------------------
Brian A.
Murdock 3,018,963.221 7,725.825 7,223.000 3,033,912.046
- ------------------------------------------------------------------------
</Table>
This resulted in approval of the proposal.
www.mainstayfunds.com 25
TRUSTEES AND OFFICERS
The Trustees oversee the Fund and the Manager. Pursuant to notice, a Special
Meeting of Shareholders of the Trust was held on May 4, 2007, at NYLIM's offices
in Parsippany, New Jersey. The Trustees listed below were elected to serve the
Trust effective June 7, 2007.
Each Trustee serves until his or her successor is elected and qualified or until
his or her resignation, death or removal. The Retirement Policy provides that a
Trustee shall tender his or her resignation upon reaching age 72. A Trustee
reaching the age of 72 may continue for additional one-year periods with the
approval of the Board's Nominating and Governance Committee, except that no
Trustee shall serve on the Board past his or her 75th birthday. Officers serve a
term of one year and are elected annually by the Trustees. The business address
of each Trustee and officer listed below is 51 Madison Avenue, New York, New
York 10010.
The Statement of Additional Information applicable to the Fund includes
additional information about the Trustees and is available without charge, upon
request, by calling 1-800-MAINSTAY (1-800-624-6782).
<Table>
<Caption>
TERM OF OFFICE, NUMBER OF FUNDS
POSITION(S) HELD IN FUND COMPLEX
NAME AND WITH THE TRUST AND PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
DATE OF BIRTH LENGTH OF SERVICE DURING PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
-----------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE*
BRIAN A. MURDOCK Indefinite; Member of the Board of Managers 73 Director, Eclipse Funds Inc.
3/14/56 Trustee since June and President (since 2004) and since June 2007 (22 funds);
2007 and Chief Chief Executive Officer (since Director, MainStay VP Series
Executive Officer 2006), New York Life Investment Fund, Inc., since 2006 (24
since 2006 Management LLC and New York portfolios); Director, ICAP
Life Investment Management Funds, Inc., since 2006 (3
Holdings LLC; Senior Vice funds); Trustee, The MainStay
President, New York Life Funds since 2006 (21 funds)
Insurance Company (since 2004);
Chairman of the Board and
President, NYLIFE Distributors
LLC (since 2004); Member of the
Board of Managers, NYLCAP
Manager LLC and Madison Capital
Funding LLC (since 2004),
MacKay Shields LLC and
Institutional Capital LLC
(since 2006), and McMorgan &
Company LLC (since 2007); Chief
Executive Officer, Eclipse
Funds Inc. (since 2006);
Chairman (2006 to 2007) and
Trustee and Chief Executive
Officer (since 2006), The
MainStay Funds; Chairman (2006
to 2007) and Director and Chief
Executive Officer (since 2006),
MainStay VP Series Fund, Inc.;
Director and Chief Executive
Officer, ICAP Funds, Inc.
(since 2006); Chief Investment
Officer, MLIM Europe and Asia
(2001 to 2003); President of
Merrill Japan and Chairman of
MLIM's Pacific Region (1999 to
2001)
-----------------------------------------------------------------------------------------------------------------------
</Table>
* This Trustee considered to be an "interested person" of the Trust within the
meaning of the 1940 Act because of his affiliation with New York Life
Insurance Company, New York Life Investment Management LLC, MacKay Shields
LLC, Institutional Capital LLC, Markston International, LLC, Winslow Capital
Management, Inc., McMorgan & Company LLC, NYLIFE Securities Inc. and/or NYLIFE
Distributors LLC, as described in detail above in the column "Principal
Occupation(s) During Past Five Years."
26 MainStay Mid Cap Opportunity Fund
<Table>
<Caption>
TERM OF OFFICE, NUMBER OF FUNDS
POSITION(S) HELD IN FUND COMPLEX
NAME AND WITH THE TRUST AND PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
DATE OF BIRTH LENGTH OF SERVICE DURING PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
-----------------------------------------------------------------------------------------------------------------------
NON-INTERESTED TRUSTEES
SUSAN B. KERLEY Indefinite; Partner, Strategic Management 73 Chairman since 2005 and
8/12/51 Chairman since Advisors LLC (since 1990) Director since 1990, Eclipse
2005 and Trustee Funds Inc. (22 funds); Chairman
since 2000 and Director, ICAP Funds, Inc.,
since 2006 (3 funds); Chairman
and Trustee, The MainStay
Funds, since June 2007 (21
funds); Chairman and Director,
MainStay VP Series Fund, Inc.,
since June 2007 (24
portfolios); Trustee, Legg
Mason Partners Funds, Inc.,
since 1991 (30 portfolios)
-----------------------------------------------------------------------------------------------------------------------
ALAN R. LATSHAW Indefinite; Retired; Partner, Ernst & Young 73 Director, Eclipse Funds Inc.
3/27/51 Trustee and Audit LLP (2002 to 2003); Partner, since June 2007 (22 funds);
Committee Arthur Andersen LLP (1989 to Director, ICAP Funds, Inc.,
Financial Expert 2002); Consultant to the Audit since June 2007 (3 funds);
since June 2007 and Compliance Committee of The Trustee, The MainStay Funds
MainStay Funds (2004 to 2006) since 2006 (21 funds);
Director, MainStay VP Series
Fund, Inc., since June 2007 (24
portfolios); Trustee, State
Farm Associates Funds Trusts
since 2005 (3 portfolios);
Trustee, State Farm Mutual Fund
Trust since 2005 (15
portfolios); Trustee, State
Farm Variable Product Trust
since 2005 (9 portfolios)
-----------------------------------------------------------------------------------------------------------------------
PETER MEENAN Indefinite; Independent Consultant; 73 Director, Eclipse Funds Inc.
12/5/41 Trustee since 2002 President and Chief Executive since 2002 (22 funds);
Officer, Babson-United, Inc. Director, ICAP Funds, Inc.,
(financial services firm) (2000 since June 2007 (3 funds);
to 2004); Independent Trustee, The MainStay Funds
Consultant (1999 to 2000); Head since June 2007 (21 funds);
of Global Funds, Citicorp (1995 Director, MainStay VP Series
to 1999) Fund, Inc., since June 2007 (24
portfolios)
-----------------------------------------------------------------------------------------------------------------------
RICHARD H. Indefinite; Managing Director, ICC Capital 73 Director, Eclipse Funds Inc.
NOLAN, JR. Trustee since June Management; President--Shields/ since June 2007 (22 funds);
11/16/46 2007 Alliance, Alliance Capital Director, ICAP Funds, Inc.,
Management (1994 to 2004) since June 2007 (3 funds);
Trustee, The MainStay Funds
since June 2007 (21 funds);
Director, MainStay VP Series
Fund, Inc., since 2006 (24
portfolios)
-----------------------------------------------------------------------------------------------------------------------
RICHARD S. Indefinite; Chairman (since 1990) and Chief 73 Director, Eclipse Funds Inc.
TRUTANIC Trustee since June Executive Officer (1990 to since June 2007 (22 funds);
2/13/52 2007 1999), Somerset Group Director, ICAP Funds, Inc.,
(financial advisory firm); since June 2007 (3 funds);
Managing Director and Advisor, Trustee, The MainStay Funds
The Carlyle Group (private since 1994 (21 funds);
investment firm) (2002 to Director, MainStay VP Series
2004); Senior Managing Director Fund, Inc., since June 2007 (24
and Partner, Groupe Arnault portfolios)
S.A. (private investment firm)
(1999 to 2002)
-----------------------------------------------------------------------------------------------------------------------
</Table>
www.mainstayfunds.com 27
<Table>
<Caption>
TERM OF OFFICE, NUMBER OF FUNDS
POSITION(S) HELD IN FUND COMPLEX
NAME AND WITH THE TRUST AND PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
DATE OF BIRTH LENGTH OF SERVICE DURING PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
-----------------------------------------------------------------------------------------------------------------------
NON-INTERESTED TRUSTEE
ROMAN L. WEIL Indefinite; V. Duane Rath Professor of 73 Director, Eclipse Funds Inc.
5/22/40 Trustee and Audit Accounting, Graduate School of since June 2007 (22 funds);
Committee Business, University of Director, ICAP Funds, Inc.,
Financial Expert Chicago; President, Roman L. since June 2007 (3 funds);
since June 2007 Weil Associates, Inc. Trustee, The MainStay Funds
(consulting firm) since June 2007 (21 funds);
Director, MainStay VP Series
Fund, Inc., since 1994 (24
portfolios)
-----------------------------------------------------------------------------------------------------------------------
JOHN A. WEISSER Indefinite; Retired. Managing Director of 73 Director, Eclipse Funds Inc.
10/22/41 Trustee since June Salomon Brothers, Inc. (1971 to since June 2007 (22 funds);
2007 1995) Director, ICAP Funds, Inc.,
since June 2007 (3 funds);
Trustee, The MainStay Funds
since June 2007 (21 funds);
Director, MainStay VP Series
Fund, Inc., since 1997 (24
portfolios); Trustee, Direxion
Funds (69 funds) and Direxion
Insurance Trust (45 funds)
since March 2007
-----------------------------------------------------------------------------------------------------------------------
</Table>
Lawrence Glacken and Robert P. Mulhearn resigned as Trustees of the Trust
effective June 7, 2007.
At a meeting of the Board of Trustees held on June 7 and 8, 2007, the following
individuals were appointed to serve as Officers of the Trust effective June 7,
2007:
<Table>
<Caption>
POSITION(S) HELD
NAME AND WITH THE TRUST 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 2004 York Life Investment Management LLC (including predecessor
10/19/46 advisory organizations) (since 2000); Secretary (since 2001)
and General Counsel (since 2004), New York Life Investment
Management Holdings LLC; Senior Vice President, New York
Life Insurance Company (since 2000); Vice President and
Secretary, McMorgan & Company LLC (since 2001); Secretary,
NYLIM Service Company LLC (since 2005), NYLCAP Manager LLC
(since 2004), Madison Capital Funding LLC (since 2002) and
Institutional Capital LLC (since 2006); Chief Legal Officer,
Eclipse Funds Inc., The MainStay Funds and MainStay VP
Series Fund, Inc. (since 2004), McMorgan Funds (since 2005)
and ICAP Funds, Inc. (since 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)
--------------------------------------------------------------------------------------------------
JACK R. Treasurer and Managing Director, New York Life Investment Management LLC
BENINTENDE Principal (since June 2007); Treasurer and Principal Financial and
5/12/64 Financial and Accounting Officer, Eclipse Funds Inc., The MainStay Funds,
Accounting Officer MainStay VP Series Fund, Inc., and ICAP Funds, Inc. (since
since June 2007 June 2007); Vice President, Prudential Investments (2000 to
2007); Assistant Treasurer, JennisonDryden Family of Funds,
Target Portfolio Trust, The Prudential Series Fund and
American Skandia Trust (2006 to 2007); Treasurer and
Principal Financial Officer, The Greater China Fund (2007)
--------------------------------------------------------------------------------------------------
STEPHEN P. President since Senior Managing Director and Chief Marketing Officer, New
FISHER March 2007 York Life Investment Management LLC (since 2005); Managing
2/22/59 Director--Retail Marketing, New York Life Investment
Management LLC (2003 to 2005); President, Eclipse Funds
Inc., The MainStay Funds, MainStay VP Series Fund, Inc., and
ICAP Funds, Inc. (since March 2007); Managing Director, UBS
Global Asset Management (1999 to 2003)
--------------------------------------------------------------------------------------------------
SCOTT T. Vice President-- Director, New York Life Investment Management LLC (including
HARRINGTON Administration predecessor advisory organizations) (since 2000); Executive
2/8/59 since 2005 Vice President, New York Life Trust Company (since 2006);
Vice President--Administration, Eclipse Funds Inc., MainStay
VP Series Fund, Inc., and The MainStay Funds (since 2005)
and ICAP Funds, Inc. (since 2006)
--------------------------------------------------------------------------------------------------
</Table>
28 MainStay Mid Cap Opportunity Fund
<Table>
<Caption>
POSITION(S) HELD
NAME AND WITH THE TRUST AND PRINCIPAL OCCUPATION(S)
DATE OF BIRTH LENGTH OF SERVICE DURING PAST FIVE YEARS
--------------------------------------------------------------------------------------------------
OFFICERS
ALISON H. Senior Vice Senior Managing Director and Chief Compliance Officer (since
MICUCCI President and 2006) and Managing Director and Chief Compliance Officer
12/16/65 Chief Compliance (2003 to 2006), New York Life Investment Management LLC and
Officer since 2006 New York Life Investment Management Holdings LLC; Senior
Managing Director, Compliance (since 2006) and Managing
Director, Compliance (2003 to 2006), NYLIFE Distributors
LLC; Chief Compliance Officer, NYLCAP Manager LLC (since
2006); Senior Vice President and Chief Compliance Officer,
Eclipse Funds Inc., The MainStay Funds, MainStay VP Series
Fund, Inc., and ICAP Funds, Inc. (since 2006); Vice
President--Compliance, Eclipse Funds Inc., The MainStay
Funds and MainStay VP Series Fund, Inc. (2004 to 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 2005); Managing
3/26/56 Director and Secretary, NYLIFE Distributors LLC (since
2005); Secretary, Eclipse Funds Inc., The MainStay Funds and
MainStay VP Series Fund, Inc. (since 2004) and ICAP Funds,
Inc. (since 2006); Chief Legal Officer--Mutual Funds and
Vice President and Corporate Counsel, The Prudential
Insurance Company of America (2000 to 2004)
--------------------------------------------------------------------------------------------------
</Table>
* In addition to serving as Secretary to the Trust, effective January 1, 2008,
Marguerite E.H. Morrison will assume the role as Chief Legal Officer to the
Trust.
Arphiela Arizmendi resigned as Treasurer and Principal Financial and Accounting
Officer of the Trust effective June 7, 2007.
Christopher O. Blunt resigned as President of the Trust effective March 10,
2007.
Patrick G. Boyle resigned as Executive Vice President of the Trust effective
June 7, 2007.
Tony H. Elavia resigned as Senior Vice President of the Trust effective June 7,
2007.
Alan J. Kirshenbaum resigned as Senior Vice President of the Trust effective
March 19, 2007.
www.mainstayfunds.com 29
MAINSTAY FUNDS
MAINSTAY OFFERS A WIDE RANGE OF FUNDS FOR VIRTUALLY ANY INVESTMENT NEED. THE
FULL ARRAY OF MAINSTAY OFFERINGS IS LISTED HERE, WITH INFORMATION ABOUT THE
MANAGER, SUBADVISORS, LEGAL COUNSEL, AND INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM.
EQUITY FUNDS
MainStay 130/30 Core Fund
MainStay 130/30 Growth Fund
MainStay All Cap Growth 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
MainStay Small Cap Value Fund
MainStay Value Fund
INCOME FUNDS
MainStay 130/30 High Yield Fund(2)
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 INSTITUTIONAL BOND FUND
MAINSTAY INTERMEDIATE TERM BOND FUND
MAINSTAY MONEY MARKET FUND
MAINSTAY PRINCIPAL PRESERVATION FUND
MAINSTAY SHORT TERM BOND FUND
MAINSTAY TAX FREE BOND FUND
BLENDED FUNDS
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Manager Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay 130/30 International Fund
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
RETIREMENT FUNDS
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
MANAGER
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
New York, New York
SUBADVISORS
INSTITUTIONAL CAPITAL LLC(3)
Chicago, Illinois
MACKAY SHIELDS LLC(3)
New York, New York
MARKSTON INTERNATIONAL LLC
White Plains, New York
MCMORGAN & COMPANY LLC(3)
San Francisco, California
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. An affiliate of New York Life Investment Management LLC.
Not part of the Annual Report
This page intentionally left blank
(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 Eclipse Funds
SEC File Number: 811-04847
(C) 2007 by NYLIFE Distributors LLC. All rights reserved.
NYLIM-AO11871 (RECYCLE LOGO) MS329-07 MSMR11-12/07
A5
(MAINSTAY INVESTMENTS LOGO)
MAINSTAY
SMALL CAP OPPORTUNITY FUND
Message from the President
and
Annual Report
October 31, 2007
MESSAGE FROM
THE PRESIDENT
The 12-month period ended October 31, 2007, was a dynamic one for mutual fund
investors. U.S. equity markets generally advanced, with growth stocks out-
performing value stocks at all capitalization levels. Although past performance
is no guarantee of future results, international stocks as a whole provided even
stronger returns for U.S. investors.
The progress of the equity markets, however, was far from steady. In February,
weakness in Asian markets led to sharp price declines around the globe. The
correction caused many investors to reconsider whether China and other emerging
economies could sustain their rapid growth. Fortunately, strong
corporate-earnings reports and positive economic news helped the stock market
regain its footing.
In July and August, difficulties in the subprime-mortgage market led to another
stock-market correction. A number of high-profile mortgage originators either
closed their doors or were sold to larger entities. Other leading financial
services firms faced major write-offs because of subprime-mortgage exposure.
The Federal Open Market Committee (FOMC) took prompt action to increase
liquidity and stabilize the financial markets by lowering the discount rate and
the federal funds target rate during the reporting period. These Federal Reserve
moves helped calm investor concerns, and the stock market generally advanced
from August 16, 2007, the date of an unscheduled FOMC meeting, through the end
of October 2007.
Difficulties in the subprime-mortgage market led to a "flight to quality," or a
general movement toward fixed-income securities that carry lower risk. As demand
for short- and intermediate-term Treasury securities increased, yields fell
across much of the maturity spectrum. Yields rose, however, on 20-and 30-year
Treasury bonds, and the yield curve steepened during the 12-month reporting
period.
High-yield bonds rallied from November 2006 through May 2007. But in June and
July, the yield differences--or spreads--between high-yield bonds and comparable
Treasury securities began to widen. At the end of October 2007, these spreads
were wider than when the reporting period began, making high-yield securities
more attractive to investors willing to accept higher risk.
To help investors address the challenges of today's ever-changing markets, New
York Life Investment Management LLC provides access to seven institutional
investment boutiques, each with its own proprietary research and investment
culture. As advisors and subadvisors to MainStay Funds, these boutiques bring a
wealth of experience and market insight to our shareholders. The portfolio
managers of each MainStay Fund seek to consistently apply time-tested investment
principles across a wide variety of market environments.
The report that follows provides more specific information about the market
forces and investment decisions that affected your investment in MainStay Funds
from November 1, 2006, through October 31, 2007. Please read the report
carefully. As you do, bear in mind that this annual report reflects just a short
segment of your lifetime investment journey. We look forward to continuing to
work with you, wherever that journey may lead.
Sincerely,
/s/ STEPHEN P. FISHER
Stephen P. Fisher
President
Not part of the Annual Report
(MAINSTAY INVESTMENTS LOGO)
MAINSTAY
SMALL CAP OPPORTUNITY FUND
MainStay Funds
Annual Report
October 31, 2007
TABLE OF CONTENTS
<Table>
Annual Report
- --------------------------------------------------------------------------------
Investment and Performance Comparison 5
- --------------------------------------------------------------------------------
Portfolio Management Discussion and Analysis 9
- --------------------------------------------------------------------------------
Portfolio of Investments 10
- --------------------------------------------------------------------------------
Financial Statements 15
- --------------------------------------------------------------------------------
Notes to Financial Statements 20
- --------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm 25
- --------------------------------------------------------------------------------
Federal Income Tax Information 26
- --------------------------------------------------------------------------------
Proxy Voting Policies and Procedures and Proxy Voting Record 26
- --------------------------------------------------------------------------------
Shareholder Reports and Quarterly Portfolio Disclosure 26
- --------------------------------------------------------------------------------
Special Meeting of Shareholders 26
- --------------------------------------------------------------------------------
Trustees and Officers 27
</Table>
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, AND AS A RESULT, WHEN SHARES ARE REDEEMED, THEY 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.
CLASS A SHARES--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ------------------------------------------------
With sales charges -11.25% 15.57% 8.26%
Excluding sales charges -6.09 16.89 8.87
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
CLASS A RUSSELL 2000 VALUE INDEX
------- ------------------------
10/31/97 9450 10000
9072 9231
9465 9297
9620 10905
9594 11860
10136 11560
14352 16217
17264 19135
21176 21630
23547 26582
10/31/07 22113 27127
</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 -11.46% 15.78% 7.95%
Excluding sales charges -6.81 16.00 7.95
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
CLASS B RUSSELL 2000 VALUE INDEX
------- ------------------------
10/31/97 10000 10000
9482 9231
9784 9297
9863 10905
9765 11860
10237 11560
14408 16217
17197 19135
20910 21630
23068 26582
10/31/07 21498 27127
</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 -7.73% 16.03% 7.98%
Excluding sales charges -6.80 16.03 7.98
</Table>
(PERFORMANCE GRAPH) (With sales charges)
<Table>
<Caption>
CLASS C RUSSELL 2000 VALUE INDEX
------- ------------------------
10/31/97 10000 10000
9482 9231
9792 9297
9871 10905
9764 11860
10246 11560
14434 16217
17218 19135
20958 21630
23121 26582
10/31/07 21548 27127
</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 maximum applicable sales charges explained in this paragraph, change in
share price, and reinvestment of dividend and capital-gain distributions. 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
Trustees. The Manager may recoup the amount of certain management fee waivers or
expense reimbursements from the Fund pursuant to the contract 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)
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 5
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL ONE FIVE TEN
TOTAL RETURNS YEAR YEARS YEARS
- ----------------------------------------------
-5.69% 17.35% 9.23%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
CLASS I RUSSELL 2000 VALUE INDEX
------- ------------------------
10/31/97 10000 10000
9637 9231
10081 9297
10269 10905
10269 11860
10869 11560
15439 16217
18639 19135
22953 21630
25646 26582
10/31/07 24187 27127
</Table>
<Table>
<Caption>
ONE FIVE TEN
BENCHMARK PERFORMANCE YEAR YEARS YEARS
- -------------------------------------------------------------------------------
Russell 2000(R) Value Index(1) 2.05% 18.60% 10.49%
Average Lipper small-cap value fund(2) 6.26 17.60 9.72
</Table>
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
upon initial offer. 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.
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. The Russell 2000(R) Index is an
unmanaged index that measures the performance of the 2,000 smallest companies
in the Russell 3000(R) Index, which, in turn, is an unmanaged index that
measures the performance of the 3,000 largest U.S. companies based on total
market capitalization. Results assume reinvestment of all income and capital
gains. 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. Lipper Inc. is an independent monitor of fund performance. Results are based
on total returns with all dividend and capital-gain distributions reinvested.
THE DISCLOSURE ON THE PRECEDING PAGE IS AN INTEGRAL PART OF THE TABLES AND
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
6 MainStay Small Cap Opportunity Fund
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, 2007, to October 31, 2007,
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,
2007, to October 31, 2007.
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, 2007. 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 5/1/07 10/31/07 PERIOD(1) 10/31/07 PERIOD(1)
CLASS A SHARES $1,000.00 $887.20 $ 7.90 $1,016.70 $ 8.44
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $882.75 $11.44 $1,012.95 $12.23
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $883.25 $11.44 $1,012.95 $12.23
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $889.45 $ 5.67 $1,019.05 $ 6.06
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
1. Expenses are equal to the Fund's net annualized expense ratio of each class
(1.66% for Class A, 2.41% for Class B and Class C, and 1.19% 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).
www.mainstayfunds.com 7
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 2007
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
<Caption>
SHORT-TERM INVESTMENTS
(COLLATERAL FROM SECURITIES LIABILITIES IN EXCESS OF
COMMON STOCKS LENDING IS 25.2%) FUTURES CONTRACTS CASH AND OTHER ASSETS
- ------------- --------------------------- ----------------- ------------------------
98.2 27.3 0* (25.5)
</Table>
* Less than one-tenth of a percent.
See Portfolio of Investments on page 10 for specific holdings within these
categories.
TOP TEN HOLDINGS AS OF OCTOBER 31, 2007 (EXCLUDING SHORT-TERM INVESTMENTS)
<Table>
1. CF Industries Holdings, Inc.
2. Westar Energy, Inc.
3. Platinum Underwriters Holdings, Ltd.
4. Aspen Insurance Holdings, Ltd.
5. Portland General Electric Co.
6. Exterran Holdings, Inc.
7. South Financial Group, Inc. (The)
8. DiamondRock Hospitality Co.
9. LaSalle Hotel Properties
10. Max Capital Group, Ltd.
</Table>
8 MainStay Small Cap Opportunity Fund
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 FOR THE 12-MONTH REPORTING PERIOD?
Excluding all sales charges, MainStay Small Cap Opportunity Fund returned -6.09%
for Class A shares, -6.81% for Class B shares and -6.80% for Class C shares for
the 12 months ended October 31, 2007. Over the same period, Class I shares
returned -5.69%. All share classes underperformed the 6.26% return of the
average Lipper(1) small-cap value fund and the 2.05% return of the Russell
2000(R) Value Index(2) for the six months ended October 31, 2007. The Russell
2000(R) Value Index is the Fund's broad-based securities-market index. See page
5 for returns with sales charges.
WHAT FACTORS WERE RESPONSIBLE FOR THE FUND'S RELATIVE PERFORMANCE?
The Fund's weak relative performance resulted primarily from stock selection in
financials, energy and industrials. The Fund's exposure to value factors, which
are a part of the Fund's propietary model, contributed to the Fund's negative
performance.
WHICH SECTORS HAD THE STRONGEST POSITIVE IMPACT ON THE FUND'S PERFORMANCE DURING
THE REPORTING PERIOD AND WHICH SECTORS WERE WEAK?
The Fund's strongest-performing sectors were materials, health care and
telecommunication services. The Fund's weakest-performing sectors were
financials, consumer discretionary and utilities.
DURING THE REPORTING PERIOD, WHICH STOCKS WERE THE FUND'S BEST PERFORMERS AND
WHICH STOCKS WERE THE WEAKEST?
Among the strongest individual contributors to the Fund's performance were CF
Industries, TBS International and Ohio Casualty. Another positive contributor
was Chaparral Steel, which was acquired by Gerdau Ameristeel during the
reporting period. Detractors from the Fund's performance included Triad
Guaranty, American Home Mortgage Investment and USEC.
WERE THERE ANY SIGNIFICANT PURCHASES OR SALES DURING THE REPORTING PERIOD?
The Fund seeks stocks that have attractive relative valuations and exhibit
strong price trends. Among the stocks that fit the Fund's purchase criteria
during the reporting period were GrafTech International and Oil States
International. Among the stocks the Fund sold because of unattractive valuations
were Chiquita Brands and Manitowoc Company.
WERE THERE ANY NOTABLE CHANGES IN THE FUND'S WEIGHTINGS DURING THE REPORTING
PERIOD?
Weighting changes in the Fund result from a combination of security performance
and the Fund's proprietary quantitative security selection process. During the
reporting period, the Fund's weighting relative to the Russell 2000(R) Value
Index substantially increased in information technology and moderately increased
in health care. Over the same period, the Fund's weightings moderately decreased
in industrials and materials.
HOW WAS THE FUND POSITIONED AT THE END OF THE REPORTING PERIOD?
As of October 31, 2007, the Fund was moderately overweight relative to the
Russell 2000(R) Value Index in information technology and health care. As of the
same date, the Fund was moderately underweight in the financials and materials
sectors.
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, 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'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 6 for more information on Lipper Inc.
2. See footnote on page 6 for more information on the Russell 2000(R) Value
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.
www.mainstayfunds.com 9
PORTFOLIO OF INVESTMENTS+++ OCTOBER 31, 2007
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (98.2%)+
- -------------------------------------------------------------------------------------
AEROSPACE & DEFENSE (1.4%)
DynCorp International, Inc. (a) 220,962 $ 5,002,580
Triumph Group, Inc. (b) 120,264 9,575,420
-------------------
14,578,000
-------------------
AIR FREIGHT & LOGISTICS (0.3%)
ABX Air, Inc. (a) 259,550 1,640,357
Dynamex, Inc. (a) 21,249 630,670
Pacer International, Inc. 75,262 1,109,362
-------------------
3,380,389
-------------------
AUTO COMPONENTS (0.8%)
Lear Corp. (a) 203,534 7,231,563
Superior Industries International, Inc. (b) 35,345 714,322
-------------------
7,945,885
-------------------
AUTOMOBILES (0.2%)
Monaco Coach Corp. 173,673 2,014,607
-------------------
BIOTECHNOLOGY (1.9%)
Applera Corp.--Celera Group (a) 287,394 4,687,396
MannKind Corp. (a)(b) 142,570 1,301,664
Neurocrine Biosciences, Inc. (a)(b) 210,563 1,947,708
Onyx Pharmaceuticals, Inc. (a)(b) 78,871 3,684,064
OSI Pharmaceuticals, Inc. (a) 72,470 3,012,578
Pharmion Corp. (a) 53,179 2,558,973
Telik, Inc. (a)(b) 487,324 1,998,028
-------------------
19,190,411
-------------------
CAPITAL MARKETS (1.2%)
Capital Southwest Corp. (b) 11,946 1,459,323
Epoch Holding Corp. (b) 19,471 273,373
Hercules Technology Growth
Capital, Inc. (b) 267,283 3,429,241
Piper Jaffray Cos., Inc. (a)(b) 132,159 6,792,973
-------------------
11,954,910
-------------------
CHEMICALS (3.9%)
V CF Industries Holdings, Inc. (b) 250,166 21,989,591
Innospec, Inc. (b) 256,534 5,461,609
Koppers Holdings, Inc. 179,288 8,032,102
Rockwood Holdings, Inc. (a) 53,105 2,075,874
Sensient Technologies Corp. 65,163 1,947,722
Valhi, Inc. (b) 14,200 378,998
-------------------
39,885,896
-------------------
COMMERCIAL BANKS (9.2%)
1st Source Corp. 23,013 442,770
Ameris Bancorp (b) 66,827 1,126,703
Arrow Financial Corp. 13,592 306,365
BancFirst Corp. 37,502 1,704,091
Banco Latinoamericano de Exportaciones S.A. 165,726 3,226,685
Bancorp, Inc./Wilmington, DE (a) 10,429 187,201
Bank of Granite Corp. 42,783 540,349
</Table>
<Table>
<Caption>
SHARES VALUE
COMMERCIAL BANKS (CONTINUED)
Bank of the Ozarks, Inc. (b) 32,334 $ 936,069
Banner Corp. (b) 81,986 2,677,663
Camden National Corp. 12,710 421,591
Capital City Bank Group, Inc. (b) 9,948 280,434
Capital Corp. of the West 13,795 268,313
Centennial Bank Holdings, Inc. (a) 55,030 302,665
Chemical Financial Corp. (b) 25,530 638,250
City Holding Co. 85,618 3,237,217
Columbia Bancorp, OR (b) 16,800 305,760
Community Bancorp/NV (a) 76,582 1,552,317
Community Trust Bancorp, Inc. 56,966 1,660,559
F.N.B. Corp. (b) 103,883 1,726,535
First Bancorp North Carolina 24,768 448,053
First Bancorp Puerto Rico 41,721 366,728
First Community Bancshares, Inc. (b) 38,125 1,309,213
First Financial Bankshares, Inc. (b) 23,098 901,515
First Financial Corp., IN (b) 14,534 445,758
First Merchants Corp. 73,556 1,621,910
First Regional Bancorp (a) 49,689 1,167,692
First South Bancorp, Inc. 920 22,982
FNB Corp., VA 22,314 643,982
Great Southern Bancorp, Inc. (b) 44,291 1,036,409
Greene County Bancshares, Inc. (b) 47,164 1,511,606
Hancock Holding Co. (b) 69,926 2,659,286
Hanmi Financial Corp. 477,285 5,259,681
Heartland Financial USA, Inc. (b) 10,483 209,031
Horizon Financial Corp. 59,891 1,038,510
Independent Bank Corp. 36,780 1,087,952
Intervest Bancshares Corp. 74,767 1,561,883
Lakeland Financial Corp. (b) 38,187 798,490
MainSource Financial Group, Inc. 16,058 269,935
Mercantile Bank Corp. 16,814 308,201
MetroCorp Bancshares, Inc. 9,300 128,898
National Penn Bancshares, Inc. (b) 65,486 1,104,102
Pacific Capital Bancorp (b) 66,279 1,373,964
Peoples Bancorp, Inc. 14,721 367,583
Preferred Bank 61,647 1,832,765
PremierWest Bancorp 33,191 394,973
Provident Bankshares Corp. (b) 132,288 3,263,545
Renasant Corp. 39,929 928,349
SCBT Financial Corp. 10,502 335,539
Shore Bancshares, Inc. (b) 8,117 193,428
Sierra Bancorp (b) 5,287 143,701
Simmons First National Corp. Class A 23,857 645,093
V South Financial Group, Inc. (The) 632,050 13,058,153
+ Percentages indicated are based on Fund net
assets.V Among the Fund's 10 largest holdings,
excluding short-term investments. May be
subject to change daily.
</Table>
10 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)
- -------------------------------------------------------------------------------------
COMMERCIAL BANKS (CONTINUED)
Southwest Bancorp, Inc. 45,526 $ 861,807
Sterling Bancshares, Inc. 224,427 2,738,009
Sterling Financial Corp./PA 42,854 786,371
Susquehanna Bancshares, Inc. (b) 337,664 6,810,683
Taylor Capital Group, Inc. 89,440 2,312,918
Tompkins Financial Corp. 6,686 277,736
Trico Bancshares 15,713 347,257
Trustmark Corp. 223,263 6,025,868
UMB Financial Corp. 68,754 2,887,668
Union Bankshares Corp. 18,071 386,177
Univest Corp. of Pennsylvania (b) 6,804 148,872
Virginia Financial Group, Inc. 14,600 264,990
Washington Trust Bancorp, Inc. 17,115 426,677
Wilshire Bancorp, Inc. 150,997 1,555,269
-------------------
93,810,749
-------------------
COMMERCIAL SERVICES & SUPPLIES (6.2%)
ABM Industries, Inc. 367,449 8,642,400
Bowne & Co., Inc. 351,067 6,101,544
CBIZ, Inc. (a)(b) 142,749 1,284,741
CDI Corp. 87,607 2,414,449
Consolidated Graphics, Inc. (a) 102,837 6,579,511
Ennis, Inc. 52,784 1,078,905
GeoEye, Inc. (a) 287,622 9,005,445
IHS, Inc. Class A (a) 23,236 1,465,030
IKON Office Solutions, Inc. (b) 631,824 8,340,077
Innerworkings, Inc. (a) 1,985 31,939
Kelly Services, Inc. Class A 46,286 973,395
RSC Holdings, Inc. (a)(b) 84,475 1,229,111
School Specialty, Inc. (a) 49,042 1,655,168
Spherion Corp. (a) 361,389 3,151,312
Standard Parking Corp. (a) 37,764 1,620,076
United Stationers, Inc. (a) 63,785 3,693,789
Viad Corp. 169,405 6,003,713
-------------------
63,270,605
-------------------
COMMUNICATIONS EQUIPMENT (1.2%)
Avocent Corp. (a) 66,339 1,793,143
Infinera Corp. (a)(b) 126,753 2,797,439
Network Equipment Technologies, Inc. (a) 1,247 18,580
OpNext, Inc. (a) 101,470 1,207,493
Starent Networks Corp. (a)(b) 269,419 6,676,203
-------------------
12,492,858
-------------------
COMPUTERS & PERIPHERALS (0.7%)
Data Domain, Inc. (a)(b) 97,304 3,358,934
Quantum Corp. (a) 913,429 3,653,716
Silicon Graphics, Inc. (a)(b) 29,661 555,847
-------------------
7,568,497
-------------------
</Table>
<Table>
<Caption>
SHARES VALUE
CONSTRUCTION & ENGINEERING (0.0%)++
EMCOR Group, Inc. (a) 14,010 $ 482,364
-------------------
CONSUMER FINANCE (0.5%)
Advanta Corp. Class B 79,483 1,255,831
Cash America International, Inc. 97,326 3,795,714
-------------------
5,051,545
-------------------
CONTAINERS & PACKAGING (0.5%)
Silgan Holdings, Inc. 86,288 4,708,736
-------------------
DIVERSIFIED CONSUMER SERVICES (1.2%)
Corinthian Colleges, Inc. (a) 230,567 3,778,993
Stewart Enterprises, Inc. Class A 100,605 912,487
Strayer Education, Inc. 41,342 7,708,629
-------------------
12,400,109
-------------------
DIVERSIFIED FINANCIAL SERVICES (0.2%)
Ampal American Israel Class A (a)(b) 11,756 80,881
NewStar Financial, Inc. (a) 25,179 252,797
Primus Guaranty, Ltd. (a)(b) 169,515 1,552,757
-------------------
1,886,435
-------------------
DIVERSIFIED TELECOMMUNICATION SERVICES (1.5%)
Cincinnati Bell, Inc. (a) 1,659,754 8,995,867
Golden Telecom, Inc. (b) 56,103 5,803,855
-------------------
14,799,722
-------------------
ELECTRIC UTILITIES (5.4%)
ALLETE, Inc. (b) 119,520 5,221,829
Central Vermont Public Service Corp. 36,547 1,161,464
El Paso Electric Co. (a) 168,768 4,109,501
Empire District Electric Co. (The) 20,753 499,110
V Portland General Electric Co. 636,159 17,907,876
Sierra Pacific Resources 321,330 5,420,837
V Westar Energy, Inc. 783,471 20,855,998
-------------------
55,176,615
-------------------
ELECTRICAL EQUIPMENT (0.5%)
GrafTech International, Ltd. (a) 219,865 4,155,449
Preformed Line Products Co. 496 27,220
Regal-Beloit Corp. 21,978 1,077,801
-------------------
5,260,470
-------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS (4.3%)
Agilysys, Inc. 348,342 6,026,317
Anixter International, Inc. (a)(b) 93,065 6,686,720
Insight Enterprises, Inc. (a)(b) 354,200 9,790,088
Kemet Corp. (a) 784,797 5,548,515
MTS Systems Corp. 53,813 2,394,140
Park Electrochemical Corp. 162,884 5,101,527
Technitrol, Inc. 263,951 7,762,799
-------------------
43,310,106
-------------------
ENERGY EQUIPMENT & SERVICES (2.7%)
V Exterran Holdings, Inc. (a) 171,675 14,455,035
Gulfmark Offshore, Inc. (a) 64,204 2,990,622
</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 11
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2007 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES (CONTINUED)
Oil States International, Inc. (a)(b) 221,951 $ 9,586,064
-------------------
27,031,721
-------------------
FOOD & STAPLES RETAILING (0.3%)
Ingles Markets, Inc. Class A 92,497 2,566,792
Village Super Market 3,779 206,296
-------------------
2,773,088
-------------------
FOOD PRODUCTS (2.3%)
Fresh Del Monte Produce, Inc. 79,911 2,899,171
Imperial Sugar Co. (b) 329,086 8,487,128
Sanderson Farms, Inc. (b) 58,158 2,023,898
Seaboard Corp. (b) 5,954 9,716,928
-------------------
23,127,125
-------------------
GAS UTILITIES (0.2%)
Nicor, Inc. 18,933 819,231
Piedmont Natural Gas Co., Inc. (b) 56,296 1,437,237
-------------------
2,256,468
-------------------
HEALTH CARE EQUIPMENT & SUPPLIES (1.5%)
Conceptus, Inc. (a) 55,943 1,226,830
CONMED Corp. (a) 21,797 619,907
Inverness Medical Innovations, Inc. (a) 95,869 5,760,768
Spectranetics Corp. (a)(b) 77,303 1,236,848
STERIS Corp. 44,087 1,280,286
SurModics, Inc. (a)(b) 48,929 2,776,231
Zoll Medical Corp. (a) 95,547 2,337,080
-------------------
15,237,950
-------------------
HEALTH CARE PROVIDERS & SERVICES (2.1%)
American Dental Partners, Inc. (a) 13,555 336,028
AMERIGROUP Corp. (a)(b) 155,385 5,438,475
Apria Healthcare Group, Inc. (a) 85,735 2,072,215
Chemed Corp. 58,544 3,355,742
Cross Country Healthcare, Inc. (a) 116,509 1,830,356
Healthspring, Inc. (a) 153,056 3,214,176
MedCath Corp. (a) 126,715 3,513,807
Res-Care, Inc. (a) 32,709 803,333
Sunrise Senior Living, Inc. (a)(b) 12,129 448,773
-------------------
21,012,905
-------------------
HOTELS, RESTAURANTS & LEISURE (2.2%)
Bob Evans Farms, Inc. 78,476 2,211,454
CBRL Group, Inc. 101,774 4,060,783
Domino's Pizza, Inc. (b) 350,011 5,404,170
Isle of Capri Casinos, Inc. (a)(b) 43,546 881,807
Jack in the Box, Inc. (a)(b) 95,806 3,005,434
Papa John's International, Inc. (a)(b) 285,505 6,652,267
-------------------
22,215,915
-------------------
HOUSEHOLD DURABLES (2.1%)
American Greetings Corp. Class A 275,707 7,262,122
</Table>
<Table>
<Caption>
SHARES VALUE
HOUSEHOLD DURABLES (CONTINUED)
Ethan Allen Interiors, Inc. (b) 137,025 $ 4,228,592
National Presto Industries, Inc. 73,109 4,016,608
Syntax-Brillian Corp. (a)(b) 120,164 541,940
Tupperware Brands Corp. 162,413 5,863,109
-------------------
21,912,371
-------------------
INSURANCE (7.6%)
V Aspen Insurance Holdings, Ltd. (b) 715,226 19,568,583
FPIC Insurance Group, Inc. (a) 16,079 671,781
Horace Mann Educators Corp. 116,022 2,400,495
IPC Holdings, Ltd. 154,307 4,615,322
V Max Capital Group, Ltd. (b) 384,245 10,870,291
Montpelier Re Holdings, Ltd. 119,101 2,131,908
National Western Life Insurance Co. Class A 291 63,228
Odyssey Re Holdings Corp. 133,192 4,952,079
Phoenix Cos., Inc. (The) 532,792 7,341,874
V Platinum Underwriters Holdings, Ltd. 549,645 19,787,220
United America Indemnity, Ltd. Class A (a) 33,337 735,081
Zenith National Insurance Corp. 115,771 4,651,679
-------------------
77,789,541
-------------------
INTERNET & CATALOG RETAIL (0.1%)
Priceline.com, Inc. (a)(b) 10,953 1,019,724
-------------------
INTERNET SOFTWARE & SERVICES (4.2%)
Asiainfo Holdings, Inc. (a) 90,535 1,107,243
CMGI, Inc. (a) 3,608,658 5,088,208
CNET Networks, Inc. (a)(b) 287,666 2,324,341
DealerTrack Holdings, Inc. (a) 65,236 3,202,435
Equinix, Inc. (a)(b) 66,074 7,708,193
Imergent, Inc. (b) 163,537 3,944,512
Mercadolibre, Inc. (a)(b) 142,237 6,355,149
NIC, Inc. 40,519 294,978
Omniture, Inc. (a)(b) 209,191 7,145,965
S1 Corp. (a) 222,808 1,876,043
SAVVIS, Inc. (a) 87,477 3,304,881
Terremark Worldwide, Inc. (a)(b) 63,408 490,144
-------------------
42,842,092
-------------------
IT SERVICES (0.9%)
CIBER, Inc. (a) 277,843 2,164,397
MPS Group, Inc. (a) 547,033 6,679,273
TNS, Inc. 31,352 506,335
-------------------
9,350,005
-------------------
LEISURE EQUIPMENT & PRODUCTS (0.2%)
Leapfrog Enterprises, Inc. (a) 75,932 568,731
Sturm, Ruger & Co., Inc. (a) 112,646 1,053,240
-------------------
1,621,971
-------------------
</Table>
12 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)
- -------------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES (0.7%)
Bio-Rad Laboratories, Inc. Class A (a) 22,991 $ 2,220,471
Varian, Inc. (a) 72,144 5,330,720
-------------------
7,551,191
-------------------
MACHINERY (2.7%)
Cascade Corp. 90,402 5,693,518
Chart Industries, Inc. (a) 110,427 3,622,006
EnPro Industries, Inc. (a) 41,100 1,685,511
Greenbrier Cos., Inc. (The) (b) 127,172 3,396,764
Hardinge, Inc. 109,503 3,540,232
NACCO Industries, Inc. Class A 91,881 9,517,953
-------------------
27,455,984
-------------------
MARINE (2.6%)
Eagle Bulk Shipping, Inc. (b) 297,611 10,145,559
Genco Shipping & Trading, Ltd. (b) 102,482 7,367,431
TBS International, Ltd. (a)(b) 137,781 8,658,158
-------------------
26,171,148
-------------------
MEDIA (1.5%)
Belo Corp. Class A 282,181 5,220,349
Cinemark Holdings, Inc. 118,078 2,032,122
DG FastChannel, Inc. (a)(b) 81,964 2,015,495
Entravision Communications Corp. Class A (a) 467,374 4,253,103
Fisher Communications, Inc. (a) 6,700 323,409
GateHouse Media, Inc. (b) 88,582 1,017,807
Lin TV Corp. Class A (a) 45,625 664,756
-------------------
15,527,041
-------------------
METALS & MINING (1.2%)
A.M. Castle & Co. 105,412 3,172,901
Apex Silver Mines, Ltd. (a)(b) 291,288 5,971,404
Metal Management, Inc. 53,742 2,825,217
-------------------
11,969,522
-------------------
OIL, GAS & CONSUMABLE FUELS (3.4%)
BPZ Resources, Inc. (a)(b) 83,845 957,510
Encore Acquisition Co. (a)(b) 199,117 7,307,594
EXCO Resources, Inc. (a)(b) 547,315 9,238,677
Mariner Energy, Inc. (a) 46,218 1,155,450
McMoRan Exploration Co. (a)(b) 505,549 6,157,587
Stone Energy Corp. (a) 116,890 5,210,956
Warren Resources, Inc. (a)(b) 289,287 4,391,377
-------------------
34,419,151
-------------------
PERSONAL PRODUCTS (0.6%)
NBTY, Inc. (a) 153,828 5,476,277
Nu Skin Enterprises, Inc. Class A 42,555 734,925
-------------------
6,211,202
-------------------
PHARMACEUTICALS (0.5%)
Durect Corp. (a) 27,140 157,955
</Table>
<Table>
<Caption>
SHARES VALUE
PHARMACEUTICALS (CONTINUED)
Pain Therapeutics, Inc. (a)(b) 81,176 $ 832,866
Perrigo Co. 170,379 4,039,686
-------------------
5,030,507
-------------------
REAL ESTATE INVESTMENT TRUSTS (8.0%)
Agree Realty Corp. 56,336 1,824,160
Anthracite Capital, Inc. (b) 439,023 3,652,671
Deerfield Triarc Capital Corp. (b) 527,213 5,034,884
V DiamondRock Hospitality Co. 676,381 12,959,460
Equity One, Inc. (b) 142,080 3,719,654
First Industrial Realty Trust, Inc. 88,068 3,588,771
Franklin Street Properties Corp. (b) 70,861 1,151,491
GMH Communities Trust 115,689 853,785
Gramercy Capital Corp. (b) 165,102 4,353,740
Highwoods Properties, Inc. 81,469 2,929,625
Investors Real Estate Trust 161,868 1,756,268
V LaSalle Hotel Properties (b) 285,139 11,781,943
National Health Investors, Inc. 157,007 4,598,735
National Retail Properties, Inc. (b) 228,873 5,801,931
OMEGA Healthcare Investors, Inc. 204,128 3,415,061
Potlatch Corp. 168,656 8,038,145
Ramco-Gershenson Properties Trust 157,718 4,512,312
U-Store-It Trust 84,630 1,091,727
-------------------
81,064,363
-------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT (0.0%)++
Thomas Properties Group, Inc. 12,891 157,141
-------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (2.9%)
Advanced Energy Industries, Inc. (a) 338,198 5,411,168
Brooks Automation, Inc. (a)(b) 483,090 6,270,508
Cavium Networks, Inc. (a)(b) 83,284 2,421,899
MKS Instruments, Inc. (a)(b) 201,788 4,051,903
ON Semiconductor Corp. (a)(b) 311,777 3,180,125
Pericom Semiconductor Corp. (a) 142,838 2,134,000
Semtech Corp. (a) 124,810 2,135,499
Spansion, Inc. Class A (a)(b) 615,895 4,342,060
-------------------
29,947,162
-------------------
SOFTWARE (0.7%)
BladeLogic, Inc. (a) 27,017 830,232
MSC.Software Corp. (a) 83,661 1,154,522
Synchronoss Technologies, Inc. (a)(b) 129,109 5,164,360
-------------------
7,149,114
-------------------
SPECIALTY RETAIL (2.0%)
Asbury Automotive Group, Inc. 245,693 4,503,553
Books-A-Million, Inc. 91,456 1,224,596
Brown Shoe Co., Inc. 200,254 4,085,182
Charming Shoppes, Inc. (a)(b) 242,446 1,798,949
Group 1 Automotive, Inc. (b) 145,610 4,521,191
</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 13
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2007 (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------
SPECIALTY RETAIL (CONTINUED)
Sonic Automotive, Inc. 179,949 $ 4,545,512
-------------------
20,678,983
-------------------
TEXTILES, APPAREL & LUXURY GOODS (0.4%)
Maidenform Brands, Inc. (a) 246,088 3,654,407
-------------------
THRIFTS & MORTGAGE FINANCE (2.1%)
Clayton Holdings, Inc. (a)(b) 134,105 643,704
Corus Bankshares, Inc. (b) 792,566 8,734,077
First Niagara Financial Group, Inc. 250,183 3,302,416
FirstFed Financial Corp. (a)(b) 16,291 696,929
NewAlliance Bancshares, Inc. (b) 86,906 1,215,815
NexCen Brands, Inc. (a) 86,340 530,128
Ocwen Financial Corp. (a)(b) 558,911 4,169,476
TierOne Corp. (b) 97,410 2,225,819
Triad Guaranty, Inc. (a)(b) 45,052 363,119
-------------------
21,881,483
-------------------
TOBACCO (0.0%)++
Vector Group, Ltd. (b) 7,318 160,118
-------------------
TRADING COMPANIES & DISTRIBUTORS (0.9%)
Applied Industrial Technologies, Inc. 263,774 9,350,788
-------------------
WIRELESS TELECOMMUNICATION SERVICES (0.5%)
Dobson Communications Corp. Class A (a) 110,804 1,433,804
USA Mobility, Inc. (a) 210,957 3,299,367
-------------------
4,733,171
-------------------
Total Common Stocks
(Cost $1,015,519,401) 1,000,472,261
-------------------
SHORT-TERM INVESTMENTS (27.3%)
- -------------------------------------------------------------------------------------
INVESTMENT COMPANY (25.2%)
State Street Navigator Securities
Lending Prime Portfolio (c) 256,334,459 256,334,459
-------------------
Total Investment Company
(Cost $256,334,459) 256,334,459
-------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
U.S. GOVERNMENT (2.1%)
- -------------------------------------------------------------------------------------
United States Treasury Bills
3.85%, due 1/10/08 $19,800,000 $ 19,653,203
3.865%, due 1/24/08 (d) 1,700,000 1,684,875
-------------------
Total U.S. Government
(Cost $21,337,106) 21,338,078
-------------------
Total Short-Term Investments
(Cost $277,671,565) 277,672,537
-------------------
Total Investments
(Cost $1,293,190,966) 125.5% 1,278,144,798(f)
Liabilities in Excess of
Cash and Other Assets (25.5) (259,240,758)
----------- -------------------
Net Assets 100.0% $ 1,018,904,040
=========== ===================
</Table>
<Table>
<Caption>
CONTRACTS UNREALIZED
LONG APPRECIATION (E)
FUTURES CONTRACTS (0.0%)++
- -----------------------------------------------------------------------------------
Russell 2000 Index
Mini December 2007 257 $ 197,231
-------------------
Total Futures Contracts
(Settlement Value $21,390,110) $ 197,231
===================
</Table>
<Table>
++ Less than one-tenth of a percent.
+++ All 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. These
securities are marked-to-market daily and reviewed 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. The aggregate market value of such securities is
$244,990,812; cash collateral of $256,334,459 (included in
liabilities) was received with which the Fund purchased
highly liquid short-term investments.
(c) Represents a security, or a portion thereof, purchased with
cash collateral received for securities on loan.
(d) Segregated, or partially segregated as collateral for
futures contracts.
(e) Represents the difference between the value of the contracts
at the time they were opened and the value at October 31,
2007.
(f) At October 31, 2007, cost is $1,302,709,255 for federal
income tax purposes and net unrealized depreciation is as
follows:
</Table>
<Table>
Gross unrealized appreciation $ 70,188,357
Gross unrealized depreciation (94,752,814)
------------
Net unrealized depreciation $(24,564,457)
============
</Table>
14 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 ASSETS AND LIABILITIES AS OF OCTOBER 31, 2007
<Table>
ASSETS:
Investment in securities, at value
(identified cost $1,293,190,966) including
$244,990,812 market value of securities
loaned $1,278,144,798
Cash 277,980
Receivables:
Dividends and interest 1,283,060
Fund shares sold 902,046
Variation margin on futures contracts 358,670
Other assets 38,572
--------------
Total assets 1,281,005,126
--------------
LIABILITIES:
Securities lending collateral 256,334,459
Payables:
Fund shares redeemed 3,847,388
Manager (See Note 3) 710,380
Transfer agent (See Note 3) 667,710
Shareholder communication 249,293
NYLIFE Distributors (See Note 3) 157,549
Professional fees 88,043
Custodian 21,765
Trustees 11,684
Accrued expenses 12,815
--------------
Total liabilities 262,101,086
--------------
Net assets $1,018,904,040
==============
COMPOSITION OF NET ASSETS:
Share of beneficial interest outstanding
(par value of $.01 per share) unlimited
number of shares authorized $ 541,338
Additional paid-in capital 940,668,318
--------------
941,209,656
Accumulated undistributed net investment
income 7,260,557
Accumulated net realized gain on investments
and futures transactions 85,282,764
Net unrealized depreciation on investments
and futures contracts (14,848,937)
--------------
Net assets $1,018,904,040
==============
CLASS A
Net assets applicable to outstanding shares $ 301,030,610
==============
Shares of beneficial interest outstanding 16,139,925
==============
Net asset value per share outstanding $ 18.65
Maximum sales charge (5.50% of offering
price) 1.09
--------------
Maximum offering price per share outstanding $ 19.74
==============
CLASS B
Net assets applicable to outstanding shares $ 32,501,846
==============
Shares of beneficial interest outstanding 1,811,649
==============
Net asset value and offering price per share
outstanding $ 17.94
==============
CLASS C
Net assets applicable to outstanding shares $ 54,263,593
==============
Shares of beneficial interest outstanding 3,023,931
==============
Net asset value and offering price per share
outstanding $ 17.94
==============
CLASS I
Net assets applicable to outstanding shares $ 631,107,991
==============
Shares of beneficial interest outstanding 33,158,339
==============
Net asset value and offering price per share
outstanding $ 19.03
==============
</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
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2007
<Table>
INVESTMENT INCOME:
INCOME:
Dividends $ 24,183,247
Income from securities loaned--net 2,388,422
Interest 1,352,984
--------------
Total income 27,924,653
--------------
EXPENSES:
Manager (See Note 3) 14,015,199
Transfer agent--Classes A, B and C
(See Note 3) 1,942,943
Transfer agent--Class I (See Note 3) 2,250,947
Distribution/Service--Class A (See Note 3) 1,101,807
Service--Class B (See Note 3) 105,793
Service--Class C (See Note 3) 236,193
Distribution--Class B (See Note 3) 317,379
Distribution--Class C (See Note 3) 708,580
Shareholder communication 363,782
Professional fees 226,996
Registration 206,998
Custodian 79,918
Trustees 65,379
Miscellaneous 96,240
--------------
Total expenses before waiver 21,718,154
Expense waiver from Manager (See Note 3) (1,305,029)
--------------
Net expenses 20,413,125
--------------
Net investment income 7,511,528
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on:
Security transactions 104,105,305
Futures transactions 2,497,051
--------------
Net realized gain on investments and futures
transactions 106,602,356
--------------
Net change in unrealized appreciation on:
Security transactions (174,568,114)
Futures contracts (149,434)
--------------
Net change in unrealized appreciation on
investments and futures contracts (174,717,548)
--------------
Net realized and unrealized loss on
investments and futures transactions (68,115,192)
--------------
Net decrease in net assets resulting from
operations $ (60,603,664)
==============
</Table>
16 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 CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2007 AND OCTOBER 31, 2006
<Table>
<Caption>
2007 2006
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income (loss) $ 7,511,528 $ (2,831,277)
Net realized gain (loss) on
investments and futures
transactions 106,602,356 (18,338,604)
Net change in unrealized
appreciation on investments and
futures contracts (174,717,548) 125,336,180
-------------------------------
Net increase (decrease) in net
assets resulting from operations (60,603,664) 104,166,299
-------------------------------
Dividends and distributions to shareholders:
From net investment income:
Class I (116,165) --
-------------------------------
(116,165) --
-------------------------------
From net realized gain on investments:
Class A -- (20,984,570)
Class B -- (4,734,873)
Class C -- (5,461,202)
Class I -- (32,376,431)
-------------------------------
-- (63,557,076)
-------------------------------
Total dividends and distributions
to shareholders (116,165) (63,557,076)
-------------------------------
Capital share transactions:
Net proceeds from sale of shares 287,310,908 1,225,838,599
Net asset value of shares issued
to shareholders in reinvestment
of dividends and distributions 109,458 54,527,745
Cost of shares redeemed (738,943,015) (398,858,606)
Net asset value of shares
converted
(See Note 1):
Class A 2,692,704 15,343,811
Class B (2,692,704) (15,343,811)
-------------------------------
Increase (decrease) in net
assets derived from capital
share transactions (451,522,649) 881,507,738
-------------------------------
Net increase (decrease) in net
assets (512,242,478) 922,116,961
NET ASSETS:
Beginning of year 1,531,146,518 609,029,557
-------------------------------
End of year $1,018,904,040 $1,531,146,518
===============================
Accumulated undistributed net
investment income at end of year $ 7,260,557 $ --
===============================
</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 17
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A
-----------------------------------------------------
JANUARY 2,
2004*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2007 2006 2005 2004
Net asset value at beginning of period $ 19.87 $ 19.60 $ 18.58 $ 16.78
-------- -------- -------- -----------
Net investment income (loss) (a) 0.07 (0.07) (0.08) (0.09)
Net realized and unrealized gain (loss) on
investments (1.29) 2.14 4.01 1.89
-------- -------- -------- -----------
Total from investment operations (1.22) 2.07 3.93 1.80
-------- -------- -------- -----------
Less dividends and distributions:
From net investment income -- -- -- --
From net realized gain on investments -- (1.80) (2.91) --
-------- -------- -------- -----------
Total dividends and distributions -- (1.80) (2.91) --
-------- -------- -------- -----------
Net asset value at end of period $ 18.65 $ 19.87 $ 19.60 $ 18.58
======== ======== ======== ===========
Total investment return (c) (6.09%) 11.20% 22.66% 10.73% (d)
Ratios (to average net assets)/Supplemental Data:
Net investment income (loss) 0.33% (0.39%) (0.44%) (0.36%)+
Net expenses 1.66% 1.64% 1.66% 1.87% +#
Expenses (before waiver/reimbursement) 1.66% 1.64% 1.66% 1.87% +#
Portfolio turnover rate 134% 124% 159% 132%
Net assets at end of period (in 000's) $301,031 $502,182 $194,615 $24,621
</Table>
<Table>
<Caption>
CLASS C
---------------------------------------------------------------------
DECEMBER 30,
2002*
THROUGH
YEAR ENDED OCTOBER 31, OCTOBER 31,
2007 2006 2005 2004 2003
Net asset value at beginning
of period $ 19.26 $ 19.19 $ 18.37 $16.15 $11.46
---------- -------- ------- ------ --------------
Net investment income (loss)
(a) (0.09) (0.21) (0.22) (0.25) (0.05)
Net realized and unrealized
gain (loss) on investments (1.23) 2.08 3.95 3.28 4.74
---------- -------- ------- ------ --------------
Total from investment
operations (1.32) 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 $ 17.94 $ 19.26 $ 19.19 $18.37 $16.15
========== ======== ======= ====== ==============
Total investment return (c) (6.80%) 10.32% 21.72% 19.29% 40.92% (d)
Ratios (to average net
assets)/Supplemental Data:
Net investment income (loss) (0.44%) (1.14%) (1.19%) (1.13%) (0.47%)+
Net expenses 2.41% 2.39% 2.41% 2.62%# 2.27% +#
Expenses (before
waiver/reimbursement) 2.41% 2.39% 2.41% 2.62%# 2.34% +#
Portfolio turnover rate 134% 124% 159% 132% 135%
Net assets at end of period
(in 000's) $54,264 $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) 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>
18 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,
2007 2006 2005 2004
$ 19.25 $ 19.18 $ 18.38 $ 16.71
------- ------- ------- -----------
(0.08) (0.21) (0.22) (0.19)
(1.23) 2.08 3.93 1.86
------- ------- ------- -----------
(1.31) 1.87 3.71 1.67
------- ------- ------- -----------
-- -- -- --
-- (1.80) (2.91) --
------- ------- ------- -----------
-- (1.80) (2.91) --
------- ------- ------- -----------
$ 17.94 $ 19.25 $ 19.18 $ 18.38
======= ======= ======= ===========
(6.81%) 10.32% 21.59% 9.99% (d)
(0.41%) (1.12%) (1.19%) (1.12%)+
2.41% 2.39% 2.41% 2.62% +#
2.41% 2.39% 2.41% 2.62% +#
134% 124% 159% 132%
$32,502 $46,112 $48,496 $14,905
</Table>
<Table>
<Caption>
CLASS I
----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2007 2006 2005 2004 2003
$ 20.18 $ 19.79 $ 18.67 $ 16.26 $ 11.58
-------- -------- -------- -------- --------
0.17 0.02 0.01 0.06 0.07
(1.32) 2.17 4.02 3.21 4.74
-------- -------- -------- -------- --------
(1.15) 2.19 4.03 3.27 4.81
-------- -------- -------- -------- --------
(0.00)(b) -- -- (0.05) (0.13)
-- (1.80) (2.91) (0.81) --
-------- -------- -------- -------- --------
(0.00) (1.80) (2.91) (0.86) (0.13)
-------- -------- -------- -------- --------
$ 19.03 $ 20.18 $ 19.79 $ 18.67 $ 16.26
======== ======== ======== ======== ========
(5.69%) 11.73% 23.15% 20.72% 42.04%
0.81% 0.09% 0.06% 0.32% 0.53%
1.19% 1.17% 1.16% 1.18%# 1.27%#
1.35% 1.17% 1.16% 1.18%# 1.34%#
134% 124% 159% 132% 135%
$631,108 $862,439 $317,602 $194,476 $163,362
</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 19
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BUSINESS:
Eclipse Funds (the "Trust") was organized on July 30, 1986 as a Massachusetts
business trust. The Trust is registered under the Investment Company Act of
1940, as amended, (the "1940 Act"), as an open-end management investment company
and is comprised of three funds (collectively referred to as the "Funds"). These
financial statements and notes relate only to the MainStay Small Cap Opportunity
Fund (the "Fund"), a diversified fund.
The Fund currently offers four classes of shares. Class I shares commenced on
January 12, 1987. Class A shares and, Class B shares commenced on January 2,
2004. Class C shares commenced on December 30, 2002. Class A shares are offered
at net asset value per share plus an initial sales charge. No sales charge
applies on investments of $1 million or more (and certain other qualified
purchases) in Class A shares, but a contingent deferred sales charge is imposed
on certain redemptions of such shares within one year of the date of purchase.
Class B shares and Class C shares are offered without an initial sales charge,
although a declining contingent deferred sales charge may be imposed on
redemptions made within up to six years of purchase of Class B shares and a 1%
contingent deferred sales charge may be imposed on redemptions made within one
year of purchase of Class C shares. Class I shares are not subject to a sales
charge. As approved by the Board of Trustees in 1997, Class B shares convert to
Class A shares eight years after the date they were purchased. The four classes
of shares bear the same voting (except for issues that relate solely to one
class), dividend, liquidation and other rights and conditions except that Class
B and Class C shares are subject to higher distribution fee rates than Class A
shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act.
Class I shares are not subject to a distribution or service fee.
The Fund's investment objective is to seek high total return.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The Fund prepares its financial statements in accordance with accounting
principles generally accepted in the United States of America and follows 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 Fund is open for business
("valuation date"). Securities that are not traded on the valuation date are
valued at the mean of the latest quoted bid and asked prices. Prices normally
are taken from the principal market in which each security trades. Futures
contracts are valued at the last posted settlement price on the market where
such futures are primarily traded. Investments in mutual funds are valued at
their net asset value as of the close of the New York Stock Exchange on the date
of valuation.
Temporary cash investments acquired over 60 days prior to maturity are valued
using the latest bid prices or using valuations based on a matrix system (which
considers such factors as security prices, yields, maturities, and ratings),
both as furnished by independent pricing services. Other temporary cash
investments which mature 60 days or less are valued at amortized cost. The
amortized cost method involves valuing a security at its cost on the date of
purchase and thereafter assuming a constant amortization to maturity of the
difference between the principal amount due at maturity and cost.
Securities for which market quotations are not readily available are valued by
methods deemed in good faith by the Fund's Board of 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 or suspended; a debt security that has recently gone into default and for
which there is not a 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 the market price of which is not available from an
independent pricing source or, if so provided, does not, in the opinion of the
Fund's 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, 2007, the Fund did not hold securities that were valued in such a
manner.
(B) FEDERAL INCOME TAXES. The Fund's 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 the Fund within the
allowable time limits. Therefore, no federal income tax provision is required.
(C) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
of net investment income and distributions of net realized capital and currency
gains, if any, annually. All dividends and distributions are reinvested in
shares of the Fund, at net asset value, unless the shareholder elects otherwise.
Dividends and distributions to shareholders are determined in accordance with
federal income tax regulations and may differ from generally accepted accounting
principles in the United States of America. Permanent book/tax differences
relating to income and gains are reclassified amongst undistributed net
investment income, accumulated net realized gain or loss and paid-in-capital.
(D) SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the
20 MainStay Small Cap Opportunity Fund
trade date. Realized gains and losses on security transactions are determined
using the identified cost method. Dividend income is recognized on the ex-
dividend date and interest income is accrued as earned using the effective
interest rate method. Discounts and premiums on short-term securities are
accreted and amortized, respectively, on the straight line method.
Investment income and realized and unrealized gains and losses on investments of
the Fund are allocated to separate classes of shares pro rata based upon their
relative net assets on the date the income is earned or realized and unrealized
gains and losses are incurred.
(E) EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except where direct allocations of expenses can be made. Expenses
(other than transfer agent expenses and fees incurred under the shareholder
services plans and the distribution plans further discussed in Note 3 (B) on
page 22) are allocated to separate classes of shares pro rata based upon their
relative net assets value on the date the expenses are incurred. The expenses
borne by the Fund, including those of related parties to the Fund, are shown in
the Statement of Operations.
(F) USE OF ESTIMATES. In preparing financial statements in conformity with
accounting principles generally accepted in the United States of America,
management makes estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
(G) FUTURES CONTRACTS. A futures contract is an agreement to purchase or sell a
specified quantity of an underlying instrument at a specified future date and
price, or to make or receive a cash payment based on the value of a securities
index. During the period the futures contract is open, changes in the value of
the contract are recognized as unrealized gains or losses by "marking to market"
such contract on a daily basis to reflect the market value of the contract at
the end of each day's trading. The Fund agrees to receive from or pay to the
broker an amount of cash equal to the daily fluctuation in the value of the
contract. Such receipts or payments are known as "variation margin". When the
futures contract is closed, the Fund records a realized gain or loss equal to
the difference between the proceeds from (or cost of) the closing transaction
and the Fund's basis in the contract. The Fund invests in stock index futures
contracts to gain full exposure to changes in stock market prices to fulfill its
investment objectives.
The use of futures contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the Statement of Assets and
Liabilities. The contract or notional amounts and variation margin reflect the
extent of the Fund's involvement in open futures positions. Risks arise from the
possible imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets, and the possible inability of
counterparties to meet the terms of their contracts. However, the Fund's
activities in futures contracts are conducted through regulated exchanges which
minimize counterparty credit risks.
(H) SECURITIES LENDING. In order to realize additional income the 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 Fund may bear
the risk of delay in recovery of, or loss of rights in, the securities loaned
should the borrower of the securities experience financial difficulty. The Fund
receives compensation for lending its securities in the form of fees or it
retains a portion of interest on the investment of any cash received as
collateral. The Fund also continues to receive interest and dividends on the
securities loaned and any gain or loss in the market price of the securities
loaned that may occur during the term of the loan will be for the account of the
Fund.
(I) INDEMNIFICATIONS. In the normal course of business, the Fund enters into
contracts with third party service providers that contain a variety of
representations and warranties and which provide general indemnifications. The
Fund's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Fund that have not yet
occurred. Based on experience, management is of the view that the risk of loss
in connection with these potential indemnification obligations is remote.
However, there can be no assurance that material liabilities related to such
obligations will not arise in the future which could adversely impact the Fund.
NOTE 3--FEES AND RELATED PARTY TRANSACTIONS:
(A) MANAGER. New York Life Investment Management LLC ("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 Fund's Manager.
NYLIM provides offices and conducts clerical, recordkeeping and bookkeeping
services, and is responsible for the financial and accounting records required
to be maintained by the Fund. NYLIM also pays the salaries and expenses of all
personnel affiliated with the Fund and all the operational expenses that are not
the responsibility of the Fund. The Fund is advised by the Manager directly,
without a subadvisor.
The Fund is contractually obligated to pay NYLIM a monthly fee for services
performed and facilities furnished
www.mainstayfunds.com 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
at an annual rate of 1.00% of the average daily net assets of the Fund. At a
meeting of our Fund's Trustees, held on March 29-30, 2007, the Trustees approved
a modification to the Fund's management agreement to implement a contractual fee
waiver of 0.05% on assets over $1.5 billion effective May 1, 2007. As a result,
the Fund's management fees will be 1.00% on assets up to $1.5 billion and 0.95%
on assets thereafter.
Effective March 1, 2007, NYLIM has entered into a written expense limitation
agreement under which it has agreed to waive a portion of the Fund's management
fee or reimburse the expenses of the appropriate class of the Fund so that the
class' total ordinary operating expenses (total annual operating expenses
excluding taxes, interest, litigation, extraordinary expenses, and brokerage and
other transaction expenses relating to the purchase or sale of portfolio
investments) do not exceed the following amounts of average daily net assets for
each class: Class A, 1.70%; Class B, 2.45%; Class C, 2.45%; and Class I, 1.19%.
This expense limitation may be modified or terminated only with the approval of
the Board of Trustees. NYLIM may recoup the amount of any management fee waivers
or expense reimbursements from the Fund pursuant to the 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 NYLIM incurred the
expense.
For the year ended October 31, 2007, NYLIM earned fees from the Fund in the
amount of $14,015,199 and waived its fees in the amount of $1,305,029.
As of October 31, 2007, the amounts of waived fees that are subject to possible
recoupment by NYLIM, and the related expiration dates are as follows:
<Table>
<Caption>
OCTOBER 31,
2010 TOTAL
$1,305,029 $1,305,029
-------------------------------------------
</Table>
Prior to March 1, 2007, NYLIM had an agreement in place under which it had
agreed to waive a portion of the Fund's management fee or reimburse the expenses
of the Fund so that the Fund's total ordinary operating expenses did not exceed
1.19% of the Fund's average daily net assets for its Class I shares. NYLIM also
applied an equivalent waiver or reimbursement, in an equal amount of basis
points, to the other share classes of the Fund. In addition, NYLIM also had an
agreement in place under which it had agreed to reimburse the transfer agency
fees of the Class A shares of the Fund so that total ordinary operating expenses
did not exceed 1.70% of the average daily net assets for Class A shares. NYLIM
also applied an equivalent reimbursement, in an equal amount of basis points, to
the Fund's Class B and Class C shares.
State Street Bank & Trust Company ("SSBT"), One Lincoln Street, Boston,
Massachusetts, 02111, provides sub-administration and sub-accounting services to
the Fund pursuant to an agreement with NYLIM. These services include calculating
daily net asset values of the Fund, maintaining general ledger and sub-ledger
accounts for the calculation of the Fund's respective net asset values, and
assisting NYLIM in conducting various aspects of the Fund's administrative
operations. For providing these services to the Fund, SSBT is compensated by
NYLIM.
(B) DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors LLC (the "Distributor"), an
indirect wholly-owned subsidiary of New York Life. The Fund, with respect to
each class of shares, other than Class I shares, has adopted distribution plans
(the "Plans") in accordance with the provisions of Rule 12b-1 under the 1940
Act.
Pursuant to the Class A Plan, the Distributor receives a monthly distribution
fee from the Fund at an annual rate of 0.25% of the average daily net assets of
the Fund's Class A shares, which is an expense of the Class A shares of the Fund
for distribution or service activities as designated by the Distributor.
Pursuant to the Class B and Class C Plans, the Fund pays the Distributor a
monthly distribution fee, which is an expense of the Class B and Class C shares
of the Fund, at the annual rate of 0.75% of the average daily net assets of the
Fund's Class B and Class C shares. The Plans provide that the Class B and Class
C shares of the Fund also incur a service fee at the annual rate of 0.25% of the
average daily net asset value of the Class B and Class C shares of the Fund.
Class I shares are not subject to a distribution or service fee.
The Plans provide that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
(C) SALES CHARGES. The Fund was advised by the Distributor that the amount of
sales charges retained on sales of Class A shares was $27,211 for the year ended
October 31, 2007. 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 $12,917, $95,788 and $34,713, respectively, for the year ended October
31, 2007.
(D) TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. NYLIM
Service Company LLC ("NYLIM Service"), an affiliate of NYLIM, is the Fund's
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 Fund, for the year ended October 31, 2007,
amounted to $4,193,890.
22 MainStay Small Cap Opportunity Fund
](E) SMALL ACCOUNT FEES. Shareholders with small accounts adversely impact the
cost of providing transfer agency services. In an effort to reduce total
transfer agency expenses, the Fund has implemented a small account fee on
certain types of accounts, effective March 1, 2007. Shareholders with an account
balance of less than $1,000 are charged an annual per account fee of $20
(assessed semi-annually).
(F) CAPITAL. At October 31, 2007, New York Life and its affiliates held
beneficially shares of the Fund with the following values and percentages of net
assets as follows:
<Table>
Class A $ 1,418 0.0*%
- -------------------------------------------------------------------
Class B 1,375 0.0*
- -------------------------------------------------------------------
Class C 2,104 0.0*
- -------------------------------------------------------------------
Class I 52,125,800 8.3
- -------------------------------------------------------------------
</Table>
* Less than one-tenth of a percent.
(G) OTHER. Pursuant to an Amended and Restated Management Agreement between the
Fund and NYLIM, the cost of legal services provided to the Fund by the Office of
the General Counsel of NYLIM are payable directly by the Fund. For the year
ended October 31, 2007, these fees, which are included in professional fees
shown on the Statement of Operations, were $66,233.
NOTE 4--FEDERAL INCOME TAX:
As of October 31, 2007, the components of accumulated gain/(loss) on a tax basis
were as follows:
<Table>
<Caption>
ACCUMULATED OTHER UNREALIZED TOTAL
ORDINARY CAPITAL TEMPORARY APPRECIATION ACCUMULATED
INCOME GAIN (LOSS) DIFFERENCES (DEPRECIATION) GAIN (LOSS)
$17,852,740 $84,406,101 $ -- $(24,564,457) $77,694,384
----------------------------------------------------------------------
</Table>
The difference between book-basis and tax basis unrealized appreciation is
primarily due to wash sales deferrals, PFIC and REIT adjustments.
The following table discloses the current year reclassifications between
accumulated undistributed net investment income, accumulated net realized gain
on investments and additional paid-in-capital, arising from permanent
differences; net assets at October 31, 2007 are not affected.
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET REALIZED ADDITIONAL
NET INVESTMENT GAIN (LOSS) ON PAID-IN
INCOME (LOSS) INVESTMENTS CAPITAL
$(134,806) $897,922 $(763,116)
----------------------------------------------
</Table>
The reclassifications for the Fund are primarily due to real estate investment
trusts distributions, prior year net operating loss and the treatment of passive
foreign investment companies.
The Fund utilized $2,841,835 of capital loss carryforwards during the year ended
October 31, 2007.
The tax character of distributions paid during the years ended October 31, 2007
and October 31, 2006, shown in the Statement of Changes in Net Assets, was as
follows:
<Table>
<Caption>
2007 2006
Distributions paid from:
Ordinary Income $116,165 $35,359,092
Long-Term Capital Gains -- 28,197,984
- -----------------------------------------------------------
$116,165 $63,557,076
- -----------------------------------------------------------
</Table>
NOTE 5--CUSTODIAN:
SSBT 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 6--LINE OF CREDIT:
The Fund, and certain affiliated funds, 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 pay a commitment fee, at an annual rate of .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 made or outstanding on the line of credit during the year ended
October 31, 2007.
NOTE 7--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended October 31, 2007, purchases and sales of securities, other
than short-term securities, were $1,815,306 and $2,281,678, respectively.
www.mainstayfunds.com 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--CAPITAL SHARE TRANSACTIONS
(IN 000'S):
<Table>
<Caption>
CLASS A SHARES AMOUNT
Year ended October 31, 2007:
Shares sold 5,735 $ 116,384
Shares redeemed (15,005) (302,865)
-------------------
Net decrease in shares outstanding
before conversion (9,270) (186,481)
Shares converted from Class B (See
Note 1) 130 2,693
-------------------
Net decrease (9,140) $(183,788)
===================
Year ended October 31, 2006:
Shares sold 23,267 $ 448,430
Shares issued to shareholders in
reinvestment of distributions: 854 15,882
Shares redeemed (9,605) (182,893)
-------------------
Net increase (decrease) in shares
outstanding before conversion 14,516 281,419
Shares converted from Class B (See
Note 1) 834 15,344
-------------------
Net increase (decrease) 15,350 $ 296,763
===================
</Table>
<Table>
<Caption>
CLASS B SHARES AMOUNT
Year ended October 31, 2007:
Shares sold 194 $ 3,799
Shares redeemed (642) (12,462)
-------------------
Net decrease in shares outstanding
before conversion (448) (8,663)
Shares reacquired upon conversion
into Class A (See Note 1) (135) (2,693)
-------------------
Net decrease (583) $ (11,356)
===================
Year ended October 31, 2006:
Shares sold 1,024 $ 19,339
Shares issued to shareholders in
reinvestment of distributions: 250 4,540
Shares redeemed (552) (10,262)
-------------------
Net increase (decrease) in shares
outstanding before conversion 722 13,617
Shares reacquired upon conversion
into Class A (See Note 1) (855) (15,344)
-------------------
Net decrease (133) $ (1,727)
===================
</Table>
<Table>
<Caption>
CLASS C SHARES AMOUNT
Year ended October 31, 2007:
Shares sold 166 $ 3,291
Shares redeemed (3,395) (66,106)
-------------------
Net decrease (3,229) $ (62,815)
===================
Year ended October 31, 2006:
Shares sold 4,991 $ 94,320
Shares issued to shareholders in
reinvestment of distributions: 159 2,892
Shares redeemed (1,416) (26,149)
-------------------
Net increase 3,734 $ 71,063
===================
</Table>
<Table>
<Caption>
CLASS I SHARES AMOUNT
Year ended October 31, 2007:
Shares sold 7,910 $ 163,837
Shares issued to shareholders in
reinvestment of dividends: 5 109
Shares redeemed (17,505) (357,509)
-------------------
Net decrease (9,590) $(193,563)
===================
Year ended October 31, 2006:
Shares sold 34,362 $ 663,750
Shares issued to shareholders in
reinvestment of distributions: 1,660 31,214
Shares redeemed (9,319) (179,555)
-------------------
Net increase 26,703 $ 515,409
===================
</Table>
NOTE 9--NEW ACCOUNTING PRONOUNCEMENTS:
In July 2006, the Financial Accounting Standards Board (the "FASB") issued
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes," an
interpretation of FASB Statement No. 109 (the "Interpretation"). The
Interpretation establishes for all entities, including pass-through entities
such as the Fund, a minimum threshold for financial statement recognition of the
benefit of positions taken in filing tax returns (including whether an entity is
taxable in a particular jurisdiction), and requires certain expanded tax
disclosures. The Interpretation becomes effective for the Fund's 2008 fiscal
year, and is to be applied to all open tax years as of the date of
effectiveness. Based on Management's analysis, the determination has been made
that the adoption of the interpretation on November 1, 2007, did not have an
impact on the Fund's financial statements upon adoption. Management continually
reviews the Fund's tax positions and such conclusions under the Interpretation
based on factors, including, but not limited to, ongoing analyses of tax laws,
regulations and interpretations, thereof.
In September 2006, 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, 2007, the Fund does not believe
the adoption of SFAS No. 157 will impact the amounts reported in the Fund's
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.
24 MainStay Small Cap Opportunity Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders of
Eclipse Funds:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the MainStay Small Cap Opportunity Fund ("the
Fund"), one of the funds constituting Eclipse Funds as of October 31, 2007, and
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the years or periods in the five-year
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2007, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
MainStay Small Cap Opportunity Fund of Eclipse Funds as of October 31, 2007, the
results of its operations for the year then ended, the changes in its net assets
for each of the years in the two-year period then ended, and the financial
highlights for each of the years or periods in the five-year period then ended,
in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Philadelphia, Pennsylvania
December 20, 2007
www.mainstayfunds.com 25
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
The dividends paid by the Fund during the fiscal year ended October 31, 2007,
should be multiplied by 100.0% to arrive at the amount eligible for qualified
dividend income, 40.4% for qualified interest income and 100.0% for the
corporate dividends received deduction.
In January 2008, shareholders will receive an IRS Form 1099-DIV or substitute
Form 1099 the federal tax status of the distributions received by shareholders
in calendar year 2007. 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 Fund's fiscal year ended October
31, 2007.
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 Fund's securities is available without charge, upon request, (i)
by visiting the Fund's website at www.mainstayfunds.com; or (ii) on the
Securities and Exchange Commission's ("SEC") website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the
12-month period ending June 30 on Form N-PX. The Fund's most recent Form N-PX is
available free of charge upon request (i) by calling 1-800-MAINSTAY
(1-800-624-6782); (ii) by visiting the Fund's website at www.mainstayfunds.com;
or (iii) on the SEC's website at www.sec.gov.
SHAREHOLDER REPORTS AND QUARTERLY PORTFOLIO DISCLOSURE
The Fund is required to file its complete schedule of portfolio holdings with
the SEC for its first and third fiscal quarters on Form N-Q. The Fund's Form N-Q
is available without charge on the SEC's website at www.sec.gov or by calling
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).
SPECIAL MEETING OF SHAREHOLDERS
Pursuant to notice, a special meeting of shareholders of Eclipse Funds (the
"Trust") was held on May 4, 2007, at the offices of New York Life Investment
Management LLC in Parsippany, New Jersey. The purpose of the meeting was to
elect the following individuals to the Board of Trustees of the Trust:
- Susan B. Kerley
- Alan R. Latshaw
- Peter Meenan
- Richard H. Nolan, Jr.
- Richard S. Trutanic
- Roman L. Weil
- John A. Weisser
- Brian A. Murdock (Interested Trustee)
There are no other Trustees of the Trust.
No other business came before the special meeting. The proposal to elect
Trustees was passed by the shareholders of the Fund as shown below:
<Table>
<Caption>
SMALL CAP
OPPORTUNITY VOTES VOTES
FUND FOR WITHHELD ABSTENTIONS TOTAL
Susan B.
Kerley 40,707,936.013 59,493.010 41,075.000 40,808,504.023
- ----------------------------------------------------------------------------
Alan R.
Latshaw 40,707,119.498 60,309.525 41,075.000 40,808,504.023
- ----------------------------------------------------------------------------
Peter Meenan 40,706,872.801 60,556.222 41,075.000 40,808,504.023
- ----------------------------------------------------------------------------
Richard H.
Nolan, Jr. 40,708,314.480 59,114.543 41,075.000 40,808,504.023
- ----------------------------------------------------------------------------
Richard S.
Trutanic 40,708,089.635 59,339.388 41,075.000 40,808,504.023
- ----------------------------------------------------------------------------
Roman L. Weil 40,708,471.193 58,957.830 41,075.000 40,808,504.023
- ----------------------------------------------------------------------------
John A.
Weisser 40,710,093.351 57,335.672 41,075.000 40,808,504.023
- ----------------------------------------------------------------------------
Brian A.
Murdock 40,707,964.067 59,464.956 41,075.000 40,808,504.023
- ----------------------------------------------------------------------------
</Table>
This resulted in approval of the proposal.
26 MainStay Small Cap Opportunity Fund
TRUSTEES AND OFFICERS
The Trustees oversee the Fund and the Manager. Pursuant to notice, a Special
Meeting of Shareholders of the Trust was held on May 4, 2007, at NYLIM's offices
in Parsippany, New Jersey. The Trustees listed below were elected to serve the
Trust effective June 7, 2007.
Each Trustee serves until his or her successor is elected and qualified or until
his or her resignation, death or removal. The Retirement Policy provides that a
Trustee shall tender his or her resignation upon reaching age 72. A Trustee
reaching the age of 72 may continue for additional one-year periods with the
approval of the Board's Nominating and Governance Committee, except that no
Trustee shall serve on the Board past his or her 75th birthday. Officers serve a
term of one year and are elected annually by the Trustees. The business address
of each Trustee and officer listed below is 51 Madison Avenue, New York, New
York 10010.
The Statement of Additional Information applicable to the Fund includes
additional information about the Trustees and is available without charge, upon
request, by calling 1-800-MAINSTAY (1-800-624-6782).
<Table>
<Caption>
TERM OF OFFICE, NUMBER OF FUNDS
POSITION(S) HELD IN FUND COMPLEX
NAME AND WITH THE TRUST AND PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
DATE OF BIRTH LENGTH OF SERVICE DURING PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
-----------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
BRIAN A. MURDOCK Indefinite; Member of the Board of Managers 73 Director, Eclipse Funds Inc.
3/14/56 Trustee since June and President (since 2004) and since June 2007 (22 funds);
2007 and Chief Chief Executive Officer (since Director, MainStay VP Series
Executive Officer 2006), New York Life Investment Fund, Inc., since 2006 (24
since 2006 Management LLC and New York portfolios); Director, ICAP
Life Investment Management Funds, Inc., since 2006 (3
Holdings LLC; Senior Vice funds); Trustee, The MainStay
President, New York Life Funds since 2006 (21 funds)
Insurance Company (since 2004);
Chairman of the Board and
President, NYLIFE Distributors
LLC (since 2004); Member of the
Board of Managers, NYLCAP
Manager LLC and Madison Capital
Funding LLC (since 2004),
MacKay Shields LLC and
Institutional Capital LLC
(since 2006), and McMorgan &
Company LLC (since 2007); Chief
Executive Officer, Eclipse
Funds Inc. (since 2006);
Chairman (2006 to 2007) and
Trustee and Chief Executive
Officer (since 2006), The
MainStay Funds; Chairman (2006
to 2007) and Director and Chief
Executive Officer (since 2006),
MainStay VP Series Fund, Inc.;
Director and Chief Executive
Officer, ICAP Funds, Inc.
(since 2006); Chief Investment
Officer, MLIM Europe and Asia
(2001 to 2003); President of
Merrill Japan and Chairman of
MLIM's Pacific Region (1999 to
2001)
-----------------------------------------------------------------------------------------------------------------------
</Table>
* This Trustee considered to be an "interested person" of the Trust within the
meaning of the 1940 Act because of his affiliation with New York Life
Insurance Company, New York Life Investment Management LLC, MacKay Shields
LLC, Institutional Capital LLC, Markston International, LLC, Winslow Capital
Management, Inc., McMorgan & Company LLC, NYLIFE Securities Inc. and/or NYLIFE
Distributors LLC, as described in detail above in the column "Principal
Occupation(s) During Past Five Years."
www.mainstayfunds.com 27
<Table>
<Caption>
TERM OF OFFICE, NUMBER OF FUNDS
POSITION(S) HELD IN FUND COMPLEX
NAME AND WITH THE TRUST AND PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
DATE OF BIRTH LENGTH OF SERVICE DURING PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
-----------------------------------------------------------------------------------------------------------------------
NON-INTERESTED TRUSTEES
SUSAN B. KERLEY Indefinite; Partner, Strategic Management 73 Chairman since 2005 and
8/12/51 Chairman since Advisors LLC (since 1990) Director since 1990, Eclipse
2005 and Trustee Funds Inc. (22 funds); Chairman
since 2000 and Director, ICAP Funds, Inc.,
since 2006 (3 funds); Chairman
and Trustee, The MainStay
Funds, since June 2007 (21
funds); Chairman and Director,
MainStay VP Series Fund, Inc.,
since June 2007 (24
portfolios); Trustee, Legg
Mason Partners Funds, Inc.,
since 1991 (30 portfolios)
-----------------------------------------------------------------------------------------------------------------------
ALAN R. LATSHAW Indefinite; Retired; Partner, Ernst & Young 73 Director, Eclipse Funds Inc.
3/27/51 Trustee and Audit LLP (2002 to 2003); Partner, since June 2007 (22 funds);
Committee Arthur Andersen LLP (1989 to Director, ICAP Funds, Inc.,
Financial Expert 2002); Consultant to the Audit since June 2007 (3 funds);
since June 2007 and Compliance Committee of The Trustee, The MainStay Funds
MainStay Funds (2004 to 2006) since 2006 (21 funds);
Director, MainStay VP Series
Fund, Inc., since June 2007 (24
portfolios); Trustee, State
Farm Associates Funds Trusts
since 2005 (3 portfolios);
Trustee, State Farm Mutual Fund
Trust since 2005 (15
portfolios); Trustee, State
Farm Variable Product Trust
since 2005 (9 portfolios)
-----------------------------------------------------------------------------------------------------------------------
PETER MEENAN Indefinite; Independent Consultant; 73 Director, Eclipse Funds Inc.
12/5/41 Trustee since 2002 President and Chief Executive since 2002 (22 funds);
Officer, Babson-United, Inc. Director, ICAP Funds, Inc.,
(financial services firm) (2000 since June 2007 (3 funds);
to 2004); Independent Trustee, The MainStay Funds
Consultant (1999 to 2000); Head since June 2007 (21 funds);
of Global Funds, Citicorp (1995 Director, MainStay VP Series
to 1999) Fund, Inc., since June 2007 (24
portfolios)
-----------------------------------------------------------------------------------------------------------------------
RICHARD H. Indefinite; Managing Director, ICC Capital 73 Director, Eclipse Funds Inc.
NOLAN, JR. Trustee since June Management; President--Shields/ since June 2007 (22 funds);
11/16/46 2007 Alliance, Alliance Capital Director, ICAP Funds, Inc.,
Management (1994 to 2004) since June 2007 (3 funds);
Trustee, The MainStay Funds
since June 2007 (21 funds);
Director, MainStay VP Series
Fund, Inc., since 2006 (24
portfolios)
-----------------------------------------------------------------------------------------------------------------------
RICHARD S. Indefinite; Chairman (since 1990) and Chief 73 Director, Eclipse Funds Inc.
TRUTANIC Trustee since June Executive Officer (1990 to since June 2007 (22 funds);
2/13/52 2007 1999), Somerset Group Director, ICAP Funds, Inc.,
(financial advisory firm); since June 2007 (3 funds);
Managing Director and Advisor, Trustee, The MainStay Funds
The Carlyle Group (private since 1994 (21 funds);
investment firm) (2002 to Director, MainStay VP Series
2004); Senior Managing Director Fund, Inc., since June 2007 (24
and Partner, Groupe Arnault portfolios)
S.A. (private investment firm)
(1999
to 2002)
-----------------------------------------------------------------------------------------------------------------------
</Table>
28 MainStay Small Cap Opportunity Fund
<Table>
<Caption>
TERM OF OFFICE, NUMBER OF FUNDS
POSITION(S) HELD IN FUND COMPLEX
NAME AND WITH THE TRUST AND PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
DATE OF BIRTH LENGTH OF SERVICE DURING PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
-----------------------------------------------------------------------------------------------------------------------
NON-INTERESTED TRUSTEE
ROMAN L. WEIL Indefinite; V. Duane Rath Professor of 73 Director, Eclipse Funds Inc.
5/22/40 Trustee and Audit Accounting, Graduate School of since June 2007 (22 funds);
Committee Business, University of Director, ICAP Funds, Inc.,
Financial Expert Chicago; President, Roman L. since June 2007 (3 funds);
since June 2007 Weil Associates, Inc. Trustee, The MainStay Funds
(consulting firm) since June 2007 (21 funds);
Director, MainStay VP Series
Fund, Inc., since 1994 (24
portfolios)
-----------------------------------------------------------------------------------------------------------------------
JOHN A. WEISSER Indefinite; Retired. Managing Director of 73 Director, Eclipse Funds Inc.
10/22/41 Trustee since June Salomon Brothers, Inc. (1971 to since June 2007 (22 funds);
2007 1995) Director, ICAP Funds, Inc.,
since June 2007 (3 funds);
Trustee, The MainStay Funds
since June 2007 (21 funds);
Director, MainStay VP Series
Fund, Inc., since 1997 (24
portfolios); Trustee, Direxion
Funds (69 funds) and Direxion
Insurance Trust (45 funds)
since March 2007
-----------------------------------------------------------------------------------------------------------------------
</Table>
Lawrence Glacken and Robert P. Mulhearn resigned as Trustees of the Trust
effective June 7, 2007.
At a meeting of the Board of Trustees held on June 7 and 8, 2007, the following
individuals were appointed to serve as Officers of the Trust effective June 7,
2007:
<Table>
<Caption>
POSITION(S) HELD
NAME AND WITH THE TRUST 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 2004 York Life Investment Management LLC (including predecessor
10/19/46 advisory organizations) (since 2000); Secretary (since 2001)
and General Counsel (since 2004), New York Life Investment
Management Holdings LLC; Senior Vice President, New York
Life Insurance Company (since 2000); Vice President and
Secretary, McMorgan & Company LLC (since 2001); Secretary,
NYLIM Service Company LLC (since 2005), NYLCAP Manager LLC
(since 2004), Madison Capital Funding LLC (since 2002) and
Institutional Capital LLC (since 2006); Chief Legal Officer,
Eclipse Funds Inc., The MainStay Funds and MainStay VP
Series Fund, Inc. (since 2004), McMorgan Funds (since 2005)
and ICAP Funds, Inc. (since 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)
--------------------------------------------------------------------------------------------------
JACK R. Treasurer and Managing Director, New York Life Investment Management LLC
BENINTENDE Principal (since June 2007); Treasurer and Principal Financial and
5/12/64 Financial and Accounting Officer, Eclipse Funds Inc., The MainStay Funds,
Accounting Officer MainStay VP Series Fund, Inc., and ICAP Funds, Inc. (since
since June 2007 June 2007); Vice President, Prudential Investments (2000 to
2007); Assistant Treasurer, JennisonDryden Family of Funds,
Target Portfolio Trust, The Prudential Series Fund and
American Skandia Trust (2006 to 2007); Treasurer and
Principal Financial Officer, The Greater China Fund (2007)
--------------------------------------------------------------------------------------------------
STEPHEN P. President since Senior Managing Director and Chief Marketing Officer, New
FISHER March 2007 York Life Investment Management LLC (since 2005); Managing
2/22/59 Director--Retail Marketing, New York Life Investment
Management LLC (2003 to 2005); President, Eclipse Funds
Inc., The MainStay Funds, MainStay VP Series Fund, Inc., and
ICAP Funds, Inc. (since March 2007); Managing Director, UBS
Global Asset Management (1999 to 2003)
--------------------------------------------------------------------------------------------------
SCOTT T. Vice President-- Director, New York Life Investment Management LLC (including
HARRINGTON Administration predecessor advisory organizations) (since 2000); Executive
2/8/59 since 2005 Vice President, New York Life Trust Company (since 2006);
Vice President--Administration, Eclipse Funds Inc., MainStay
VP Series Fund, Inc., and The MainStay Funds (since 2005)
and ICAP Funds, Inc. (since 2006)
--------------------------------------------------------------------------------------------------
</Table>
www.mainstayfunds.com 29
<Table>
<Caption>
POSITION(S) HELD
NAME AND WITH THE TRUST AND PRINCIPAL OCCUPATION(S)
DATE OF BIRTH LENGTH OF SERVICE DURING PAST FIVE YEARS
--------------------------------------------------------------------------------------------------
OFFICERS
ALISON H. Senior Vice Senior Managing Director and Chief Compliance Officer (since
MICUCCI President and 2006) and Managing Director and Chief Compliance Officer
12/16/65 Chief Compliance (2003 to 2006), New York Life Investment Management LLC and
Officer since 2006 New York Life Investment Management Holdings LLC; Senior
Managing Director, Compliance (since 2006) and Managing
Director, Compliance (2003 to 2006), NYLIFE Distributors
LLC; Chief Compliance Officer, NYLCAP Manager LLC (since
2006); Senior Vice President and Chief Compliance Officer,
Eclipse Funds Inc., The MainStay Funds, MainStay VP Series
Fund, Inc., and ICAP Funds, Inc. (since 2006); Vice
President--Compliance, Eclipse Funds Inc., The MainStay
Funds and MainStay VP Series Fund, Inc. (2004 to 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 2005); Managing
3/26/56 Director and Secretary, NYLIFE Distributors LLC (since
2005); Secretary, Eclipse Funds Inc., The MainStay Funds and
MainStay VP Series Fund, Inc. (since 2004) and ICAP Funds,
Inc. (since 2006); Chief Legal Officer--Mutual Funds and
Vice President and Corporate Counsel, The Prudential
Insurance Company of America (2000 to 2004)
--------------------------------------------------------------------------------------------------
</Table>
* In addition to serving as Secretary to the Trust, effective January 1, 2008,
Marguerite E.H. Morrison will assume the role as Chief Legal Officer to the
Trust.
Arphiela Arizmendi resigned as Treasurer and Principal Financial and Accounting
Officer of the Trust effective June 7, 2007.
Christopher O. Blunt resigned as President of the Trust effective March 10,
2007.
Patrick G. Boyle resigned as Executive Vice President of the Trust effective
June 7, 2007.
Tony H. Elavia resigned as Senior Vice President of the Trust effective June 7,
2007.
Alan J. Kirshenbaum resigned as Senior Vice President of the Trust effective
March 19, 2007.
30 MainStay Small Cap Opportunity Fund
MAINSTAY FUNDS
MAINSTAY OFFERS A WIDE RANGE OF FUNDS FOR VIRTUALLY ANY INVESTMENT NEED. THE
FULL ARRAY OF MAINSTAY OFFERINGS IS LISTED HERE, WITH INFORMATION ABOUT THE
MANAGER, SUBADVISORS, LEGAL COUNSEL, AND INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM.
EQUITY FUNDS
MainStay 130/30 Core Fund
MainStay 130/30 Growth Fund
MainStay All Cap Growth 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
MainStay Small Cap Value Fund
MainStay Value Fund
INCOME FUNDS
MainStay 130/30 High Yield Fund(2)
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 INSTITUTIONAL BOND FUND
MAINSTAY INTERMEDIATE TERM BOND FUND
MAINSTAY MONEY MARKET FUND
MAINSTAY PRINCIPAL PRESERVATION FUND
MAINSTAY SHORT TERM BOND FUND
MAINSTAY TAX FREE BOND FUND
BLENDED FUNDS
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Manager Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay 130/30 International Fund
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
RETIREMENT FUNDS
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
MANAGER
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
New York, New York
SUBADVISORS
INSTITUTIONAL CAPITAL LLC(3)
Chicago, Illinois
MACKAY SHIELDS LLC(3)
New York, New York
MARKSTON INTERNATIONAL LLC
White Plains, New York
MCMORGAN & COMPANY LLC(3)
San Francisco, California
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. 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
Eclipse Funds
(C) 2007 by NYLIFE Distributors LLC. All rights reserved.
SEC File Number: 811-04847
NYLIM-AO11871 (RECYCLE LOGO) MS329-07 MSSR11-12/07
B1
FORM N-CSR
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the Registrant has
adopted a code of ethics (the "Code") that applies to the Registrant's principal
executive officer ("PEO") and principal financial officer ("PFO"). 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 Trustees has determined that the Registrant has two audit
committee financial experts serving on its Audit Committee. The Audit Committee
financial experts are Alan R. Latshaw and Roman L. Weil. Messrs. Latshaw and
Weil are "independent" within the meaning of that term under the Investment
Company Act of 1940.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees billed for the fiscal year ended October 31, 2007 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 $68,750. The aggregate fees billed for the fiscal year
ended October 31, 2006 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 $95,119.
(b) Audit Related Fees
The aggregate fees billed for the fiscal year ended October 31, 2007 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, 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. 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) $11,050 during the fiscal
year ended October 31, 2007, and (ii) $11,892 during the fiscal year ended
October 31, 2006. 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, 2007 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, 2006 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 zero 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, 2007 and October 31, 2006 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) $3,000 for the fiscal year ended October 31, 2007 and (ii)
$25,000 for the fiscal year ended October 31, 2006.
(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.
Since the Registrant's last response to this Item, there have been no material
changes to the procedures by which shareholders may recommend nominees to the
Registrant's Board of Trustees.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on an evaluation of the Registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940, the "Disclosure Controls") as of a date within 90 days prior to the filing
date (the "Filing Date") of this Form N-CSR (the "Report"), the Registrant's
principal executive officer and principal financial officer have concluded that
the Disclosure Controls are reasonably designed to ensure that information
required to be disclosed by the Registrant in the Report is recorded, processed,
summarized and reported by the Filing Date, including ensuring that information
required to be disclosed in the Report is accumulated and communicated to the
Registrant's management, including the Registrant's principal executive officer
and principal financial officer, as appropriate to allow timely decisions
regarding required disclosure.
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d)) under the Investment Company Act of 1940
that occurred during the second fiscal quarter of the period covered by this
report that has materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics
(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2 under the Investment Company Act of 1940.
(b) Certifications of principal executive officer and principal financial
officer as required by Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ECLIPSE FUNDS
By: /s/ Stephen P. Fisher
---------------------------------
STEPHEN P. FISHER
President and Principal Executive
Officer
Date: January 7, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ Stephen P. Fisher
---------------------------------
STEPHEN P. FISHER
President and Principal Executive
Officer
Date: January 7, 2008
By: /s/ Jack R. Benintende
---------------------------------
JACK R. BENINTENDE
Treasurer and Principal Financial
and Accounting Officer
Date: January 7, 2008
EXHIBIT INDEX
(a)(1) Code of Ethics
(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2 under the Investment Company Act of 1940.
(b) Certification of principal executive officer and principal financial officer
as required by Section 906 of the Sarbanes-Oxley Act of 2002.