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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)
George S. Shively, Esq.
169 Lackawanna Avenue
Parsippany, NJ 07054
(Name and address of agent for service)
Registrant's telephone number, including area code: (973) 394-4435
Date of fiscal year end: October 31
Date of reporting period: April 30, 2010
ITEM 1. REPORTS TO STOCKHOLDERS.
(MAINSTAY INVESTMENTS LOGO)
MAINSTAY U.S. SMALL CAP FUND
MESSAGE FROM THE PRESIDENT AND SEMIANNUAL REPORT
Unaudited - April 30, 2010
MESSAGE FROM THE PRESIDENT
During the six months ended April 30, 2010, stock and bond markets generally
advanced, despite some volatility in January and February. Domestic small-cap
stocks were particularly strong, and U.S. stocks at all capitalization levels
provided double digit returns. Value stocks outpaced growth stocks for companies
of all sizes during the reporting period.
International stocks provided positive returns overall, but results varied
widely by country. Concerns about Greece's ability to meet its debt obligations
led many investors to abandon their holdings in Greece and question their
investments in several peripheral European nations where perceived risk had
increased. For the six-month reporting period, equities in the Far East
(including Japan) tended to be stronger than those in Europe.
The economic recovery in the United States continued. Real gross domestic
product advanced in the first quarter of 2010, though at a slower pace than in
the fourth quarter of 2009. The Federal Open Market Committee kept the targeted
federal funds rate at a historically low level throughout the reporting period,
which prompted many investors to leave the safety of U.S. Treasury securities in
search of higher yield.
In the high-yield bond market, lower-rated credits tended to be the strongest
performers. With investment-grade investors crossing into high-yield territory,
however, the highest-rated high-yield credits also saw strong demand. In the
municipal market, new-issue supply was reduced by government incentives that
encouraged municipal issuers to raise funds in the taxable market. In the
leveraged-loan market, new issuance strengthened, but extensive repayments
caused the market as a whole to contract.
Throughout the six-month reporting period, MainStay's portfolio managers sought
to make the most of market conditions within the investment strategies and risk
parameters of their respective Funds. While individual markets and Fund results
may vary, our pursuit of competitive returns over full market cycles has never
changed.
The information that follows provides a closer look
at the securities, strategies and market conditions that affected your MainStay
Fund(s) during the six months ended April 30, 2010. Of course, past performance
is no guarantee of future results. Even in a rising market, we believe that
maintaining a long-term perspective can be valuable. At MainStay, we believe
that in all markets, broad diversification, gradual allocation adjustments and
regular portfolio reviews can help guide you toward your long-range financial
goals.
We thank you for choosing MainStay Funds, and we look forward to serving your
investment needs for many years to come.
Sincerely,
/s/ STEPHEN P. FISHER
Stephen P. Fisher
President
Not part of the Semiannual Report
(MAINSTAY INVESTMENTS LOGO)
MAINSTAY U.S. SMALL CAP FUND
SEMIANNUAL REPORT
Unaudited - April 30, 2010
TABLE OF CONTENTS
<Table>
SEMIANNUAL REPORT
- ---------------------------------------------
INVESTMENT AND PERFORMANCE COMPARISON 5
- ---------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION AND
ANALYSIS 9
- ---------------------------------------------
PORTFOLIO OF INVESTMENTS 11
- ---------------------------------------------
FINANCIAL STATEMENTS 14
- ---------------------------------------------
NOTES TO FINANCIAL STATEMENTS 21
- ---------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES AND
PROXY VOTING RECORD 29
- ---------------------------------------------
SHAREHOLDER REPORTS AND QUARTERLY
PORTFOLIO DISCLOSURE 29
- --------------------------------------------------------------------------------
INVESTORS SHOULD REFER TO THE FUND'S SUMMARY PROSPECTUS AND/OR PROSPECTUS FOR A
DISCUSSION OF THE
FUND'S INVESTMENT OBJECTIVES, STRATEGIES AND RISKS. YOU MAY OBTAIN COPIES OF THE
FUND'S SUMMARY
PROSPECTUS, PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION FREE OF CHARGE,
UPON REQUEST, BY
CALLING TOLL-FREE 800-MAINSTAY (624-6782), BY WRITING TO NYLIFE DISTRIBUTORS
LLC, ATTN: MAINSTAY
MARKETING DEPARTMENT, 169 LACKAWANNA AVENUE, PARSIPPANY, NEW JERSEY 07054 OR BY
SENDING
AN E-MAIL TO MAINSTAYSHAREHOLDERSERVICES@NYLIM.COM. THESE DOCUMENTS ARE ALSO
AVAILABLE AT
MAINSTAYINVESTMENTS.COM/DOCUMENTS.
INVESTMENT AND PERFORMANCE COMPARISON(1) (UNAUDITED)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE, AND AS A RESULT, WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE INFORMATION CURRENT
TO THE MOST RECENT MONTH-END, PLEASE CALL 800-MAINSTAY (624-6782) OR VISIT
MAINSTAYINVESTMENTS.COM.
INVESTOR CLASS SHARES(2)--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- --------------------------------------------------------------
With sales charges 12.84% 48.56% 1.04% 7.11%
Excluding sales charges 19.41 57.20 2.19 7.71
</Table>
(With sales charges)
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY U.
S. SMALL RUSSELL 2500(TM) RUSSELL 2000(R)
CAP FUND INDEX VALUE INDEX
----------- ---------------- ---------------
4/30/00 9450 10000 10000
4/30/01 9685 9949 12425
4/30/02 11687 10483 15212
4/30/03 10365 8699 12346
4/30/04 15119 12215 17586
4/30/05 17829 13260 19310
4/30/06 22930 17284 25268
4/30/07 23873 19122 28104
4/30/08 17641 17431 23851
4/30/09 12639 11792 16369
4/30/10 19869 17733 24953
</Table>
CLASS A SHARES(3)--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- --------------------------------------------------------------
With sales charges 12.93% 48.71% 1.10% 7.14%
Excluding sales charges 19.50 57.37 2.25 7.75
</Table>
(With sales charges)
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY U.
S. SMALL RUSSELL 2500(TM) RUSSELL 2000(R)
CAP FUND INDEX VALUE INDEX
----------- ---------------- ---------------
4/30/00 23625 25000 25000
4/30/01 24211 24871 31062
4/30/02 29218 26207 38030
4/30/03 25913 21748 30864
4/30/04 37797 30537 43966
4/30/05 44571 33150 48275
4/30/06 57324 43211 63169
4/30/07 59682 47805 70260
4/30/08 44071 43578 59629
4/30/09 31655 29480 40924
4/30/10 49816 44333 62382
</Table>
CLASS B SHARES(3)--MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- --------------------------------------------------------------
With sales charges 13.97% 51.11% 1.12% 6.91%
Excluding sales charges 18.97 56.11 1.44 6.91
</Table>
(With sales charges)
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY U.
S. SMALL RUSSELL 2500(TM) RUSSELL 2000(R)
CAP FUND INDEX VALUE INDEX
----------- ---------------- ---------------
4/30/00 10000 10000 10000
4/30/01 10167 9949 12425
4/30/02 12177 10483 15212
4/30/03 10735 8699 12346
4/30/04 15536 12215 17586
4/30/05 18167 13260 19310
4/30/06 23181 17284 25268
4/30/07 23960 19122 28104
4/30/08 17552 17431 23851
4/30/09 12498 11792 16369
4/30/10 19510 17733 24953
</Table>
1. 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 $25,000 for Class A
shares and $10,000 for all other classes and reflect the deduction of all
sales charges that would have applied for the period of investment. Class A
shares generally have a $25,000 minimum initial investment with no minimum
subsequent purchase amount. For investors that, in the aggregate, have assets
of $100,000 or more invested in any share classes of any of the MainStay
Funds, the minimum initial investment is $15,000. Investor Class shares and
Class A shares are sold with a maximum initial sales charge of 5.50% and an
annual 12b-1 fee of 0.25%. Class B shares are sold with no initial sales
charge, are subject to a contingent deferred sales charge ("CDSC") of up to
5.00% if redeemed within the first six years of purchase, and have an annual
12b-1 fee of 1.00%. Class C shares are sold with no initial sales charge, are
subject to a CDSC of 1.00% 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 or individual 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. For information on current fee waivers and/or expense limitations,
please refer to the notes to the financial statements. Effective October 30,
2009, MainStay Small Company Value Fund changed its name to MainStay U.S.
Small Cap Fund.
2. Performance figures for Investor Class shares, first offered on February 28,
2008, include the historical performance of Class
THE FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THE TABLES AND GRAPHS AND
SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
mainstayinvestments.com 5
CLASS C SHARES(4)--MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- ---------------------------------------------------------------
With sales charges 17.98% 55.00% 1.44% 6.92%
Excluding sales charges 18.98 56.00 1.44 6.92
</Table>
(With sales charges)
(PERFORMANCE GRAPH)
<Table>
<Caption>
MAINSTAY U.S.
SMALL CAP RUSSELL 2500(TM) RUSSELL 2000(R)
FUND INDEX VALUE INDEX
------------- ---------------- ---------------
4/30/00 10000 10000 10000
4/30/01 10167 9949 12425
4/30/02 12170 10483 15212
4/30/03 10735 8699 12346
4/30/04 15541 12215 17586
4/30/05 18183 13260 19310
4/30/06 23213 17284 25268
4/30/07 23981 19122 28104
4/30/08 17579 17431 23851
4/30/09 12519 11792 16369
4/30/10 19530 17733 24953
</Table>
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE
ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- ---------------------------------------------------
19.73% 57.99% 2.70% 8.13%
</Table>
(PERFORMANCE GRAPH)
<Table>
<Caption>
MainStay U.S.
Small Russell 2500(TM) Russell 2000(R)
Cap Fund Index Value Index
------------- ---------------- ---------------
4/30/00 10000 10000 10000
4/30/01 10274 9949 12425
4/30/02 12421 10483 15212
4/30/03 11048 8699 12346
4/30/04 16137 12215 17586
4/30/05 19133 13260 19310
4/30/06 24701 17284 25268
4/30/07 25853 19122 28104
4/30/08 19197 17431 23851
4/30/09 13836 11792 16369
4/30/10 21860 17733 24953
</Table>
<Table>
<Caption>
BENCHMARK PERFORMANCE SIX ONE FIVE TEN
MONTHS YEAR YEARS YEARS
- ---------------------------------------------------------------------------
Russell 2500(TM) Index(5) 27.58% 50.39% 5.99% 5.90%
Russell 2000(R) Value Index(6) 30.66 52.44 5.26 9.58
Average Lipper small-cap core fund(7) 25.42 47.73 5.21 6.93
</Table>
A shares through February 27, 2008, adjusted for differences in certain
contractual expenses and fees. Unadjusted, the performance shown for Investor
Class shares might have been lower.
3. Performance figures for Class A and B shares, first offered on January 1,
2004, include the historical performance of Class I shares through December
31, 2003, adjusted for differences in certain contractual expenses and fees.
Unadjusted, the performance shown for Class A and Class B shares might have
been lower.
4. Performance figures for Class C shares, first offered on January 2, 2004,
include the historical performance of L Class shares (which were redesignated
as Class C shares on January 2, 2004) from December 30, 2002, through
December 31, 2003, and the historical performance of Class I shares through
December 29, 2002, adjusted for differences in certain contractual expenses
and fees. Unadjusted, the performance shown for Class C shares might have
been lower.
5. The Russell 2500(TM) Index is a broad index featuring 2,500 stocks that cover
the small and mid-cap market capitalizations. The Russell 2500(TM) Index is a
market cap weighted index that includes the smallest 2,500 companies covered
in the Russell 3000 universe of United States-based listed equities.
Effective August 14, 2009, the Fund selected the Russell 2500(TM) Index as
its primary benchmark, in replacement of the Russell 2000(R) Value Index, in
connection with a change in subadvisor. The Russell 2500(TM) Index is the
Fund's broad-based securities market index for comparison purposes. An
investment cannot be made directly in an index.
6. The Russell 2000(R) Value Index measures the performance of those Russell
2000 companies with lower price-to-book ratios and lower forecasted growth
values. The Russell 2000(R) Index measures the performance of the 2,000
smallest companies in the Russell 3000(R) Index, which, in turn, measures the
performance of the 3,000 largest U.S. companies based on total market
capitalization. Total returns assume reinvestment of all dividends and
capital gains. An investment cannot be made directly in an index.
7. The average Lipper small-cap core fund is representative of funds that, by
portfolio practice, invest at least 75% of their equity assets in companies
with market capitalizations (on a three-year weighted basis) below Lipper's
U.S. Diversified Equity small-cap ceiling. Small-cap core funds typically
have a below-average price-to-earnings ratio, price-to-book ratio, and three-
year sales-per-share growth value, compared to the S&P SmallCap 600 Index.
This average is a product of Lipper Inc. Lipper Inc. is an independent
monitor of fund performance. Results are based on average total returns of
similar funds with all dividend and capital gain distributions reinvested.
THE FOOTNOTE ON THE PRECEDING PAGE IS AN INTEGRAL PART OF THE TABLES AND GRAPHS
AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
6 MainStay U.S. Small Cap Fund
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY U.S. SMALL CAP FUND
(UNAUDITED)
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from November 1, 2009, to April 30,
2010, 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, exchange fees, and sales charges (loads) on
purchases (as applicable), and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses (as
applicable). This example is intended to help you understand your ongoing costs
(in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds. The example is based on an
investment of $1,000 made at the beginning of the six-month period and held for
the entire period from November 1, 2009, to April 30, 2010.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested, to estimate the expenses that
you paid during the six-months ended April 30, 2010. 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.
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 11/1/09 4/30/10 PERIOD(1) 4/30/10 PERIOD(1)
INVESTOR CLASS SHARES $1,000.00 $1,194.10 $ 8.87 $1,016.70 $ 8.15
- -------------------------------------------------------------------------------------------------------
CLASS A SHARES $1,000.00 $1,195.00 $ 8.11 $1,017.40 $ 7.45
- -------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $1,189.70 $12.92 $1,013.00 $11.88
- -------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $1,189.80 $12.92 $1,013.00 $11.88
- -------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,197.30 $ 6.37 $1,019.00 $ 5.86
- -------------------------------------------------------------------------------------------------------
1. Expenses are equal to the Fund's annualized expense ratio of each class
(1.63% for Investor Class, 1.49% for Class A, 2.38% for Class B and Class C
and 1.17% for Class I) multiplied by the average account value over the
period, divided by 365 and multiplied by 181 (to reflect the one-half year
period). The table above represents the actual expenses incurred during the
one-half year period.
mainstayinvestments.com 7
INDUSTRY COMPOSITION AS OF APRIL 30, 2010 (UNAUDITED)
<Table>
<Caption>
Health Care Equipment & Supplies 6.3%
Household Durables 6.1
Machinery 6.1
Insurance 5.7
Chemicals 5.3
Aerospace & Defense 4.6
Building Products 4.2
Multi-Utilities 4.2
Capital Markets 3.8
Commercial Banks 3.7
Software 3.5
Specialty Retail 3.3
Textiles, Apparel & Luxury Goods 3.2
Thrifts & Mortgage Finance 3.1
Electric Utilities 2.9
Wireless Telecommunication Services 2.9
Electronic Equipment & Instruments 2.8
Containers & Packaging 2.4
Communications Equipment 2.3
Electrical Equipment 2.2
Energy Equipment & Services 2.2
IT Services 2.0
Pharmaceuticals 2.0
Food Products 1.6
Biotechnology 1.5
Diversified Consumer Services 1.5
Metals & Mining 1.4
Hotels, Restaurants & Leisure 1.2
Auto Components 1.1
Exchange Traded Funds 1.0
Health Care Providers & Services 1.0
Household Products 1.0
Professional Services 0.9
Road & Rail 0.9
Semiconductors & Semiconductor
Equipment 0.6
Short-Term Investment 1.9
Other Assets, Less Liabilities -0.4
-----
100.0%
=====
</Table>
See Portfolio of Investments beginning on page 11 for specific holdings within
these categories.
TOP TEN HOLDINGS AS OF APRIL 30, 2010 (EXCLUDING SHORT-TERM INVESTMENT)
<Table>
1. Silgan Holdings, Inc.
2. Woodward Governor Co.
3. Waddell & Reed Financial, Inc. Class A
4. Syniverse Holdings, Inc.
5. Warnaco Group, Inc. (The)
6. Tupperware Brands Corp.
7. Endo Pharmaceuticals Holdings, Inc.
8. Washington Federal, Inc.
9. AGCO Corp.
10. GameStop Corp. Class A
</Table>
8 MainStay U.S. Small Cap Fund
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
QUESTIONS ANSWERED BY PORTFOLIO MANAGERS DAVID PEARL, WILLIAM PRIEST, CFA, AND
MICHAEL WELHOELTER, CFA, OF EPOCH INVESTMENT PARTNERS, INC. (EPOCH), THE FUND'S
SUBADVISOR.
HOW DID MAINSTAY U.S. SMALL CAP FUND PERFORM RELATIVE TO ITS PEERS AND ITS
BENCHMARK DURING THE SIX MONTHS ENDED APRIL 30, 2010?
Excluding all sales charges, MainStay U.S. Small Cap Fund returned 19.41% for
Investor Class shares, 19.50% for Class A shares, 18.97% for Class B shares and
18.98% for Class C shares for the six months ended April 30, 2010. Over the same
period, the Fund's Class I shares returned 19.73%. All share classes
underperformed the 25.42% return of the average Lipper(1) small-cap core fund,
the 27.58% return of the Russell 2500(TM) Index(2) and the 30.66% return of the
Russell 2000(R) Value Index(3) for the six months ended April 30, 2010. The
Russell 2500(TM) Index is the Fund's broad-based securities-market index. See
pages 5 and 6 for Fund returns with sales charges.
WHAT MAJOR FACTORS INFLUENCED THE FUND'S RELATIVE PERFORMANCE DURING THE
REPORTING PERIOD?
Throughout the reporting period, we stayed true to our philosophy and process.
The Fund focused on quality companies that were generating free cash flow and
that were run by management teams with a demonstrated ability to effectively
allocate that cash flow to increase shareholder returns. While the Fund
generated robust absolute gains during the reporting period, investors tended to
prefer lower-quality small-cap companies over stocks that fit the Fund's more
conservative, cash-flow-oriented approach. In light of these market dynamics, we
were not surprised that the Fund lagged the Russell 2500(TM) Index during the
reporting period.
DURING THE REPORTING PERIOD, WHICH SECTORS MADE THE STRONGEST CONTRIBUTIONS TO
THE FUND'S RELATIVE PERFORMANCE AND WHICH SECTORS MADE THE WEAKEST
CONTRIBUTIONS?
Relative to the Russell 2500(TM) Index, the strongest-contributing sectors to
the Fund's performance were consumer staples, industrials and utilities. Strong
stock selection across all three sectors helped relative performance, as did the
Fund's modest underweight position in consumer staples. While the Fund shifted
during the reporting period from an underweight position to a significantly
overweight position in industrials, sector allocation within this sector still
detracted modestly from the Fund's relative performance. The Fund's overweight
position in utilities, which was reduced during the reporting period, also hurt
the Fund's results relative to the Russell 2500(TM) Index.
While all sectors within the Russell 2500(TM) Index generated strong double-
digit absolute returns during the reporting period, the sectors that detracted
the most from the Fund's performance relative to the benchmark were financials
and consumer discretionary. Stock selection in both sectors was weak. During the
reporting period, the Fund reduced its exposure to financials from an overweight
to an underweight position relative to the Russell 2500(TM) Index, but the
allocation to the financials sector still detracted from the Fund's relative
performance. In light of our belief that many small-cap financial companies--and
small-cap banks in particular--faced continuing credit issues, the Fund focused
on companies with transparent and well-capitalized loan portfolios and on asset
managers and reinsurance companies. The Fund's small cash position detracted, as
the Fund was not fully invested in equities during the significant market rally.
WHICH INDIVIDUAL STOCKS WERE THE STRONGEST CONTRIBUTORS TO THE FUND'S ABSOLUTE
PERFORMANCE DURING THE REPORTING PERIOD AND WHICH STOCKS DETRACTED?
The stocks that made the strongest contributions to the Fund's absolute
performance during the reporting period were networking systems maker 3Com
(which was acquired during the reporting period by Hewlett-Packard), mutual fund
company Waddell & Reed Financial and specialty pharmaceutical company Alkeremes.
Among the greatest detractors from the Fund's absolute performance were marine
contractor for the offshore oil & gas industry Cal Dive, enterprise data storage
solutions provider STEC and video game retailer GameStop. We chose to sell the
Fund's position in STEC during the reporting period. We increased the Fund's
exposure to GameStop on the belief that we were at the beginning stages of
seeing a new round of computer games come to the market.
DID THE FUND MAKE ANY SIGNIFICANT PURCHASES OR SALES DURING THE REPORTING
PERIOD?
We selectively added to the Fund's industrial exposure during the reporting
period with the purchase of a number of new companies, including metal products
fabricator Mueller Industries and building and construction products maker
Simpson Manufacturing.
1. See footnote on page 6 for more information on Lipper Inc.
2. See footnote on page 6 for more information on the Russell 2500(TM) Index.
3. See footnote on page 6 for more information on the Russell 2000(R) Value
Index
mainstayinvestments.com 9
We believe that both of these companies may benefit from a rebound in the
housing market, as should our purchase of furnishings components manufacturer
Leggett & Platt in the consumer discretionary sector. In financials, we
established a new Fund position in Kansas lender Capitol Federal Financial.
We sold the Fund's position in 3Com when the company was acquired by computer
maker Hewlett-Packard. In financials, we sold a number of Fund positions,
including Bank Mutual and Sterling Bancshares.
HOW DID THE FUND'S WEIGHTINGS CHANGE DURING THE REPORTING PERIOD?
During the reporting period, the Fund increased its weightings in the
industrials and consumer discretionary sectors. In both cases, the Fund moved
from an underweight to an overweight position relative to the Russell 2500(TM)
Index. We reduced the Fund's exposure to financials, moving to an underweight
position relative to the benchmark.
HOW WAS THE FUND POSITIONED AT THE END OF APRIL 2010?
As of April 30, 2010, the Fund's most substantially overweight sectors relative
to the Russell 2500(TM) Index were industrials and information technology. On
the same date, the Fund's most substantially underweight sector relative to the
Russell 2500(TM) Index was financials.
The opinions expressed are those of the portfolio managers as of the date of
this report and are subject to change. There is no guarantee that any forecast
made will come to pass. This material does not constitute investment advice and
is not intended as an endorsement of any specific investment.
10 MainStay U.S. Small Cap Fund
PORTFOLIO OF INVESTMENTS APRIL 30, 2010 UNAUDITED
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS 97.5%+
- -------------------------------------------------------
AEROSPACE & DEFENSE 4.6%
Alliant Techsystems, Inc.(a) 63,450 $ 5,133,740
Curtiss-Wright Corp. 174,550 6,226,198
Esterline Technologies Corp.
(a) 58,800 3,279,864
Hexcel Corp. (a) 282,800 4,581,360
------------
19,221,162
------------
AUTO COMPONENTS 1.1%
Tenneco, Inc. (a) 171,950 4,431,152
------------
BIOTECHNOLOGY 1.5%
Alkermes, Inc. (a) 487,400 6,384,940
------------
BUILDING PRODUCTS 4.2%
Armstrong World Industries,
Inc. (a) 143,350 6,242,892
Masco Corp. 240,350 3,900,881
Simpson Manufacturing Co.,
Inc. 220,750 7,503,292
------------
17,647,065
------------
CAPITAL MARKETS 3.8%
Federated Investors, Inc.
Class B 273,950 6,607,674
V Waddell & Reed Financial,
Inc. Class A 245,050 9,096,256
------------
15,703,930
------------
CHEMICALS 5.3%
International Flavors &
Fragrances, Inc. 84,200 4,217,578
Methanex Corp. 260,850 6,046,503
Nalco Holding Co. 212,700 5,260,071
Sensient Technologies Corp. 213,200 6,722,196
------------
22,246,348
------------
COMMERCIAL BANKS 3.7%
Investors Bancorp, Inc. (a) 386,802 5,380,416
Texas Capital Bancshares,
Inc. (a) 230,100 4,578,990
UMB Financial Corp. 134,850 5,679,882
------------
15,639,288
------------
COMMUNICATIONS EQUIPMENT 2.3%
ADC Telecommunications, Inc.
(a) 725,850 5,814,058
Harmonic, Inc. (a) 571,000 3,905,640
------------
9,719,698
------------
CONTAINERS & PACKAGING 2.4%
V Silgan Holdings, Inc. 167,200 10,087,176
------------
DIVERSIFIED CONSUMER SERVICES 1.5%
Service Corp. International 694,300 6,234,814
------------
ELECTRIC UTILITIES 2.9%
DPL, Inc. 171,900 4,844,142
Westar Energy, Inc. 305,150 7,229,003
------------
12,073,145
------------
ELECTRICAL EQUIPMENT 2.2%
V Woodward Governor Co. 291,950 9,356,998
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS 2.8%
DTS, Inc. (a) 189,966 6,314,470
Jabil Circuit, Inc. 343,950 5,269,314
------------
11,583,784
------------
ENERGY EQUIPMENT & SERVICES 2.2%
Cal Dive International, Inc.
(a) 1,005,350 6,595,096
Dresser-Rand Group, Inc. (a) 68,604 2,420,349
------------
9,015,445
------------
FOOD PRODUCTS 1.6%
Corn Products International,
Inc. 180,400 6,494,400
------------
HEALTH CARE EQUIPMENT & SUPPLIES 6.3%
Haemonetics Corp. (a) 105,950 6,130,267
Inverness Medical
Innovations, Inc. (a) 130,250 5,181,345
SonoSite, Inc. (a) 224,600 7,528,592
Teleflex, Inc. 120,200 7,370,664
------------
26,210,868
------------
HEALTH CARE PROVIDERS & SERVICES 1.0%
Bio-Reference Laboratories,
Inc. (a) 185,700 4,345,380
------------
HOTELS, RESTAURANTS & LEISURE 1.2%
Multimedia Games, Inc. (a) 60,473 276,362
Shuffle Master, Inc. (a) 513,950 4,933,920
------------
5,210,282
------------
HOUSEHOLD DURABLES 6.1%
KB Home 406,850 7,538,930
Leggett & Platt, Inc. 190,700 4,677,871
Ryland Group, Inc. (The) 220,750 5,028,685
V Tupperware Brands Corp. 165,300 8,441,871
------------
25,687,357
------------
HOUSEHOLD PRODUCTS 1.0%
Church & Dwight Co., Inc. 62,950 4,359,288
------------
INSURANCE 5.7%
Arthur J. Gallagher & Co. 206,150 5,415,560
Hanover Insurance Group, Inc.
(The) 126,300 5,689,815
</Table>
+ Percentages indicated are based on Fund net assets.
V Among the Fund's 10 largest holdings, as of April 30, 2010, excluding
short-term investment. May be subject to change daily.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
11
PORTFOLIO OF INVESTMENTS APRIL 30, 2010 UNAUDITED (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
INSURANCE (CONTINUED)
Platinum Underwriters
Holdings, Ltd. 195,698 $ 7,281,923
Validus Holdings, Ltd. 208,930 5,342,340
------------
23,729,638
------------
IT SERVICES 2.0%
Forrester Research, Inc. (a) 79,762 2,561,158
NeuStar, Inc. Class A (a) 240,800 5,892,376
------------
8,453,534
------------
MACHINERY 6.1%
Actuant Corp. Class A 38,600 885,098
V AGCO Corp. (a) 217,350 7,611,597
Kennametal, Inc. 165,700 5,444,902
Mueller Industries, Inc. 162,600 4,821,090
Wabtec Corp. 141,850 6,749,223
------------
25,511,910
------------
METALS & MINING 1.4%
RTI International Metals,
Inc. (a) 222,450 6,017,273
------------
MULTI-UTILITIES 4.2%
CMS Energy Corp. 261,650 4,254,429
NSTAR 155,600 5,694,960
Vectren Corp. 297,050 7,429,220
------------
17,378,609
------------
PHARMACEUTICALS 2.0%
V Endo Pharmaceuticals
Holdings, Inc. (a) 373,700 8,184,030
------------
PROFESSIONAL SERVICES 0.9%
IHS, Inc. Class A (a) 72,050 3,650,774
------------
ROAD & RAIL 0.9%
Genesee & Wyoming, Inc. Class
A (a) 93,990 3,675,009
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 0.6%
MEMC Electronic Materials,
Inc. (a) 204,850 2,656,905
------------
SOFTWARE 3.5%
Rovi Corp. (a) 106,550 4,153,319
Solera Holdings, Inc. 55,500 2,157,285
Sybase, Inc. (a) 128,900 5,591,682
THQ, Inc. (a) 358,700 2,726,120
------------
14,628,406
------------
SPECIALTY RETAIL 3.3%
V GameStop Corp. Class A (a) 312,500 7,596,875
Monro Muffler Brake, Inc. 174,880 6,271,197
------------
13,868,072
------------
TEXTILES, APPAREL & LUXURY GOODS 3.2%
Iconix Brand Group, Inc. (a) 266,600 4,601,516
V Warnaco Group, Inc. (The)
(a) 180,950 8,656,648
------------
13,258,164
------------
THRIFTS & MORTGAGE FINANCE 3.1%
First Niagara Financial
Group, Inc. 376,800 5,237,520
V Washington Federal, Inc. 381,050 7,838,198
------------
13,075,718
------------
WIRELESS TELECOMMUNICATION SERVICES 2.9%
NTELOS Holdings Corp. 167,400 3,286,062
V Syniverse Holdings, Inc.
(a) 449,256 9,021,060
------------
12,307,122
------------
Total Common Stocks
(Cost $352,639,002) 408,047,684
------------
EXCHANGE TRADED FUND 1.0% (B)
- -------------------------------------------------------
iShares Russell 2000 Index
Fund 59,850 4,284,063
------------
Total Exchange Traded Fund
(Cost $4,280,951) 4,284,063
------------
<Caption>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENT 1.9%
- -------------------------------------------------------
REPURCHASE AGREEMENT 1.9%
State Street Bank and Trust
Co.
0.01%, dated 4/30/10
due 5/3/10
Proceeds at Maturity
$7,885,985 (Collateralized
by a United States Treasury
Bill with a rate of 0.135%
and a maturity date of
5/27/10, with a Principal
Amount of $8,045,000 and a
Market Value of $8,044,196) $7,885,978 7,885,978
------------
Total Short-Term Investment
(Cost $7,885,978) 7,885,978
------------
Total Investments
(Cost $364,805,931) (c) 100.4% 420,217,725
Other Assets, Less
Liabilities (0.4) (1,726,824)
---------- ------------
Net Assets 100.0% $418,490,901
========== ============
</Table>
12 MainStay U.S. Small Cap Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
<Table>
(a) Non-income producing security.
(b) Exchange Traded Fund--An investment
vehicle that represents a basket of
securities that is traded on an exchange.
(c) At April 30, 2010, cost is $365,968,405
for federal income tax purposes and net
unrealized appreciation is as follows:
</Table>
<Table>
Gross unrealized appreciation $61,020,052
Gross unrealized depreciation (6,770,732)
-----------
Net unrealized appreciation $54,249,320
===========
</Table>
The following is a summary of the fair valuations according to the inputs used
as of April 30, 2010, for valuing the Fund's assets.
ASSET VALUATION INPUTS
<Table>
<Caption>
QUOTED
PRICES IN
ACTIVE SIGNIFICANT
MARKETS FOR OTHER SIGNIFICANT
IDENTICAL OBSERVABLE UNOBSERVABLE
ASSETS INPUTS INPUTS
DESCRIPTION (LEVEL 1) (LEVEL 2) (LEVEL 3) TOTAL
Investments in Securities (a)
Common Stocks $408,047,684 $ -- $ -- $408,047,684
Exchange Traded Fund 4,284,063 -- -- 4,284,063
Short-Term Investment
Repurchase Agreement -- 7,885,978 -- 7,885,978
------------ ---------- -------- ------------
Total Investments in Securities $412,331,747 $7,885,978 $-- $420,217,725
============ ========== ======== ============
</Table>
(a) For detailed industry descriptions, see the Portfolio of Investments.
At April 30, 2010, the Fund did not have any transfers between Level 1 and Level
2 or hold any investments with significant unobservable inputs (Level 3).
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
13
STATEMENT OF ASSETS AND LIABILITIES AS OF APRIL 30, 2010 UNAUDITED
<Table>
ASSETS:
Investment in securities, at value
(identified cost $364,805,931) $ 420,217,725
Receivables:
Fund shares sold 339,420
Dividends and interest 128,315
Other assets 91,382
-------------
Total assets 420,776,842
-------------
LIABILITIES:
Payables:
Investment securities purchased 1,105,429
Fund shares redeemed 432,297
Transfer agent (See Note 3) 342,500
Manager (See Note 3) 266,157
NYLIFE Distributors (See Note 3) 93,128
Shareholder communication 35,026
Professional fees 8,497
Trustees 1,596
Accrued expenses 1,311
-------------
Total liabilities 2,285,941
-------------
Net assets $ 418,490,901
=============
COMPOSITION OF NET ASSETS:
Share of beneficial interest
outstanding (par value of $.01
per share) unlimited number of
shares authorized $ 279,855
Additional paid-in capital 602,064,574
-------------
602,344,429
Accumulated net investment income 224,789
Accumulated net realized loss on
investments (239,490,111)
Net unrealized appreciation on
investments 55,411,794
-------------
Net assets $ 418,490,901
=============
INVESTOR CLASS
Net assets applicable to
outstanding shares $ 66,098,969
=============
Shares of beneficial interest
outstanding 4,419,991
=============
Net asset value per share
outstanding $ 14.95
Maximum sales charge (5.50% of
offering price) 0.87
-------------
Maximum offering price per share
outstanding $ 15.82
=============
CLASS A
Net assets applicable to
outstanding shares $ 105,140,060
=============
Shares of beneficial interest
outstanding 7,031,924
=============
Net asset value per share
outstanding $ 14.95
Maximum sales charge (5.50% of
offering price) 0.87
-------------
Maximum offering price per share
outstanding $ 15.82
=============
CLASS B
Net assets applicable to
outstanding shares $ 48,186,847
=============
Shares of beneficial interest
outstanding 3,370,112
=============
Net asset value and offering price
per share outstanding $ 14.30
=============
CLASS C
Net assets applicable to
outstanding shares $ 21,363,994
=============
Shares of beneficial interest
outstanding 1,494,554
=============
Net asset value and offering price
per share outstanding $ 14.29
=============
CLASS I
Net assets applicable to
outstanding shares $ 177,701,031
=============
Shares of beneficial interest
outstanding 11,668,905
=============
Net asset value and offering price
per share outstanding $ 15.23
=============
</Table>
14 MainStay U.S. Small Cap Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 2010 UNAUDITED
<Table>
INVESTMENT INCOME:
INCOME:
Dividends (a) $ 3,037,687
Interest 455
-----------
Total income 3,038,142
-----------
EXPENSES:
Manager (See Note 3) 1,558,294
Transfer agent (See Note 3) 696,791
Distribution/Service--Investor
Class (See Note 3) 71,702
Distribution/Service--Class A (See
Note 3) 118,319
Distribution/Service--Class B (See
Note 3) 216,583
Distribution/Service--Class C (See
Note 3) 99,831
Shareholder communication 91,237
Professional fees 55,475
Registration 37,697
Custodian 8,926
Trustees 6,759
Miscellaneous 22,266
-----------
Total expenses before waiver 2,983,880
Expense waiver from Manager (See
Note 3) (170,527)
-----------
Net expenses 2,813,353
-----------
Net investment income 224,789
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 16,528,919
Net change in unrealized
appreciation on investments 47,329,166
-----------
Net realized and unrealized gain on
investments 63,858,085
-----------
Net increase in net assets resulting
from operations $64,082,874
===========
</Table>
(a) Dividends recorded net of foreign withholding taxes in the amount of
$12,199.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
15
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 2010 UNAUDITED AND THE YEAR ENDED OCTOBER 31,
2009
<Table>
<Caption>
2010 2009
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 224,789 $ 48,912
Net realized gain (loss)
on investments and
futures transactions 16,528,919 (44,847,858)
Net change in unrealized
appreciation
(depreciation) on
investments and futures
contracts 47,329,166 94,737,570
---------------------------
Net increase in net assets
resulting from operations 64,082,874 49,938,624
---------------------------
Dividends to shareholders:
From net investment
income:
Investor Class -- (250,167)
Class A -- (1,268,569)
Class B -- (177,128)
Class C -- (205,306)
Class I -- (3,284,545)
---------------------------
Total dividends to
shareholders -- (5,185,715)
---------------------------
Capital share transactions:
Net proceeds from sale of
shares 53,631,735 105,241,136
Net asset value of shares
issued in connection with
the acquisition of
MainStay Small Cap Growth
Fund
(See Note 9) 88,818,376 --
Net asset value of shares
issued in connection with
the acquisition of
MainStay Small Cap Value
Fund
(See Note 9) -- 28,616,643
Net asset value of shares
issued to shareholders in
reinvestment of dividends -- 4,832,572
Cost of shares redeemed (76,605,869) (115,704,130)
---------------------------
Increase in net assets
derived from capital
share transactions 65,844,242 22,986,221
---------------------------
Net increase in net
assets 129,927,116 67,739,130
NET ASSETS:
Beginning of period 288,563,785 220,824,655
---------------------------
End of period $418,490,901 $ 288,563,785
===========================
Accumulated undistributed
net investment income at
end of period $ 224,789 $ --
===========================
</Table>
16 MainStay U.S. Small Cap 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
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
17
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
INVESTOR CLASS
-------------------------------------------------
FEBRUARY 28,
SIX MONTHS 2008**
ENDED YEAR ENDED THROUGH
APRIL 30, OCTOBER 31, OCTOBER 31,
2010* 2009 2008
Net asset value at beginning of
period $ 12.52 $ 10.14 $ 13.86
------- ------- -------
Net investment income (loss) (a) (0.00)++ (0.03) 0.10
Net realized and unrealized gain
(loss) on investments 2.43 2.63 (3.82)
------- ------- -------
Total from investment operations 2.43 2.60 (3.72)
------- ------- -------
Less dividends and distributions:
From net investment income -- (0.22) --
From net realized gain on
investments -- -- --
------- ------- -------
Total dividends and distributions -- (0.22) --
------- ------- -------
Net asset value at end of period $ 14.95 $ 12.52 $ 10.14
======= ======= =======
Total investment return (b) 19.41%(c) 26.91% (26.91%)(c)
Ratios (to average net
assets)/Supplemental Data:
Net investment income (loss) (0.02%)++ (0.28%) 1.10% ++
Net expenses 1.63% ++ 1.66% 1.80% ++
Expenses (before waiver) 1.82% ++ 2.02% 1.83% ++
Portfolio turnover rate 30% 218% 158%
Net assets at end of period (in
000's) $66,099 $25,832 $11,480
</Table>
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2010* 2009 2008 2007 2006 2005
Net asset value at beginning of
period $ 12.02 $ 9.70 $ 17.94 $ 19.25 $ 19.18 $ 18.38
------- ------- ------- ------- ------- -------
Net investment income (loss) (a) (0.05) (0.09) 0.06 (0.08) (0.21) (0.22)
Net realized and unrealized gain
(loss) on investments 2.33 2.54 (6.29) (1.23) 2.08 3.93
------- ------- ------- ------- ------- -------
Total from investment operations 2.28 2.45 (6.23) (1.31) 1.87 3.71
------- ------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income -- (0.13) -- -- -- --
From net realized gain on
investments -- -- (2.01) -- (1.80) (2.91)
------- ------- ------- ------- ------- -------
Total dividends and distributions -- (0.13) (2.01) -- (1.80) (2.91)
------- ------- ------- ------- ------- -------
Net asset value at end of period $ 14.30 $ 12.02 $ 9.70 $ 17.94 $ 19.25 $ 19.18
======= ======= ======= ======= ======= =======
Total investment return (b) 18.97%(c) 25.99% (38.56%) (6.81%) 10.32% 21.59%
Ratios (to average net
assets)/Supplemental Data:
Net investment income (loss) (0.75%)++ (0.95%) 0.47% (0.41%) (1.12%) (1.19%)
Net expenses 2.38% ++ 2.38% 2.44% 2.41% 2.39% 2.41%
Expenses (before waiver) 2.57% ++ 2.78% 2.66% 2.41% 2.39% 2.41%
Portfolio turnover rate 30% 218% 158% 134% 124% 159%
Net assets at end of period (in
000's) $48,187 $23,354 $13,305 $32,502 $46,112 $48,496
</Table>
<Table>
* Unaudited.
** Commencement of operations.
++ Annualized.
++ Less than one cent per share.
(a) Per share data based on average shares outstanding during the period.
(b) Total return is calculated exclusive of sales charges and assumes the
reinvestment of dividends and distributions. Class I shares are not subject to
sales charges.
(c) Total return is not annualized.
</Table>
18 MainStay U.S. Small Cap Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS A
- ----------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2010* 2009 2008 2007 2006 2005
$ 12.51 $ 10.14 $ 18.65 $ 19.87 $ 19.60 $ 18.58
-------- ------- ------- -------- -------- --------
0.01 0.00++ 0.17 0.07 (0.07) (0.08)
2.43 2.61 (6.55) (1.29) 2.14 4.01
-------- ------- ------- -------- -------- --------
2.44 2.61 (6.38) (1.22) 2.07 3.93
-------- ------- ------- -------- -------- --------
-- (0.24) (0.12) -- -- --
-- -- (2.01) -- (1.80) (2.91)
-------- ------- ------- -------- -------- --------
-- (0.24) (2.13) -- (1.80) (2.91)
-------- ------- ------- -------- -------- --------
$ 14.95 $ 12.51 $ 10.14 $ 18.65 $ 19.87 $ 19.60
======== ======= ======= ======== ======== ========
19.50%(c) 27.05% (38.10%) (6.09%) 11.20% 22.66%
0.15%++ 0.01% 1.24% 0.33% (0.39%) (0.44%)
1.49%++ 1.54% 1.65% 1.66% 1.64% 1.66%
1.49%++ 1.92% 1.84% 1.66% 1.64% 1.66%
30% 218% 158% 134% 124% 159%
$105,140 $66,905 $64,527 $301,031 $502,182 $194,615
</Table>
<Table>
<Caption>
CLASS C
- --------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2010* 2009 2008 2007 2006 2005
$ 12.01 $ 9.70 $ 17.94 $ 19.26 $ 19.19 $ 18.37
------- ------- ------- ------- -------- -------
(0.05) (0.08) 0.06 (0.09) (0.21) (0.22)
2.33 2.53 (6.29) (1.23) 2.08 3.95
------- ------- ------- ------- -------- -------
2.28 2.45 (6.23) (1.32) 1.87 3.73
------- ------- ------- ------- -------- -------
-- (0.14) -- -- -- --
-- -- (2.01) -- (1.80) (2.91)
------- ------- ------- ------- -------- -------
-- (0.14) (2.01) -- (1.80) (2.91)
------- ------- ------- ------- -------- -------
$ 14.29 $ 12.01 $ 9.70 $ 17.94 $ 19.26 $ 19.19
======= ======= ======= ======= ======== =======
18.98% (c) 26.00% (38.60%) (6.80%) 10.32% 21.72%
(0.71%)++ (0.83%) 0.45% (0.44%) (1.14%) (1.19%)
2.38% ++ 2.39% 2.45% 2.41% 2.39% 2.41%
2.57% ++ 2.81% 2.67% 2.41% 2.39% 2.41%
30% 218% 158% 134% 124% 159%
$21,364 $17,048 $15,123 $54,264 $120,414 $48,316
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
19
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS I
--------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2010* 2009 2008 2007 2006
Net asset value at beginning of
period $ 12.72 $ 10.34 $ 19.03 $ 20.18 $ 19.79
-------- -------- -------- -------- --------
Net investment income (a) 0.04 0.04 0.24 0.17 0.02
Net realized and unrealized gain
(loss) on investments 2.47 2.65 (6.69) (1.32) 2.17
-------- -------- -------- -------- --------
Total from investment operations 2.51 2.69 (6.45) (1.15) 2.19
-------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income -- (0.31) (0.23) (0.00)++ --
From net realized gain on
investments -- -- (2.01) -- (1.80)
-------- -------- -------- -------- --------
Total dividends and distributions -- (0.31) (2.24) (0.00)++ (1.80)
-------- -------- -------- -------- --------
Net asset value at end of period $ 15.23 $ 12.72 $ 10.34 $ 19.03 $ 20.18
======== ======== ======== ======== ========
Total investment return (b) 19.73%(c) 27.57% (37.81%) (5.69%) 11.73%
Ratios (to average net
assets)/Supplemental Data:
Net investment income 0.52%++ 0.39% 1.69% 0.81% 0.09%
Net expenses 1.17%++ 1.18% 1.20% 1.19% 1.17%
Expenses (before waiver) 1.24%++ 1.68% 1.48% 1.35% 1.17%
Portfolio turnover rate 30% 218% 158% 134% 124%
Net assets at end of period (in
000's) $177,701 $155,425 $116,390 $631,108 $862,439
<Caption>
CLASS I
--------
YEAR
ENDED
OCTOBER
31,
2005
Net asset value at beginning of
period $ 18.67
--------
Net investment income (a) 0.01
Net realized and unrealized gain
(loss) on investments 4.02
--------
Total from investment operations 4.03
--------
Less dividends and distributions:
From net investment income --
From net realized gain on
investments (2.91)
--------
Total dividends and distributions (2.91)
--------
Net asset value at end of period $ 19.79
========
Total investment return (b) 23.15%
Ratios (to average net
assets)/Supplemental Data:
Net investment income 0.06%
Net expenses 1.16%
Expenses (before waiver) 1.16%
Portfolio turnover rate 159%
Net assets at end of period (in
000's) $317,602
</Table>
<Table>
* Unaudited.
** Commencement of operations.
++ Annualized.
++ Less than one cent per share.
(a) Per share data based on average shares outstanding during the period.
(b) Total return is calculated exclusive of sales charges and assumes the
reinvestment of dividends and distributions. Class I shares are not subject to
sales charges.
(c) Total return is not annualized.
</Table>
20 MainStay U.S. Small Cap Fund The notes to the financial statements are an
integral part of, and should be read in conjunction with, the financial
statements.
NOTES TO FINANCIAL STATEMENTS UNAUDITED
NOTE 1--ORGANIZATION AND BUSINESS:
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 two funds (collectively referred to as the "Funds"). These
financial statements and notes relate only to the MainStay U.S. Small Cap Fund
(the "Fund"), a diversified fund.
The Fund currently offers five classes of shares. Class I shares commenced
operations on January 12, 1987. Class A shares and Class B shares commenced
operations on January 2, 2004. Class C shares commenced operations on December
30, 2002. Investor Class shares commenced operations on February 28, 2008.
Investor Class and Class A shares are offered at net asset value ("NAV") per
share plus an initial sales charge. No sales charge applies on investments of $1
million or more (and certain other qualified purchases) in Investor Class and
Class A shares, but a contingent deferred sales charge 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 at NAV without an initial sales charge,
although a declining contingent deferred sales charge may be imposed on
redemptions made within six years of purchase of Class B shares and a 1.00%
contingent deferred sales charge may be imposed on redemptions made within one
year of purchase of Class C shares. Class I shares are offered at NAV and are
not subject to a sales charge. Depending upon eligibility, Class B shares
convert to either Investor Class or Class A shares eight years after the date
they were purchased. Additionally, depending upon eligibility, Investor Class
shares may convert to Class A shares and Class A shares may convert to Investor
Class shares. The five classes of shares have the same voting (except for issues
that relate solely to one class), dividend, liquidation and other rights, and
the same terms and conditions, except that Class B and Class C shares are
subject to higher distribution and/or service fee rates than Investor Class and
Class A shares under a distribution plan pursuant to Rule 12b-1 under the 1940
Act. Class I shares are not subject to a distribution and/or service fee.
The Fund's investment objective is to seek long-term capital appreciation by
investing primarily in securities of small-cap companies.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The Fund prepares its financial statements in accordance with accounting
principles generally accepted in the United States of America ("GAAP") 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 regular trading on the New York Stock Exchange
("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 other mutual funds are
valued at their NAVs as of the close of the New York Stock Exchange on the
valuation date.
Temporary cash investments acquired over 60 days prior to maturity are valued
using the latest bid prices or using valuations based on a matrix system (which
considers such factors as security prices, yields, maturities, and ratings),
both as furnished by independent pricing services. Other temporary cash
investments which mature in 60 days or less ("short-term investments") are
valued at amortized cost. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between 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 to represent fair value. Equity
and non-equity securities which may be valued in this manner include, but are
not limited to: (i) a security the trading for which has been halted or
suspended; (ii) a debt security that has recently gone into default and for
which there is not a current market quotation; (iii) a security of an issuer
that has entered into a restructuring; (iv) a security that has been de-listed
from a national exchange; (v) a security the market price of which is not
available from an independent pricing source or, if so provided, does not, in
the opinion of the Fund's Manager or Subadvisor, as defined in Note 3(A),
reflect the security's market value; and (vi) a security where the trading on
that security's principal market is temporarily closed at a time when, under
normal conditions, it would be open. At April 30, 2010, the Fund did not hold
securities that were valued in such a manner.
"Fair value" is defined as the price that the Fund would receive upon selling an
investment in an orderly transaction to an independent buyer in the principal or
most advantageous market of the investment. Fair value measurements are
determined within a framework that has established a three-tier hierarchy which
maximizes the use of observable market data and minimizes the use of
unobservable inputs to establish classification of fair value measurements for
disclosure purposes. "Inputs" refer broadly to the assumptions that market
participants would use in pricing the asset or liability, including assumptions
about risk, such as the risk inherent in a particular valuation technique used
to measure fair value using a pricing model and/or the risk inherent in the
inputs for the valuation technique. Inputs may be observable or unobservable.
Observable inputs are
mainstayinvestments.com 21
NOTES TO FINANCIAL STATEMENTS UNAUDITED (CONTINUED)
inputs that reflect the assumptions market participants would use in pricing the
asset or liability based on market data obtained from sources independent of the
reporting entity. Unobservable inputs are inputs that reflect the reporting
entity's own assumptions about the assumptions market participants would use in
pricing the asset or liability developed based on the information available in
the circumstances. The inputs or methodology used for valuing securities may not
be an indication of the risks associated with investing in those securities. The
three-tier hierarchy of inputs is summarized in the three broad Levels listed
below.
- - Level 1--quoted prices in active markets for identical investments
- - Level 2--other significant observable inputs (including quoted prices for
similar investments in active markets, interest rates and yield curves,
prepayment speeds, credit risks, etc.)
- - Level 3--significant unobservable inputs (including the Fund's own assumptions
about the assumptions that market participants would use in determining the fair
value of investments)
The aggregate value by input level, as of April 30, 2010, for the Fund's
investments is included at the end of the Fund's Portfolio of Investments.
The valuation techniques used by the Fund to measure fair value during the six-
month period ended April 30, 2010 maximized the use of observable inputs and
minimized the use of unobservable inputs. The Fund may have utilized some of the
following fair value techniques: multi-dimensional relational pricing models,
option adjusted spread pricing and estimating the price that would have
prevailed in a liquid market for an international equity security given
information available at the time of evaluation, when there are significant
events after the close of local foreign markets. For the six-month period ended
April 30, 2010, there have been no changes to the fair value methodologies.
(B) FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements
of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code")
applicable to regulated investment companies and to distribute all of the
taxable income to the shareholders of the Fund within the allowable time limits.
Therefore, no federal income tax provision is required.
Management evaluates its tax positions to determine if the tax positions taken
meet the minimum recognition threshold in connection with accounting for
uncertainties in income tax positions taken or expected to be taken for the
purposes of measuring and recognizing tax liabilities in the financial
statements. Recognition of tax benefits of an uncertain tax position is required
only when the position is "more likely than not" to be sustained assuming
examination by taxing authorities. Management has analyzed the Fund's tax
positions taken on federal income tax returns for all open tax years (current
and prior three tax years), and has concluded that no provision for federal
income tax is required in the Fund's financial statements. The Fund's federal
and state income and federal excise tax returns for tax years for which the
applicable statutes of limitations have not expired are subject to examination
by the Internal Revenue Service and state departments of revenue.
(C) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions
are recorded on the ex-dividend date. The Fund intends to declare and pay
dividends of net investment income and distributions of net realized capital and
currency gains, if any, annually. Unless the shareholder elects otherwise, all
dividends and distributions are reinvested in the same class of shares of the
Fund, at NAV. Dividends and distributions to shareholders are determined in
accordance with federal income tax regulations and may differ from GAAP.
(D) SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is accrued as earned
using the effective interest rate method. Discounts and premiums on short-term
investments are accreted and amortized, respectively, on the straight-line
method.
Investment income and realized and unrealized gains and losses on investments of
the Fund are allocated to separate classes of shares pro rata based upon their
relative net assets on the date the income is earned or realized and unrealized
gains and losses are incurred.
(E) EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred, except where direct allocations of expenses can be made. Expenses
(other than transfer agent expenses and fees incurred under the shareholder
services plans and the distribution plans further discussed in Note 3(B)) are
allocated to separate classes of shares pro rata based upon their relative NAV
on the date the expenses are incurred. The expenses borne by the Fund, including
those of related parties to the Fund, are shown in the Statement of Operations.
(F) USE OF ESTIMATES. In preparing financial statements in conformity with
GAAP, management makes estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
(G) REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements to
earn income. The Fund may enter into repurchase agreements only with financial
institutions that are deemed by the Manager or Subadvisor to be creditworthy,
pursuant to guidelines established by the
22 MainStay U.S. Small Cap Fund
Fund's Board. Repurchase agreements are considered under the 1940 Act to be
collateralized loans by a Fund to the seller secured by the securities
transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund's custodian takes
possession of the collateral pledged for investments in such repurchase
agreements. The underlying collateral is valued daily on a mark-to-market basis
to determine that the value, including accrued interest, exceeds the repurchase
price. In the event of the seller's default of the obligation to repurchase, the
Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings and possible
realized loss to the Fund.
(H) FUTURES CONTRACTS. A futures contract is an agreement to purchase or sell a
specified quantity of an underlying instrument at a specified future date and
price, or to make or receive a cash payment based on the value of a financial
instrument (e.g., foreign currency, interest rate, security, or securities
index.) The Fund is subject to equity price risk and interest rate risk in the
normal course of investing in these transactions. During the period the futures
contract is open, changes in the value of the contract are recognized as
unrealized gains or losses by "marking to market" such contract on a daily basis
to reflect the market value of the contract at the end of each day's trading.
The Fund agrees to receive from or pay to the broker an amount of cash equal to
the daily fluctuation in the value of the contract. Such receipts or payments
are known as "variation margin". When the futures contract is closed, the Fund
records a realized gain or loss equal to the difference between the proceeds
from (or cost of) the closing transaction and the Fund's basis in the contract.
The use of futures contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the Statement of Assets and
Liabilities. The contract or notional amounts and variation margin reflect the
extent of the Fund's involvement in open futures positions. Risks arise from the
possible imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets, and the possible inability of
counterparties to meet the terms of their contracts. However, the Fund's
activities in futures contracts have minimal counterparty risk as they are
conducted through regulated exchanges that guarantee the futures against default
by the counterparty. The Fund invests in futures contracts to provide an
efficient means of maintaining liquidity while being fully invested in the
market. The Fund's investment in futures contracts and other derivatives may
increase the volatility of the Fund's NAV and may result in a loss to the Fund.
(I) SECURITIES LENDING. In order to realize additional income, the Fund may
engage in securities lending, subject to the limitations set forth in the 1940
Act, and relevant guidance by the staff of the Securities and Exchange
Commission. In the event the Fund does engage in securities lending, the Fund
will lend through its custodian, State Street Bank and Trust Company ("State
Street"). State Street will manage the Fund's cash collateral in accordance with
the Lending Agreement between the Fund and State Street, and indemnify the
Fund's portfolio against counterparty risk. The loans will be collateralized by
cash or securities at least equal at all times to the market value of the
securities loaned. Collateral will consist of U.S. Government securities, cash
equivalents or irrevocable letters of credit. The Fund may bear the risk of
delay in recovery of, or loss of rights in, the securities loaned should the
borrower of the securities experience financial difficulty. The Fund may also
record realized gain or loss on securities deemed sold due to a borrower's
inability to return securities on loan. The Fund will receive compensation for
lending its securities in the form of fees or retain a portion of interest on
the investment of any cash received as collateral. The Fund also will continue
to receive interest and dividends on the securities loaned and any gain or loss
in the market price of the securities loaned that may occur during the term of
the loan will be for the account of the Fund.
Although the Fund and New York Life Investments (as defined in Note 3(A)) have
temporarily suspended securities lending, the Fund and New York Life Investments
reserve the right to reinstitute lending when deemed appropriate. The Fund had
no portfolio securities on loan as of April 30, 2010.
(J) INDEMNIFICATIONS. Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities that may arise out of
performance of their duties to the Trust. Additionally, in the normal course of
business, the Fund enters into contracts with third-party service providers that
contain a variety of representations and warranties and which provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the Fund
that have not yet occurred. Based on experience, management is of the view that
the risk of loss in connection with these potential indemnification obligations
is remote. However, there can be no assurance that material liabilities related
to such obligations will not arise in the future, which could adversely impact
the Fund.
NOTE 3--FEES AND RELATED PARTY TRANSACTIONS:
(A) MANAGER AND SUBADVISOR. New York Life Investment Management LLC ("New York
Life Investments" or "Manager"), a registered investment adviser and an
indirect, wholly-owned subsidiary of New York Life Insurance Company ("New York
Life"), serves as the Fund's Manager, pursuant to an Amended and Restated
mainstayinvestments.com 23
NOTES TO FINANCIAL STATEMENTS UNAUDITED (CONTINUED)
Management Agreement ("Management Agreement"). The Manager provides offices,
conducts clerical, recordkeeping and bookkeeping services, and keeps most of the
financial and accounting records required to be maintained by the Fund. Except
for the portion of salaries and expenses that are the responsibility of the
Fund, the Manager also pays the salaries and expenses of all personnel
affiliated with the Fund and the operational expenses of the Fund. Epoch
Investment Partners, Inc. ("Epoch" or "Subadvisor"), a registered investment
adviser, is responsible for the day-to-day portfolio management of the Fund.
Pursuant to the terms of an Amended and Restated Subadvisory Agreement
("Subadvisory Agreement") between New York Life Investments and the Subadvisor,
New York Life Investments pays for the services of the Subadvisor.
The Fund pays the Manager a monthly fee for services performed and facilities
furnished at an annual rate of the Fund's average daily net assets as follows:
0.85% on assets up to $1 billion and 0.80% on assets in excess of $1 billion.
The effective management fee rate (exclusive of any applicable
waivers/reimbursements) was 0.85% for the six-month period ended April 30, 2010.
Effective August 1, 2009, New York Life Investments 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 total ordinary operating expenses of a class (total ordinary
operating expenses excludes taxes, interest, litigation, extraordinary expenses,
brokerage and other transaction expenses relating to the purchase or sale of
portfolio investments and the fees and expenses of any other funds in which the
Fund invests) do not exceed the following percentages of average daily net
assets: Investor Class, 1.63%; Class A, 1.53%; Class B, 2.38%; Class C, 2.38%;
and Class I, 1.17%. This expense limitation expires on February 28, 2011 and is
reviewed annually by the Board in connection with its review of the Fund's
investment advisory agreements. Based on its review, the Board may agree to
maintain, modify or terminate the agreement.
For the six-month period ended April 30, 2010, New York Life Investments earned
fees from the Fund in the amount of $1,558,294 and waived/reimbursed expenses in
the amount of $170,527.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-
administration and sub-accounting services to the Fund pursuant to an agreement
with New York Life Investments. These services include calculating the daily
NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the
calculation of the Fund's respective NAVs, and assisting New York Life
Investments in conducting various aspects of the Fund's administrative
operations. For providing these services to the Fund, State Street is
compensated by New York Life Investments.
(B) DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has
entered into a Distribution Agreement with NYLIFE Distributors LLC (the
"Distributor"), an indirect, wholly-owned subsidiary of New York Life. The Fund
has adopted distribution plans, (the "Plans") in accordance with the provisions
of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class and Class A Plans, the Distributor receives a
monthly distribution fee from the Investor Class and Class A shares at an annual
rate of 0.25% of the average daily net assets of the Investor Class and Class A
shares for distribution or service activities as designated by the Distributor.
Pursuant to the Class B and Class C Plans, Class B and Class C shares of the
Fund pay the Distributor a monthly distribution fee at an annual rate of 0.75%
of the average daily net assets of the Fund's Class B and Class C shares, along
with a service fee at an annual rate of 0.25% of the average daily net assets of
the Class B and Class C shares of the Fund for a total 12b-1 fee of 1.00%. Class
I shares are not subject to a distribution or service fee.
The Plans provide that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
(C) SALES CHARGES. The Fund was advised by the Distributor that the amount of
sales charges retained on sales of Investor Class and Class A shares were
$11,546 and $6,991, respectively for the six-month period ended April 30, 2010.
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 $58,
$32,249, and $961, respectively, for the six-month period ended April 30, 2010.
(D) TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. NYLIM
Service Company LLC, an affiliate of New York Life Investments, is the Fund's
transfer, dividend disbursing and shareholder servicing agent pursuant to an
agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company
LLC has entered into an agreement with Boston Financial Data Services, Inc.
("BFDS") pursuant to which BFDS performs certain transfer agent services on
behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the
Fund for the six-month period ended April 30, 2010, were as follows:
<Table>
Investor Class $171,477
- -----------------------------------------------
Class A 129,338
- -----------------------------------------------
Class B 129,728
- -----------------------------------------------
Class C 59,837
- -----------------------------------------------
Class I 206,411
- -----------------------------------------------
</Table>
(E) SMALL ACCOUNT FEE. Shareholders with small accounts adversely impact the
cost of providing transfer agency services. In an effort to reduce total
transfer agency expenses, the Fund has implemented a small account fee
24 MainStay U.S. Small Cap Fund
on certain types of accounts. Certain shareholders with an account balance of
less than $1,000 are charged an annual per account fee of $20 (assessed semi-
annually). These fees are included in transfer agent fees shown on the Statement
of Operations.
(F) CAPITAL. At April 30, 2010, New York Life and its affiliates beneficially
held shares of the Fund with the following values and percentages of net assets
as follows:
<Table>
Class A $ 1,917 0.0%++
- --------------------------------------------------
Class B 1,266 0.0++
- --------------------------------------------------
Class C 2,275 0.0++
- --------------------------------------------------
Class I 50,994,071 28.7
- --------------------------------------------------
</Table>
++ Less than one-tenth of a percent.
(G) OTHER. Pursuant to the Management Agreement, a portion of the cost of legal
services provided to the Fund by the Office of the General Counsel of New York
Life Investments is payable directly by the Fund. For the six-month period ended
April 30, 2010, these fees, which are included in professional fees shown on the
Statement of Operations, were $9,222.
NOTE 4--FEDERAL INCOME TAX:
At October 31, 2009, for federal income tax purposes, capital loss carryforwards
of $254,741,846 were available as shown in the table below, to the extent
provided by the regulations to offset future realized gains of the Fund through
the years indicated. The Fund acquired $22,808,254 of capital losses in its
reorganization with the MainStay Small Cap Value Fund (See Note 9); use of these
losses may be limited due to the provisions of IRC Section 382. To the extent
that these loss carryforwards are used to offset future capital gains, it is
probable that the capital gains so offset will not be distributed to
shareholders. No capital gain distributions shall be made until any capital loss
carryforwards have been fully utilized or expired.
<Table>
<Caption>
CAPITAL LOSS CAPITAL LOSS
AVAILABLE THROUGH AMOUNTS (000'S)
2015 $ 10,550
2016 196,511
2017 47,681
- ---------------------------------- -----
Total $254,742
- ---------------------------------- -----
</Table>
The tax character of distributions paid during the year ended October 31, 2009,
shown in the Statement of Changes in Net Assets, was as follows:
<Table>
<Caption>
2009
Distributions paid from:
Ordinary Income $5,185,715
- ------------------------------------------------
</Table>
NOTE 5--CUSTODIAN:
State Street is the custodian of the cash and the securities of the Fund.
Custodial fees are charged to the Fund based on the market value of securities
in the Fund and the number of certain cash transactions incurred by the Fund.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with a syndicate
of banks in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests.
The line of credit is in the amount of $125,000,000 and the commitment fee rate
is an annual rate of 0.10% of the average commitment amount, plus a 0.04% up-
front payment payable, regardless of usage, to The Bank of New York Mellon,
which serves as agent to the syndicate. The commitment fee and upfront payment
are allocated among certain MainStay Funds based upon net assets and other
factors. Interest on any revolving credit loan is charged based upon the Federal
Funds Advances rate or the one month LIBOR rate, whichever is higher. There were
no borrowings made or outstanding with respect to the Fund on the line of credit
during the six-month period ended April 30, 2010.
NOTE 7--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six-month period ended April 30, 2010, purchases and sales of
securities, other than short-term securities, were $105,934 and $119,484,
respectively.
mainstayinvestments.com 25
NOTES TO FINANCIAL STATEMENTS UNAUDITED (CONTINUED)
NOTE 8--CAPITAL SHARE TRANSACTIONS:
<Table>
<Caption>
INVESTOR CLASS SHARES AMOUNT
Six-month period ended April
30, 2010:
Shares sold 199,844 $ 2,821,853
Shares issued in connection
with the acquisition of
MainStay Small Cap Growth
Fund 2,525,785 32,916,559
Shares redeemed (345,311) (4,838,718)
------------------------
Net increase in shares
outstanding before
conversion 2,380,318 30,899,694
Shares converted into
Investor Class
(See Note 1) 182,576 2,508,178
Shares converted from
Investor Class
(See Note 1) (206,161) (2,891,274)
------------------------
Net increase 2,356,733 $ 30,516,598
========================
Year ended October 31, 2009:
Shares sold 248,332 $ 2,431,659
Shares issued in connection
with the acquisition of
MainStay Small Cap Value
Fund 915,198 7,435,417
Shares issued to shareholders
in reinvestment of
dividends 30,268 247,895
Shares redeemed (393,790) (3,733,172)
------------------------
Net increase in shares
outstanding before
conversion 800,008 6,381,799
Shares converted into
Investor Class
(See Note 1) 363,432 3,093,547
Shares converted from
Investor Class
(See Note 1) (232,798) (2,774,761)
------------------------
Net increase 930,642 $ 6,700,585
========================
<Caption>
CLASS A SHARES AMOUNT
Six-month period ended April
30, 2010:
Shares sold 624,769 $ 8,726,797
Shares issued in connection
with the acquisition of
MainStay Small Cap Growth
Fund 2,011,365 26,187,437
Shares redeemed (1,102,238) (15,212,863)
------------------------
Net increase in shares
outstanding before
conversion 1,533,896 19,701,371
Shares converted into Class A
(See Note 1) 320,362 4,421,874
Shares converted from Class A
(See Note 1) (14,076) (205,785)
Shares converted from Class A
(a) (157,445) (2,153,851)
------------------------
Net increase 1,682,737 $ 21,763,609
========================
Year ended October 31, 2009:
Shares sold 1,382,497 $ 13,228,863
Shares issued in connection
with the acquisition of
MainStay Small Cap Value
Fund 1,320,954 10,706,373
Shares issued to shareholders
in reinvestment of
dividends 128,139 1,046,901
Shares redeemed (4,019,677) (37,706,760)
------------------------
Net decrease in shares
outstanding before
conversion (1,188,087) (12,724,623)
Shares converted into Class A
(See Note 1) 355,452 4,011,231
Shares converted from Class A
(See Note 1) (183,319) (1,382,222)
------------------------
Net decrease (1,015,954) $(10,095,614)
========================
<Caption>
CLASS B SHARES AMOUNT
Six-month period ended April
30, 2010:
Shares sold 172,849 $ 2,326,321
Shares issued in connection
with the acquisition of
MainStay Small Cap Growth
Fund 1,845,463 23,069,427
Shares redeemed (296,979) (3,935,598)
------------------------
Net increase in shares
outstanding before
conversion 1,721,333 21,460,150
Shares converted from Class B
(See Note 1) (294,845) (3,832,993)
------------------------
Net increase 1,426,488 $ 17,627,157
========================
Year ended October 31, 2009:
Shares sold 207,708 $ 1,957,206
Shares issued in connection
with the acquisition of
MainStay Small Cap Value
Fund 1,067,325 8,360,201
Shares issued to shareholders
in reinvestment of
dividends 20,914 165,228
Shares redeemed (409,839) (3,625,520)
------------------------
Net increase in shares
outstanding before
conversion 886,108 6,857,115
Shares converted from Class B
(See Note 1) (314,477) (2,947,795)
------------------------
Net increase 571,631 $ 3,909,320
========================
<Caption>
CLASS C SHARES AMOUNT
Six-month period ended April
30, 2010:
Shares sold 84,660 $ 1,111,762
Shares issued in connection
with the acquisition of
MainStay Small Cap Growth
Fund 181,461 2,267,000
Shares redeemed (191,242) (2,535,201)
------------------------
Net increase 74,879 $ 843,561
========================
Year ended October 31, 2009:
Shares sold 80,847 $ 759,856
Shares issued in connection
with the acquisition of
MainStay Small Cap Value
Fund 269,350 2,108,989
Shares issued to shareholders
in reinvestment of
dividends 18,025 142,409
Shares redeemed (507,383) (4,511,735)
------------------------
Net decrease (139,161) $ (1,500,481)
========================
</Table>
26 MainStay U.S. Small Cap Fund
<Table>
<Caption>
CLASS I SHARES AMOUNT
Six-month period ended April
30, 2010:
Shares sold 2,618,526 $ 38,645,002
Shares issued in connection
with the acquisition of
MainStay Small Cap Value 330,642 4,377,953
Shares redeemed (3,656,916) (50,083,489)
------------------------
Net decrease in shares
outstanding before
conversion (707,748) (7,060,534)
Shares converted into Class I
(a) 154,730 2,153,851
------------------------
Net decrease (553,018) $ (4,906,683)
========================
Year ended October 31, 2009:
Shares sold 7,711,474 $ 86,863,552
Shares issued in connection
with the acquisition of
MainStay Small Cap Value
Fund 689 5,663
Shares issued to shareholders
in reinvestment of
dividends 390,113 3,230,139
Shares redeemed (7,133,818) (66,126,943)
------------------------
Net increase 968,458 $ 23,972,411
========================
</Table>
(a) In addition to any automatic conversion features described above in Note 1
with respect to Investor Class, Class A and B shares, you generally may also
elect to convert your shares on a voluntary basis into another share class
of the same fund for which you are eligible. However, the following
limitations apply:
- Investor Class and Class A shares that remain subject to a CDSC are
ineligible for a voluntary conversion; and
- All Class B and C shares are ineligible for a voluntary conversion.
These limitations do not impact any automatic conversion features described in
Note 1 with respect to Investor Class, Class A and B shares.
An investor or an investor's financial intermediary may contact the Fund to
request a voluntary conversion between shares classes of the same Fund. You may
be required to provide sufficient information to establish eligibility to
convert to the new share class. All permissible conversions will be made on the
basis of the relevant NAVs of the two classes without the imposition of any
sales load, fee or other charge. If you fail to remain eligible for the new
share class, you may automatically be converted back to your original share
class, or into another share class, if appropriate.
NOTE 9--FUND ACQUISITION:
At a meeting held on September 25, 2008, the Board approved a plan of
reorganization where the Fund would acquire the assets, including the
investments, and assume the identified liabilities of MainStay Small Cap Value
Fund, a series of The MainStay Funds. Shareholders of the MainStay Small Cap
Value Fund approved this reorganization on January 30, 2009, which was then
completed on February 13, 2009. The aggregate net assets of the Fund immediately
before the acquisition were $140,597,322 and the combined net assets after the
acquisition were $169,213,965.
The acquisition was accomplished by a tax-free exchange of the following:
<Table>
<Caption>
SHARES VALUE
MainStay Small Cap Value Fund
- -----------------------------------------------------
Investor Class 1,496,605 $ 7,435,417
- -----------------------------------------------------
Class A 2,157,866 10,706,373
- -----------------------------------------------------
Class B 1,870,948 8,360,201
- -----------------------------------------------------
Class C 471,745 2,108,989
- -----------------------------------------------------
Class I 1,129 5,663
- -----------------------------------------------------
</Table>
In exchange for the MainStay Small Cap Value Fund shares and net assets, the
Fund issued 915,198 Investor Class Shares; 1,320,954 Class A shares; 1,067,325
Class B shares; 269,350 Class C shares and 689 Class I shares.
MainStay Small Cap Value Fund's net assets after adjustments for any permanent
book-to-tax differences at the acquisition date were as follows, which include
the following amounts of capital stock, unrealized depreciation and accumulated
net realized loss:
<Table>
<Caption>
TOTAL CAPITAL UNREALIZED ACCUMULATED NET UNDISTRIBUTED NET
NET ASSETS STOCK DEPRECIATION REALIZED LOSS INVESTMENT INCOME
MainStay Small Cap Value Fund $28,616,643 $69,577,796 ($18,029,815) ($23,059,649) $128,311
- ---------------------------------------------------------------------------------------------------------------
</Table>
At a meeting held on June 23, 2009, the Board approved a plan of reorganization
whereby the Fund would acquire the assets, including the investments, and assume
the liabilities of MainStay Small Cap Growth Fund, a series of The MainStay
Funds. Shareholders of the MainStay Small Cap Growth Fund approved this
reorganization on November 16, 2009, which was then completed on November 24,
2009. The aggregate net assets of the Fund immediately before the acquisition
were $293,161,292 and the combined net assets after the acquisition were
$381,979,668.
The acquisition was accomplished by a tax-free exchange of the following:
<Table>
<Caption>
SHARES VALUE
MainStay Small Cap Growth
Fund
- -----------------------------------------------------
Investor Class 2,862,295 $32,916,559
- -----------------------------------------------------
Class A 2,275,595 26,187,437
- -----------------------------------------------------
Class B 2,190,085 23,069,427
- -----------------------------------------------------
Class C 215,221 2,267,000
- -----------------------------------------------------
Class I 374,503 4,377,953
- -----------------------------------------------------
</Table>
In exchange for the MainStay Small Cap Growth Fund shares and net assets, the
Fund issued 2,525,783 Investor
mainstayinvestments.com 27
NOTES TO FINANCIAL STATEMENTS UNAUDITED (CONTINUED)
Class Shares; 2,011,365 Class A shares; 1,845,463 Class B shares; 181,461 Class
C shares and 330,642 Class I shares.
MainStay Small Cap Growth Fund's net assets after adjustments for any permanent
book-to-tax differences at the acquisition date were as follows, which include
the following amounts of capital stock, unrealized appreciation and accumulated
net realized loss:
<Table>
<Caption>
TOTAL CAPITAL UNREALIZED ACCUMULATED NET UNDISTRIBUTED NET
NET ASSETS STOCK APPRECIATION REALIZED LOSS INVESTMENT LOSS
MainStay Small Cap Growth Fund $88,818,376 $172,773,002 $1,479,126 $(85,422,964) $(10,788)
- ----------------------------------------------------------------------------------------------------------------
</Table>
Assuming the acquisition had been completed on November 1, 2010, the beginning
of the annual reporting period of the Fund, the Fund's pro forma results of
operations for the period ended April 30, 2010, are as follows:
<Table>
Net investment income $ 373,210
- ------------------------------------------------
Net gain on investments $67,597,951
- ------------------------------------------------
Net increase in net assets
resulting from operations $67,971,161
- ------------------------------------------------
</Table>
Because the combined investment portfolios have been managed as a single
integrated portfolio since the acquisition was completed, it is not practicable
to separate the amounts of revenue and earnings of the MainStay Small Cap Growth
Fund that have been included in the Fund's Statement of Operations since October
31, 2009.
In December 2007, the Financial Accounting Standards Board issued Accounting
Standards Codification (ASC) 805 (formerly FAS 141R Business Combinations),
which requires the following disclosures by the acquirer, among other things,
when a transaction or other event meets the definition of a business
combination:
- - The identification of the acquiree
- - Recognizing and measuring identifiable assets acquired and liabilities
assumed, at the acquisition date, generally at their fair values
- - Disclosure, by the acquirer, of information that enables users of its
financial statements to evaluate the nature and financial effect of a business
combination that occurs during the current reporting period
ASC 805 requires prospective application to business combinations for which the
acquisition date occurs in an annual reporting period beginning on or after
December 15, 2008.
In accordance with ASC 805, for financial reporting purposes, assets received
and shares issued by the Fund were recorded at fair value; however, the cost
basis of the investments received from MainStay Small Cap GrowthFund was carried
forward to align ongoing reporting of the Fund's realized and unrealized gains
and losses with amounts distributable to shareholders for tax purposes.
ASC 805 requires disclosure in this semi-annual report, and in the Fund's annual
report as of October 31, 2010, of the Fund's pro-forma results of operations,
including net investment income, net gain (loss) on investments and net increase
(decrease) in net assets resulting from operations, assuming the acquisition had
been completed on November 1, 2009, the beginning of the annual reporting period
of the Fund, through the end of the applicable reporting period.
ASC 805 also requires the Fund to report, if practicable, the amounts of revenue
and earnings of the acquiree since the acquisition date included in the combined
entity's income statement for the reporting period. Because the combined
investment portfolios have been managed as a single integrated portfolio since
the acquisition was completed, it is not practicable to separate the amounts of
revenue and earnings of the MainStay Small Cap Growth Fund that will be included
in the Fund's Statement of Operations since November 24, 2009.
NOTE 10--NEW ACCOUNTING PRONOUNCEMENT:
In January 2010, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2010-06 "Improving Disclosures about
Fair Value Measurements". ASU 2010-06 requires reporting entities to make new
disclosures about amount and reasons for significant transfers in and out of
Level 1 and Level 2 fair value measurements and input and valuation techniques
used to measure fair value for both recurring and nonrecurring fair value
measurements that fall in either Level 2 or Level 3, and information on
purchased, sales, issuances, and settlements in the roll forward of activity in
Level 3 fair value measures. The new and revised disclosure requirements are
effective for interim and annual reporting periods beginning after December 15,
2009 except for the disclosures about purchased, sales, issuances, and
settlements in the roll forward of activity in Level 3 fair value measures,
which are effective for fiscal years beginning after December 15, 2010. As of
April 30, 2010, the Fund has adopted ASU 2010-06. The adoption of ASU 2010-06
has not impacted the amounts reported in the financial statements; however,
there are additional disclosures in the Portfolio of Investments.
NOTE 11--SUBSEQUENT EVENTS:
In connection with the preparation of the financial statements of the Fund as of
and for the fiscal six-month period ended April 30, 2010, events and
transactions subsequent to April 30, 2010 through the date the financial
statements were issued have been evaluated by the Fund's management for possible
adjustment and/or disclosure. No subsequent events requiring financial statement
adjustment or disclosure have been identified.
28 MainStay U.S. Small Cap Fund
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
A description of the policies and procedures that New York Life Investments uses
to vote proxies related to the Fund's securities is available without charge,
upon request, (i) by visiting the Fund's website at mainstayinvestments.com; or
(ii) on the 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 800-MAINSTAY (624-6782);
(ii) by visiting the Fund's website at mainstayinvestments.com; or (iii) on the
SEC's website at www.sec.gov.
SHAREHOLDER REPORTS AND QUARTERLY PORTFOLIO DISCLOSURE
The Fund is required to file its complete schedule of portfolio holdings with
the SEC for its first and third fiscal quarters on Form N-Q. The Fund's Form N-Q
is available without charge on the SEC's website at www.sec.gov or by calling
MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review
copies of Form N-Q by visiting the SEC's Public Reference Room in Washington, DC
(information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330).
mainstayinvestments.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 Common Stock Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Fund
MainStay Equity Index Fund(1)
MAINSTAY GROWTH EQUITY FUND
MAINSTAY ICAP EQUITY FUND
MAINSTAY ICAP SELECT EQUITY FUND
MAINSTAY LARGE CAP GROWTH FUND
MAINSTAY MAP FUND
MAINSTAY S&P 500 INDEX FUND
MAINSTAY U.S. SMALL CAP FUND
INCOME FUNDS
MainStay Cash Reserves Fund
MainStay Diversified Income Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Municipal Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Money Market Fund
MainStay Principal Preservation Fund
MainStay Short Term Bond Fund
MainStay Tax Free Bond Fund
BLENDED FUNDS
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
INTERNATIONAL FUNDS
MainStay 130/30 International Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay Global High Income Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
ASSET ALLOCATION FUNDS
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
RETIREMENT FUNDS
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
MANAGER
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
New York, New York
SUBADVISORS
EPOCH INVESTMENT PARTNERS, INC.
New York, New York
INSTITUTIONAL CAPITAL LLC(2)
Chicago, Illinois
MACKAY SHIELDS LLC(2)
New York, New York
MADISON SQUARE INVESTORS LLC(2)
New York, New York
MARKSTON INTERNATIONAL LLC
White Plains, New York
WINSLOW CAPITAL MANAGEMENT, INC.
Minneapolis, Minnesota
LEGAL COUNSEL
DECHERT LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
1. Closed to new investors and new purchases as of January 1, 2002.
2. An affiliate of New York Life Investment Management LLC.
Not part of the Semiannual Report
MAINSTAYINVESTMENTS.COM
MainStay Investments, an indirect subsidiary of New York Life Insurance
Company, New York, NY 10010, provides investment
advisory products and services. Securities are distributed by 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.
2010 by NYLIFE Distributors LLC. All rights reserved.
<Table>
<Caption>
- -----------------------------------------------------------------
Not Not a May Lose No Bank Not Insured by Any
FDIC/NCUA Deposit Value Guarantee Government Agency
Insured
- -----------------------------------------------------------------
</Table>
NYLIM-AO18312 MS121-10 MSUSC10-06/10
B1
(MAINSTAY INVESTMENTS LOGO)
MAINSTAY BALANCED FUND
MESSAGE FROM THE PRESIDENT AND SEMIANNUAL REPORT
Unaudited - April 30, 2010
MESSAGE FROM THE PRESIDENT
During the six months ended April 30, 2010, stock and bond markets generally
advanced, despite some volatility in January and February. Domestic small-cap
stocks were particularly strong, and U.S. stocks at all capitalization levels
provided double digit returns. Value stocks outpaced growth stocks for companies
of all sizes during the reporting period.
International stocks provided positive returns overall, but results varied
widely by country. Concerns about Greece's ability to meet its debt obligations
led many investors to abandon their holdings in Greece and question their
investments in several peripheral European nations where perceived risk had
increased. For the six-month reporting period, equities in the Far East
(including Japan) tended to be stronger than those in Europe.
The economic recovery in the United States continued. Real gross domestic
product advanced in the first quarter of 2010, though at a slower pace than in
the fourth quarter of 2009. The Federal Open Market Committee kept the targeted
federal funds rate at a historically low level throughout the reporting period,
which prompted many investors to leave the safety of U.S. Treasury securities in
search of higher yield.
In the high-yield bond market, lower-rated credits tended to be the strongest
performers. With investment-grade investors crossing into high-yield territory,
however, the highest-rated high-yield credits also saw strong demand. In the
municipal market, new-issue supply was reduced by government incentives that
encouraged municipal issuers to raise funds in the taxable market. In the
leveraged-loan market, new issuance strengthened, but extensive repayments
caused the market as a whole to contract.
Throughout the six-month reporting period, MainStay's portfolio managers sought
to make the most of market conditions within the investment strategies and risk
parameters of their respective Funds. While individual markets and Fund results
may vary, our pursuit of competitive returns over full market cycles has never
changed.
The information that follows provides a closer look
at the securities, strategies and market conditions that affected your MainStay
Fund(s) during the six months ended April 30, 2010. Of course, past performance
is no guarantee of future results. Even in a rising market, we believe that
maintaining a long-term perspective can be valuable. At MainStay, we believe
that in all markets, broad diversification, gradual allocation adjustments and
regular portfolio reviews can help guide you toward your long-range financial
goals.
We thank you for choosing MainStay Funds, and we look forward to serving your
investment needs for many years to come.
Sincerely,
/s/ STEPHEN P. FISHER
Stephen P. Fisher
President
Not part of the Semiannual Report
(MAINSTAY INVESTMENTS LOGO)
MAINSTAY BALANCED FUND
SEMIANNUAL REPORT
Unaudited - April 30, 2010
TABLE OF CONTENTS
<Table>
SEMIANNUAL REPORT
- ---------------------------------------------
INVESTMENT AND PERFORMANCE COMPARISON 5
- ---------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION AND
ANALYSIS 10
- ---------------------------------------------
PORTFOLIO OF INVESTMENTS 13
- ---------------------------------------------
FINANCIAL STATEMENTS 23
- ---------------------------------------------
NOTES TO FINANCIAL STATEMENTS 30
- ---------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES AND
PROXY VOTING RECORD 39
- ---------------------------------------------
SHAREHOLDER REPORTS AND QUARTERLY
PORTFOLIO DISCLOSURE 39
- --------------------------------------------------------------------------------
INVESTORS SHOULD REFER TO THE FUND'S SUMMARY PROSPECTUS AND/OR PROSPECTUS FOR A
DISCUSSION OF THE FUND'S INVESTMENT OBJECTIVES, STRATEGIES AND RISKS. YOU MAY
OBTAIN COPIES OF THE FUND'S SUMMARY PROSPECTUS, PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION FREE OF CHARGE, UPON REQUEST, BY CALLING TOLL-FREE 800-
MAINSTAY (624-6782), BY WRITING TO NYLIFE DISTRIBUTORS LLC, ATTN: MAINSTAY
MARKETING DEPARTMENT, 169 LACKAWANNA AVENUE, PARSIPPANY, NEW JERSEY 07054 OR BY
SENDING AN E-MAIL TO MAINSTAYSHAREHOLDERSERVICES@NYLIM.COM. THESE DOCUMENTS ARE
ALSO AVAILABLE AT MAINSTAYINVESTMENTS.COM/DOCUMENTS.
INVESTMENT AND PERFORMANCE COMPARISON(1) (UNAUDITED)
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. BECAUSE OF MARKET VOLATILITY, CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE, AND AS A RESULT, WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE INFORMATION CURRENT
TO THE MOST RECENT MONTH-END, PLEASE CALL 800-MAINSTAY (624-6782) OR VISIT
MAINSTAYINVESTMENTS.COM.
INVESTOR CLASS SHARES(2)--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- -------------------------------------------------------------
With sales charges 6.35% 22.89% 2.18% 5.93%
Excluding sales charges 12.54 30.04 3.34 6.53
</Table>
(With sales charges)
(LINE GRAPH)
<Table>
<Caption>
BANK OF
AMERICA MERRILL
LYNCH 1-10
YEARS U.S.
MAINSTAY BALANCED RUSSELL MIDCAP(R) CORPORATE & BALANCED COMPOSITE RUSSELL MIDCAP(R)
FUND VALUE INDEX GOVERNMENT INDEX INDEX INDEX
----------------- ----------------- ---------------- ------------------ -----------------
4/30/00 9450 10000 10000 10000 10000
11008 11960 11201 11673 10029
12020 12966 12002 12640 9958
11608 11218 13274 12130 8550
13873 15135 13544 14668 11582
15092 18208 13977 16625 13275
16845 22714 14117 19083 16782
18629 27179 15053 21817 19341
17743 24012 16162 20898 18116
13678 15184 16557 16319 11588
4/30/10 17786 23443 17867 21912 17478
</Table>
CLASS A SHARES(3)--MAXIMUM 5.5% INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- -------------------------------------------------------------
With sales charges 6.41% 23.08% 2.24% 5.96%
Excluding sales charges 12.61 30.24 3.41 6.56
</Table>
(With sales charges)
(LINE GRAPH)
<Table>
<Caption>
BANK OF
AMERICA MERRILL
LYNCH 1-10
YEARS U.S.
MAINSTAY BALANCED RUSSELL MIDCAP(R) CORPORATE & BALANCED COMPOSITE RUSSELL MIDCAP(R)
FUND VALUE INDEX GOVERNMENT INDEX INDEX INDEX
----------------- ----------------- ---------------- ------------------ -----------------
4/30/00 23625 25000 25000 25000 25000
27520 29900 28003 29183 25071
30051 32416 30006 31600 24895
29019 28044 33185 30324 21376
34683 37838 33859 36671 28955
37729 45521 34942 41563 33189
42113 56786 35293 47707 41956
46572 67948 37633 54542 48352
44341 60029 40405 52245 45289
34251 37961 41393 40797 28969
4/30/10 44609 58608 44667 54781 43696
</Table>
CLASS B SHARES(3)--MAXIMUM 5% CDSC IF REDEEMED WITHIN THE FIRST SIX YEARS OF
PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- -------------------------------------------------------------
With sales charges 7.12% 24.06% 2.22% 5.74%
Excluding sales charges 12.12 29.06 2.56 5.74
</Table>
(With sales charges)
(LINE GRAPH)
<Table>
<Caption>
BANK OF
AMERICA MERRILL
LYNCH 1-10
YEARS U.S.
MAINSTAY BALANCED RUSSELL MIDCAP(R) CORPORATE & BALANCED COMPOSITE RUSSELL MIDCAP(R)
FUND VALUE INDEX GOVERNMENT INDEX INDEX INDEX
----------------- ----------------- ---------------- ------------------ -----------------
4/30/00 10000 10000 10000 10000 10000
11564 11960 11201 11673 10029
12535 12966 12002 12640 9958
12017 11218 13274 12130 8550
14261 15135 13544 14668 11582
15401 18208 13977 16625 13275
17068 22714 14117 19083 16782
18727 27179 15053 21817 19341
17697 24012 16162 20898 18116
13542 15184 16557 16319 11588
4/30/10 17478 23443 17867 21912 17478
</Table>
1. 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 $25,000 for
Class A shares and $10,000 for all other classes and reflect the deduction
of all sales charges that would have applied for the period of investment.
Class A shares generally have a $25,000 minimum initial investment with no
minimum subsequent purchase amount. For investors that, in the aggregate,
have assets of $100,000 or more invested in any share classes of any of the
MainStay Funds, the minimum initial investment is $15,000. Investor Class
shares and Class A shares are sold with a maximum initial sales charge of
5.50% and an annual 12b-1 fee of 0.25%. Class B shares are sold with no
initial sales charge, are subject to a contingent deferred sales charge
("CDSC") of up to 5.00% if redeemed within the first six years of purchase,
and have an annual 12b-1 fee of 1.00%. Class C shares are sold with no
initial sales charge, are subject to a CDSC of 1.00% 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 or individual
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 0.25%. Class R1 and R2 shares are available only through
corporate-sponsored retirement programs, which include certain
THE FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THE TABLES AND GRAPHS AND
SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
mainstayinvestments.com 5
CLASS C SHARES(4)--MAXIMUM 1% CDSC IF REDEEMED WITHIN ONE YEAR OF PURCHASE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- -------------------------------------------------------------
With sales charges 11.12% 28.01% 2.56% 5.74%
Excluding sales charges 12.12 29.01 2.56 5.74
</Table>
(With sales charges)
(LINE GRAPH)
<Table>
<Caption>
BANK OF
AMERICA MERRILL
LYNCH 1-10
YEARS U.S.
MAINSTAY BALANCED RUSSELL MIDCAP(R) CORPORATE & BALANCED COMPOSITE RUSSELL MIDCAP(R)
FUND VALUE INDEX GOVERNMENT INDEX INDEX INDEX
----------------- ----------------- ---------------- ------------------ -----------------
4/30/00 10000 10000 10000 10000 10000
11560 11960 11201 11673 10029
12533 12966 12002 12640 9958
12013 11218 13274 12130 8550
14259 15135 13544 14668 11582
15393 18208 13977 16625 13275
17061 22714 14117 19083 16782
18719 27179 15053 21817 19341
17690 24012 16162 20898 18116
13541 15184 16557 16319 11588
4/30/10 17470 23443 17867 21912 17478
</Table>
CLASS I SHARES--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- -------------------------------------------------------------
12.82% 30.65% 3.80% 6.92%
</Table>
(With sales charges)
(LINE GRAPH)
<Table>
<Caption>
BANK OF
AMERICA MERRILL
LYNCH 1-10
YEARS U.S.
MAINSTAY BALANCED RUSSELL MIDCAP(R) CORPORATE & BALANCED COMPOSITE RUSSELL MIDCAP(R)
FUND VALUE INDEX GOVERNMENT INDEX INDEX INDEX
----------------- ----------------- ---------------- ------------------ -----------------
4/30/00 10000 10000 10000 10000 10000
11678 11960 11201 11673 10029
12783 12966 12002 12640 9958
12376 11218 13274 12130 8550
14830 15135 13544 14668 11582
16205 18208 13977 16625 13275
18172 22714 14117 19083 16782
20184 27179 15053 21817 19341
19294 24012 16162 20898 18116
14947 15184 16557 16319 11588
4/30/10 19529 23443 17867 21912 17478
</Table>
CLASS R1 SHARES(3)--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- -------------------------------------------------------------
12.73% 30.50% 3.70% 6.81%
</Table>
(With sales charges)
(LINE GRAPH)
<Table>
<Caption>
BANK OF
AMERICA MERRILL
LYNCH 1-10
YEARS U.S.
MAINSTAY BALANCED RUSSELL MIDCAP(R) CORPORATE & BALANCED COMPOSITE RUSSELL MIDCAP(R)
FUND VALUE INDEX GOVERNMENT INDEX INDEX INDEX
----------------- ----------------- ---------------- ------------------ -----------------
4/30/00 10000 10000 10000 10000 10000
11665 11960 11201 11673 10029
12757 12966 12002 12640 9958
12338 11218 13274 12130 8550
14764 15135 13544 14668 11582
16112 18208 13977 16625 13275
18059 22714 14117 19083 16782
20033 27179 15053 21817 19341
19124 24012 16162 20898 18116
14804 15184 16557 16319 11588
4/30/10 19319 23443 17867 21912 17478
</Table>
minimum program requirements. Class R3 shares are sold with no initial sales
charge or CDSC, have an annual 12b-1 fee of 0.50%, 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. For information on current
fee waivers and/or expense limitations, please refer to the notes to the
financial statements.
2. Performance figures for Investor Class shares, first offered on February 28,
2008, include the historical performance of Class A shares through February
27, 2008, adjusted for differences in certain contractual fees and expenses.
Unadjusted, the performance shown for Investor Class shares might have been
lower.
3. Performance figures for Class A, B, R1 and R2 shares, first offered on
January 2, 2004, include the historical performance of Class I shares
through January 1, 2004, adjusted for differences in certain contractual
expenses and fees. Unadjusted, the performance shown for Class A, B, R1 and
R2 shares might have been lower.
4. Performance figures for Class C shares, first offered on January 2, 2004,
include the historical performance of L Class shares (which were
redesignated as Class C shares on January 2, 2004) through January 1, 2004,
and the historical performance of Class I shares through December 29, 2002,
adjusted for differences in certain contractual expenses and fees.
Unadjusted, the performance shown for Class C shares might have been lower.
5. Performance figures for Class R3 shares, first offered to the public on
April 28, 2006, include the historical performance of Class I shares through
April 27, 2006, adjusted for differences in certain contractual expenses and
fees. Unadjusted, the performance shown for Class R3 shares might have been
lower.
6. The Russell Midcap(R) Value Index measures the performance of those Russell
Midcap(R) companies with lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell 1000(R) Value
Index. Total returns assume reinvestment of all dividends and capital gains.
The Russell Midcap(R) Value Index is the Fund's broad-
THE FOOTNOTES ON THE NEXT PAGE ARE AN INTEGRAL PART OF THE TABLES AND GRAPHS AND
SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
6 MainStay Balanced Fund
CLASS R2 SHARES(3)--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- -------------------------------------------------------------
12.60% 30.15% 3.44% 6.54%
</Table>
(With sales charges)
(LINE GRAPH)
<Table>
<Caption>
BANK OF
AMERICA MERRILL
LYNCH 1-10
YEARS U.S.
MAINSTAY BALANCED RUSSELL MIDCAP(R) CORPORATE & BALANCED COMPOSITE RUSSELL MIDCAP(R)
FUND VALUE INDEX GOVERNMENT INDEX INDEX INDEX
----------------- ----------------- ---------------- ------------------ -----------------
4/30/00 10000 10000 10000 10000 10000
11637 11960 11201 11673 10029
12695 12966 12002 12640 9958
12247 11218 13274 12130 8550
14625 15135 13544 14668 11582
15910 18208 13977 16625 13275
17786 22714 14117 19083 16782
19683 27179 15053 21817 19341
18745 24012 16162 20898 18116
14475 15184 16557 16319 11588
4/30/10 18839 23443 17867 21912 17478
</Table>
CLASS R3 SHARES(5)--NO SALES CHARGE
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUAL SIX ONE FIVE TEN
TOTAL RETURNS MONTHS YEAR YEARS YEARS
- -------------------------------------------------------------
12.47% 29.84% 3.18% 6.28%
</Table>
(With sales charges)
(LINE GRAPH)
<Table>
<Caption>
BANK OF
AMERICA MERRILL
LYNCH 1-10
YEARS U.S.
MAINSTAY BALANCED RUSSELL MIDCAP(R) CORPORATE & BALANCED COMPOSITE
FUND VALUE INDEX GOVERNMENT INDEX INDEX
----------------- ----------------- ---------------- ------------------
4/30/00 10000 10000 10000 10000
11608 11960 11201 11673
12631 12966 12002 12640
12156 11218 13274 12130
14478 15135 13544 14668
15726 18208 13977 16625
17529 22714 14117 19083
19348 27179 15053 21817
18379 24012 16162 20898
14162 15184 16557 16319
4/30/10 18388 23443 17867 21912
<Caption>
RUSSELL MIDCAP(R)
INDEX
-----------------
4/30/00 10000
10029
9958
8550
11582
13275
16782
19341
18116
11588
4/30/10 17478
</Table>
<Table>
<Caption>
BENCHMARK PERFORMANCE SIX ONE FIVE TEN
MONTHS YEAR YEARS YEARS
Russell Midcap(R) Value Index(6) 26.54% 54.39% 5.18% 8.89%
Balanced Composite Index(7) 16.46 34.28 5.68 8.16
Bank of America Merrill Lynch 1-10 Years U.S. Corporate
and Government Index(8) 2.34 7.91 5.04 5.98
Russell Midcap(R) Index(9) 24.93 50.84 5.65 5.74
Average Lipper mixed-asset target allocation growth fund(10) 11.01 31.23 3.50 2.33
</Table>
based securities market index for comparison purposes. An investment cannot
be made directly in an index.
7. The Balanced Composite Index is comprised of the Russell Midcap(R) Value
Index and the Bank of America Merrill Lynch 1-10 Years U.S. Corporate and
Government Index weighted 60%/40%, respectively. The Russell Midcap(R) Value
Index measures the performance of those Russell Midcap companies with lower
price-to-book ratios and lower forecasted growth values. The stocks are also
members of the Russell 1000(R) Value Index. Total returns assume
reinvestment of all dividends and capital gains. The Bank of America Merrill
Lynch 1-10 Years U.S. Corporate and Government Index is a market
capitalization-weighted index including U.S. Government and fixed coupon
domestic investment grade corporate bonds with at least $100 million par
amount outstanding. Total returns assume reinvestment of all income and
capital gains. An investment cannot be made directly in an index.
8. The Bank of America Merrill Lynch 1-10 Years U.S. Corporate and Government
Index is a market capitalization-weighted index including U.S. Government
and fixed coupon domestic investment grade corporate bonds with at least
$100 million par amount outstanding. Total returns assume reinvestment of
all income and capital gains. An investment cannot be made directly in an
index.
9. The Russell Midcap(R) Index measures the performance of the 800 smallest
companies in the Russell 1000(R) Index, and represents approximately 31% of
the total market capitalization of the Russell 1000(R) Index. Total returns
assume reinvestment of all dividends and capital gains. An investment cannot
be made directly in an index.
10. The average Lipper mixed-asset target allocation growth fund is
representative of funds that, by portfolio practice, maintain a mix of
between 60%-80% equity securities, with the remainder invested in bonds,
cash, and cash equivalents. This benchmark is a product of Lipper Inc.
Lipper Inc. is an independent monitor of fund performance. Results are based
on average total returns of similar funds with all dividend and capital gain
distributions reinvested.
THE FOOTNOTES ON THE PRECEDING TWO PAGES ARE AN INTEGRAL PART OF THE TABLES AND
GRAPHS AND SHOULD BE CAREFULLY READ IN CONJUNCTION WITH THEM.
mainstayinvestments.com 7
COST IN DOLLARS OF A $1,000 INVESTMENT IN MAINSTAY BALANCED FUND (UNAUDITED)
- --------------------------------------------------------------------------------
The example below is intended to describe the fees and expenses borne by
shareholders during the six-month period from November 1, 2009, to April 30,
2010, 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, exchange fees, and sales charges (loads) on
purchases (as applicable), and (2) ongoing costs, including management fees,
distribution and/or service (12b-1) fees, and other Fund expenses (as
applicable). This example is intended to help you understand your ongoing costs
(in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds. The example is based on an
investment of $1,000 made at the beginning of the six-month period and held for
the entire period from November 1, 2009, to April 30, 2010.
This example illustrates your Fund's ongoing costs in two ways:
- - ACTUAL EXPENSES
The second and third data columns in the table below provide information about
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested, to estimate the expenses that
you paid during the six-months ended April 30, 2010. 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.
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 11/1/09 4/30/10 PERIOD(1) 4/30/10 PERIOD(1)
INVESTOR CLASS SHARES $1,000.00 $1,125.40 $ 7.64 $1,017.60 $ 7.25
- --------------------------------------------------------------------------------------------------------
CLASS A SHARES $1,000.00 $1,126.10 $ 6.69 $1,018.50 $ 6.36
- --------------------------------------------------------------------------------------------------------
CLASS B SHARES $1,000.00 $1,121.20 $11.62 $1,013.80 $11.03
- --------------------------------------------------------------------------------------------------------
CLASS C SHARES $1,000.00 $1,121.20 $11.62 $1,013.80 $11.03
- --------------------------------------------------------------------------------------------------------
CLASS I SHARES $1,000.00 $1,128.20 $ 5.33 $1,019.80 $ 5.06
- --------------------------------------------------------------------------------------------------------
CLASS R1 SHARES $1,000.00 $1,127.30 $ 5.85 $1,019.30 $ 5.56
- --------------------------------------------------------------------------------------------------------
CLASS R2 SHARES $1,000.00 $1,126.00 $ 7.22 $1,018.00 $ 6.85
- --------------------------------------------------------------------------------------------------------
CLASS R3 SHARES $1,000.00 $1,124.70 $ 8.53 $1,016.80 $ 8.10
- --------------------------------------------------------------------------------------------------------
1. Expenses are equal to the Fund's annualized expense ratio of each class
(1.45% for Investor Class, 1.27% for Class A, 2.21% for Class B and Class C,
1.01% for Class I, 1.11% for Class R1, 1.37% for Class R2 and 1.62% for Class
R3) multiplied by the average account value over the period, divided by 365
and multiplied by 181 (to reflect the one-half year period). The table above
represents the actual expenses incurred during the one-half year period.
8 MainStay Balanced Fund
PORTFOLIO COMPOSITION AS OF APRIL 30, 2010 (UNAUDITED)
(PIE CHART)
<Table>
Common Stocks 59.9
U.S. Government & Federal Agencies 18.9
Corporate Bonds 16.4
Yankee Bonds 2.3
Mortgage-Backed Securities 1.3
Exchange Traded Fund 0.6
Other Assets, Less Liabilities 0.3
Asset-Backed Security 0.2
Short-Term Investment 0.1
Convertible Bond 0.0
</Table>
See Portfolio of Investments beginning on page 13 for specific holdings within
these categories.
++ Less than one-tenth of a percent.
TOP TEN HOLDINGS OR ISSUERS HELD AS OF APRIL 30, 2010 (EXCLUDING SHORT-TERM
INVESTMENT)
<Table>
1. United States Treasury Notes, 0.875%-3.625%,
due 7/31/11-2/15/20
2. Federal Home Loan Mortgage Corporation, 1.50%-5.125%, due
11/23/10-5/29/13
3. Federal National Mortgage Association, 3.625%-5.50%, due
2/15/11-5/18/12
4. Comcast Corp. Class A
5. Ashland, Inc.
6. Annaly Capital Management, Inc.
7. Ford Motor Co.
8. Las Vegas Sands Corp.
9. ConocoPhillips
10. General Electric Co.
</Table>
mainstayinvestments.com 9
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
QUESTIONS ANSWERED BY PORTFOLIO MANAGERS TONY H. ELAVIA OF MADISON SQUARE
INVESTORS LLC, THE FUND'S SUBADVISOR, AND THOMAS J. GIRARD OF NEW YORK LIFE
INVESTMENTS,(1) THE FUND'S MANAGER.
HOW DID MAINSTAY BALANCED FUND PERFORM RELATIVE TO ITS PEERS AND ITS BENCHMARK
DURING THE SIX MONTHS ENDED APRIL 30, 2010?
Excluding all sales charges, MainStay Balanced Fund returned 12.54% for Investor
Class shares, 12.61%
for Class A shares and 12.12% for both Class B and Class C shares for the six
months ended April 30, 2010. Over the same period, Class I shares returned
12.82%, Class R1 shares returned 12.73%, Class R2 shares returned 12.60% and
Class R3 shares returned 12.47%. All share classes outperformed the 11.01%
return of the average Lipper(2) mixed-asset target allocation growth fund. All
share classes underperformed the 26.54% return of the Russell Midcap(R) Value
Index(3) and the 16.46% return of the Fund's Balanced Composite Index(4) for the
six months ended April 30, 2010. The Russell Midcap(R) Value Index is the Fund's
broad-based securities-market index. The Balanced Composite Index is a secondary
benchmark of the Fund. See pages 5 and 6 for Fund returns with sales charges.
WHAT FACTORS WERE RESPONSIBLE FOR THE FUND'S RELATIVE PERFORMANCE DURING THE
REPORTING PERIOD?
The Fund invests in a mix of stocks and bonds, while the Russell Midcap(R) Value
Index consists entirely of mid-cap value stocks. Since the Fund has a
substantial allocation to bonds, which underperformed the Russell Midcap(R)
Value Index, the Fund by its very composition trailed the benchmark index by a
substantial margin. With the Fund's asset-allocation targets taken into account,
however, overall performance was roughly in line with our expectations.
The equity portion of the Fund underperformed the Russell Midcap(R) Value Index
primarily because of its bias toward higher-quality stocks generally associated
with stable, consistent earnings growth. When the equity market turned positive
in the spring of 2009, investors aggressively bought the riskiest, lowest-
quality securities in anticipation that these securities would benefit most from
a recovery. This trend persisted throughout the reporting period, and stocks
with negative earnings and cash flows were among the best performers. This so-
called junk rally served as a significant drag on the relative performance of
the equity portion of the Fund.
The fixed-income portion of the Fund outperformed the 2.34% return of the Bank
of America Merrill Lynch 1-10 Years U.S. Corporate & Government Index(5) for the
six months ended April 30, 2010. An underweight position in Treasury securities
and overweight positions in investment-grade corporate securities and commercial
mortgage-backed securities were the strongest contributors to outperformance in
this portion of the Fund.
Relative to its Lipper peers, the Fund benefited by maintaining a focus on mid-
capitalization stocks. Mid-cap stocks modestly trailed their small-cap
counterparts but significantly outpaced larger-cap stocks during the reporting
period.
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, growth and momentum factors.
Sector holdings are a residual of the Fund's investment process and are not a
product of top-down, macroeconomic analysis.
As the largest sector within the Fund (and among mid-cap value stocks),
financials made the most significant contribution to the Fund's absolute
performance, even though the sector's results were unremarkable relative to the
broader equity market. Financials were torn between a strong earnings recovery
on the one hand and continued concerns about loan-loss provisioning on the
other. Consumer discretionary and industrial holdings also made strong
contributions to the Fund's absolute returns. Consumer discretionary stocks
benefited from a rebound in retail sales. Industrials enjoyed a tailwind from
inventory restocking and a jump in global trade.
While all sectors of the Russell Midcap(R) Value Index generated positive
returns during the reporting period, telecommunication services had the smallest
allocation in the Fund and made the smallest contribution to the Fund's absolute
performance. Other sectors that fared comparatively poorly included consumer
staples and utilities, both of which are often viewed as defensive, low-
volatility sectors. Indeed, we believe that these sectors can be expected to lag
a sharply rising market.
1. "New York Life Investments" is a service mark used by New York Life
Investment Management LLC.
2. See footnote on page 7 for more information on Lipper Inc.
3. See footnote on page 6 for more information on the Russell Midcap(R) Value
Index.
4. See footnote on page 7 for more information on the Fund's Balanced Composite
Index.
5. See footnote on page 7 for more information on the Bank of America Merrill
Lynch 1-10 Years U.S. Corporate & Government Index.
10 MainStay Balanced Fund
DURING THE REPORTING PERIOD, WHICH STOCKS WERE THE STRONGEST CONTRIBUTORS TO THE
FUND'S ABSO-LUTE PERFORMANCE AND WHICH STOCKS DETRACTED THE MOST?
In the equity portion of the Fund, the strongest individual contributors to
absolute performance were bank holding company Regions Financial, chemical
company Ashland and engine manufacturer Cummins.
Very few holdings actually detracted from the Fund's absolute performance during
the reporting period. However, among those that did were offshore driller Ensco,
investment manager BlackRock and mining operator Freeport-McMoRan Copper & Gold.
DID THE EQUITY PORTION OF THE FUND MAKE ANY SIGNIFICANT PURCHASES OR SALES
DURING THE REPORTING PERIOD?
The equity portion of the Fund is broadly diversified, so individual purchases
and sales tend to have little impact on overall results. The Fund selects
securities using a proprietary investment process that seeks 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 automobile manufacturer Ford Motor and casino operator Las Vegas
Sands. In our view, these attractively priced but volatile stocks were poised to
do well should risk capital continue to flow back into the equity markets.
Mining operator Freeport-McMoRan Copper & Gold was another significant purchase
during the reporting period. We felt that that the company was likely to benefit
from a global recovery led by commodity-intensive emerging economies.
Stocks sold during the reporting period included global consumer goods company
Colgate-Palmolive, retailer Coach and tobacco producer Lorillard.
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 resulted from a combination
of stock performance and the Fund's proprietary quantitative security- selection
process. During the reporting period, we increased the Fund's weightings in the
health care and consumer discretionary sectors. We increased the Fund's health
care weighting on the belief that the passage of health care legislation had
removed much of the uncertainty regarding the sector's prospects. We increased
exposure to the consumer discretionary sector in anticipation of continued
economic recovery and a rebound in retail sales.
Similar expectations led us to reduce the Fund's weighting in the consumer
staples sector. We also reduced the Fund's exposure to the telecommunication
services and financials sectors during the reporting period.
In all cases, sector changes were relatively modest, as managing industry and
sector allocation is not a central element in the Fund's investment process.
HOW WAS THE EQUITY PORTION OF THE FUND POSITIONED AT THE END OF THE REPORTING
PERIOD?
As of April 30, 2010, the equity portion of the Fund was moderately overweight
relative to the Russell Midcap(R) Value Index in health care and energy. As of
the same date, the equity portion of the Fund was underweight relative to the
benchmark in financials and utilities. To some degree, this positioning is
simply a by-product of the Fund's investment process and does not reflect a
deliberate expression of our opinion regarding the relative outlook for these
sectors.
WHAT FACTORS AFFECTED THE FIXED-INCOME PORTION OF THE FUND DURING THE REPORTING
PERIOD?
The most significant factors that influenced the fixed-income markets during the
reporting period were the economic recovery that appeared to gain momentum as
the period progressed and the continued rebound in the financial markets. While
the equity markets seemed to hit a low point in March 2009, spreads(6) on non-
Treasury bonds appeared to have reached their widest levels at approximately the
same time. Equity markets continued their rebound through much of the reporting
period, and non-Treasury bond spreads tightened significantly. In addition,
assets flowed out of money market funds in search of higher yields, and a
significant portion of that money targeted the broader fixed-income market, and
particularly corporate bonds. Such a widespread trend in fund flows made it
increasingly difficult to ascertain value and find appropriate securities for
the Fund.
With relatively low inflation, the Federal Reserve was able to sit on the
sidelines and exercise patience in its monetary policy decisions. It allowed
most of its emergency programs to expire, with little discernable impact on the
bond market. Federal Reserve forecasts
6. The terms "spread" and "yield spread" may refer to the difference in yield
between a security or type of security and comparable U.S. Treasury issues.
The terms may also refer to the difference in yield between two specific
securities or types of securities at a given time.
mainstayinvestments.com 11
include keeping short-term interest rates very low for an extended period of
time.
The economy continued to show modest improvement, but the recovery was subpar
relative to prior recoveries. The most glaring weakness was the labor market,
which has only recently begun to create jobs. Unemployment remained unacceptably
high, and policy makers appeared to be waiting for meaningful improvements
before significantly tightening monetary policy.
Uncertainty about U.S. financial reform legislation and its impact on financial
institutions kept spreads on bank and finance paper wider than normal relative
to spreads on utility or industrial bonds. Concerns surrounding Greek sovereign
debt--and whether there would be a default or a bailout--created volatility in
the U.S. Treasury market and the corporate bond market.
HOW DID THE FIXED-INCOME PORTION OF THE FUND RESPOND TO THESE MARKET FORCES?
In the fixed-income portion of the Fund, we sold Treasury securities and
purchased commercial mortgage-backed securities and investment-grade corporate
bonds early in the reporting period. These trades modestly shortened the Fund's
duration. Each of these strategies helped the fixed-income portion of the Fund
outperform the Bank of America Merrill Lynch Corporate & Government 1-10 Years
Bond Index during the reporting period. Later in the reporting period, we moved
the Fund's duration closer to that of the Bank of America Merrill Lynch 1-10
Years U.S. Corporate & Government Index to help mitigate interest-rate risk.
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.
12 MainStay Balanced Fund
PORTFOLIO OF INVESTMENTS APRIL 30, 2010 UNAUDITED
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
LONG-TERM BONDS 39.1%+
ASSET-BACKED SECURITY 0.2%
- -------------------------------------------------------
AUTOMOBILE 0.2%
Mercedes-Benz Auto
Receivables Trust Series
2009-1, Class A3
1.67%, due 1/15/14 $ 1,250,000 $ 1,261,476
------------
Total Asset-Backed Security
(Cost $1,249,973) 1,261,476
------------
CONVERTIBLE BOND 0.0%++
- -------------------------------------------------------
INTERNET 0.0%++
At Home Corp.
4.75%, due 12/31/49
(a)(b)(c)(d) 177,810 18
------------
Total Convertible Bond
(Cost $13,325) 18
------------
CORPORATE BONDS 16.4%
- -------------------------------------------------------
AEROSPACE & DEFENSE 1.1%
Boeing Co. (The)
4.875%, due 2/15/20 1,430,000 1,493,821
Goodrich Corp.
4.875%, due 3/1/20 220,000 224,515
L-3 Communications Corp.
5.20%, due 10/15/19 (e) 900,000 924,233
Lockheed Martin Corp.
4.25%, due 11/15/19 1,200,000 1,194,667
Northrop Grumman Corp.
5.05%, due 8/1/19 480,000 501,384
United Technologies Corp.
7.125%, due 11/15/10 3,130,000 3,239,772
------------
7,578,392
------------
BANKS 2.0%
American Express Bank FSB
6.00%, due 9/13/17 2,000,000 2,161,216
Bank of America Corp.
5.65%, due 5/1/18 2,300,000 2,327,931
BB&T Corp.
3.375%, due 9/25/13 2,000,000 2,060,728
Fifth Third Bancorp
4.50%, due 6/1/18 325,000 303,809
KeyCorp
6.50%, due 5/14/13 400,000 435,246
Morgan Stanley
5.50%, due 1/26/20 850,000 830,136
5.625%, due 9/23/19 1,100,000 1,084,898
PNC Bank N.A.
6.875%, due 4/1/18 1,230,000 1,370,890
PNC Funding Corp.
5.125%, due 2/8/20 350,000 356,356
Wells Fargo & Co.
3.75%, due 10/1/14 2,500,000 2,549,603
------------
13,480,813
------------
BEVERAGES 0.4%
Anheuser-Busch Cos., Inc.
7.50%, due 3/15/12 1,500,000 1,657,350
Anheuser-Busch InBev
Worldwide, Inc.
3.00%, due 10/15/12 1,000,000 1,028,474
------------
2,685,824
------------
BUILDING MATERIALS 0.2%
CRH America, Inc.
5.30%, due 10/15/13 203,000 217,832
Masco Corp.
4.80%, due 6/15/15 1,200,000 1,187,627
------------
1,405,459
------------
CHEMICALS 0.4%
Dow Chemical Co. (The)
5.70%, due 5/15/18 1,325,000 1,393,737
Monsanto Co.
7.375%, due 8/15/12 1,000,000 1,127,824
------------
2,521,561
------------
DIVERSIFIED FINANCIAL SERVICES 2.2%
Bear Stearns Cos., Inc.
(The)
5.30%, due 10/30/15 2,000,000 2,153,434
Capital One Bank USA N.A.
8.80%, due 7/15/19 1,250,000 1,532,809
Citigroup, Inc.
5.85%, due 8/2/16 1,500,000 1,558,083
6.00%, due 8/15/17 1,150,000 1,190,688
6.50%, due 1/18/11 500,000 517,442
General Electric Capital
Corp.
6.00%, due 8/7/19 2,500,000 2,702,292
HSBC Finance Corp.
6.375%, due 11/27/12 1,000,000 1,098,200
JPMorgan Chase & Co.
2.625%, due 12/1/10 (f) 2,000,000 2,025,232
4.95%, due 3/25/20 1,000,000 1,001,574
5.25%, due 5/1/15 1,000,000 1,073,749
------------
14,853,503
------------
</Table>
+ Percentages indicated are based on Fund net assets.
V Among the Fund's 10 largest holdings or issuers held, as of April 30, 2010,
excluding short-term investments. May be subject to change daily.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
13
PORTFOLIO OF INVESTMENTS APRIL 30, 2010 UNAUDITED (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
ELECTRIC 1.5%
CenterPoint Energy Houston
Electric LLC
7.00%, due 3/1/14 $ 1,250,000 $ 1,424,806
Consolidated Edison Co. of
New York
7.50%, due 9/1/10 3,000,000 3,065,217
Duke Energy Corp.
3.35%, due 4/1/15 1,400,000 1,406,840
Duke Energy Ohio, Inc.
5.45%, due 4/1/19 1,000,000 1,093,510
Florida Power Corp.
4.55%, due 4/1/20 850,000 862,779
Kansas City Power & Light
Co.
7.15%, due 4/1/19 1,000,000 1,175,676
Peco Energy Co.
5.00%, due 10/1/14 1,225,000 1,331,117
------------
10,359,945
------------
ENVIRONMENTAL CONTROLS 0.3%
Republic Services, Inc.
5.00%, due 3/1/20 (e) 1,025,000 1,029,590
5.50%, due 9/15/19 (e) 1,000,000 1,049,838
------------
2,079,428
------------
FINANCE--OTHER SERVICES 0.3%
National Rural Utilities
Cooperative Finance Corp.
2.625%, due 9/16/12 2,100,000 2,153,315
------------
FOOD 0.8%
Campbell Soup Co.
6.75%, due 2/15/11 1,500,000 1,573,338
ConAgra Foods, Inc.
7.00%, due 4/15/19 600,000 699,331
Corn Products International,
Inc.
6.00%, due 4/15/17 1,130,000 1,170,249
Kraft Foods, Inc.
4.125%, due 2/9/16 1,325,000 1,358,784
Safeway, Inc.
5.00%, due 8/15/19 400,000 412,250
------------
5,213,952
------------
FOREST PRODUCTS & PAPER 0.1%
International Paper Co.
7.30%, due 11/15/39 750,000 831,518
------------
GAS 0.1%
Sempra Energy
6.50%, due 6/1/16 750,000 852,723
------------
HEALTH CARE--SERVICES 0.2%
Roche Holdings, Inc.
5.00%, due 3/1/14 (e) 1,500,000 1,635,461
------------
HOUSEHOLD PRODUCTS & WARES 0.5%
Kimberly-Clark Corp.
5.00%, due 8/15/13 3,000,000 3,269,253
------------
INSURANCE 0.8%
Hartford Financial Services
Group, Inc.
5.50%, due 3/30/20 450,000 447,028
Lincoln National Corp.
6.25%, due 2/15/20 1,600,000 1,710,190
MetLife Global Funding I
5.125%, due 6/10/14 (e) 1,500,000 1,622,652
Northwestern Mutual Life
Insurance Co.
6.063%, due 3/30/40 (e) 750,000 774,656
Principal Financial Group,
Inc.
8.875%, due 5/15/19 450,000 555,100
------------
5,109,626
------------
LODGING 0.4%
Marriott International, Inc.
5.625%, due 2/15/13 450,000 479,865
6.20%, due 6/15/16 900,000 949,834
Wyndham Worldwide Corp.
6.00%, due 12/1/16 1,400,000 1,394,152
------------
2,823,851
------------
MACHINERY--DIVERSIFIED 0.4%
Deere & Co.
5.375%, due 10/16/29 650,000 667,813
7.85%, due 5/15/10 2,308,000 2,312,819
------------
2,980,632
------------
MEDIA 0.8%
CBS Corp.
4.625%, due 5/15/18 250,000 241,774
COX Communications, Inc.
8.375%, due 3/1/39 (e) 575,000 746,645
NBC Universal, Inc.
5.15%, due 4/30/20 (e) 1,450,000 1,466,923
TCM Sub LLC
3.55%, due 1/15/15 (e) 1,650,000 1,649,160
Time Warner Cable, Inc.
8.25%, due 4/1/19 710,000 867,804
Time Warner, Inc.
6.20%, due 3/15/40 225,000 227,806
------------
5,200,112
------------
</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)
MISCELLANEOUS--MANUFACTURING 0.3%
ITT Corp.
4.90%, due 5/1/14 $ 1,130,000 $ 1,212,786
6.125%, due 5/1/19 400,000 443,253
------------
1,656,039
------------
OIL & GAS 0.2%
Anadarko Petroleum Corp.
6.20%, due 3/15/40 700,000 708,539
Marathon Oil Corp.
6.50%, due 2/15/14 612,000 690,861
------------
1,399,400
------------
PACKAGING & CONTAINERS 0.2%
Bemis Co., Inc.
5.65%, due 8/1/14 900,000 984,094
------------
PHARMACEUTICALS 0.1%
GlaxoSmithKline Capital,
Inc.
4.85%, due 5/15/13 800,000 870,779
------------
PIPELINES 0.7%
Enbridge Energy Partners,
L.P.
5.20%, due 3/15/20 1,150,000 1,187,465
Energy Transfer Partners,
L.P.
9.00%, due 4/15/19 950,000 1,186,973
Plains All American
Pipeline, L.P.
8.75%, due 5/1/19 800,000 994,690
Williams Partners, L.P.
3.80%, due 2/15/15 (e) 1,290,000 1,297,177
------------
4,666,305
------------
REAL ESTATE 0.1%
AMB Property, L.P.
6.625%, due 12/1/19 725,000 774,620
------------
REAL ESTATE INVESTMENT TRUSTS 0.7%
Brandywine Operating
Partnership, L.P.
5.70%, due 5/1/17 1,450,000 1,430,960
ERP Operating, L.P.
5.25%, due 9/15/14 922,000 976,681
Federal Realty Investment
Trust
5.90%, due 4/1/20 585,000 593,799
Hospitality Properties Trust
6.30%, due 6/15/16 600,000 614,407
Liberty Property, L.P.
5.125%, due 3/2/15 400,000 403,152
UDR, Inc.
5.25%, due 1/15/15 700,000 711,309
------------
4,730,308
------------
RETAIL 0.2%
Lowe's Cos., Inc.
5.80%, due 4/15/40 1,000,000 1,028,842
------------
TELECOMMUNICATIONS 1.2%
Cellco Partnership/Verizon
Wireless Capital LLC
5.55%, due 2/1/14 2,000,000 2,202,004
Southwestern Bell Telephone
Corp.
7.00%, due 7/1/15 3,000,000 3,477,237
Verizon Communications, Inc.
6.10%, due 4/15/18 1,950,000 2,157,644
------------
7,836,885
------------
TRANSPORTATION 0.2%
Burlington Northern Santa Fe
Corp.
4.70%, due 10/1/19 500,000 507,964
FedEx Corp.
8.00%, due 1/15/19 750,000 936,470
------------
1,444,434
------------
Total Corporate Bonds
(Cost $104,602,247) 110,427,074
------------
MORTGAGE-BACKED SECURITIES 1.3%
- -------------------------------------------------------
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE OBLIGATIONS) 1.3%
Banc of America Commercial
Mortgage, Inc.
Series 2006-2, Class A4
5.928%, due 5/10/45 1,300,000 1,363,678
Bear Stearns Commercial
Mortgage Securities
Series 2007-PW16, Class A4
5.908%, due 6/11/40 900,000 916,446
Citigroup Commercial
Mortgage Trust Series
2006-C5, Class A4
5.431%, due 10/15/49 1,800,000 1,842,074
Commercial Mortgage
Pass-Through Certificates
Series 2006-C8, Class A4
5.306%, due 12/10/46 900,000 878,202
Greenwich Capital Commercial
Funding Corp.
Series 2007-GG9, Class A4
5.444%, due 3/10/39 1,000,000 1,003,622
JP Morgan Chase Commercial
Mortgage Securities Corp.
Series 2006-LDP7, Class A4
6.064%, due 4/15/45 1,000,000 1,047,800
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
15
PORTFOLIO OF INVESTMENTS APRIL 30, 2010 UNAUDITED (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
MORTGAGE-BACKED SECURITIES (CONTINUED)
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE OBLIGATIONS) (CONTINUED)
Morgan Stanley Capital I
Series 2007-HQ11, Class A4
5.447%, due 2/12/44 $ 750,000 $ 733,723
Series 2006-HQ8, Class A4
5.557%, due 3/12/44 1,000,000 1,038,520
------------
Total Mortgage-Backed
Securities
(Cost $8,141,028) 8,824,065
------------
U.S. GOVERNMENT & FEDERAL AGENCIES 18.9%
- -------------------------------------------------------
FEDERAL HOME LOAN BANK 0.7%
4.50%, due 9/16/13 2,500,000 2,713,635
5.50%, due 8/13/14 2,000,000 2,262,538
------------
4,976,173
------------
V FEDERAL HOME LOAN MORTGAGE CORPORATION 2.8%
1.50%, due 1/7/11 2,500,000 2,515,530
2.875%, due 11/23/10 2,150,000 2,179,206
3.25%, due 2/25/11 2,000,000 2,041,000
3.50%, due 5/29/13 2,000,000 2,105,674
3.875%, due 6/29/11 5,500,000 5,702,218
4.75%, due 1/18/11 2,000,000 2,058,852
5.125%, due 4/18/11 2,000,000 2,086,740
------------
18,689,220
------------
V FEDERAL NATIONAL MORTGAGE ASSOCIATION 1.2%
3.625%, due 8/15/11 2,000,000 2,073,756
4.50%, due 2/15/11 2,000,000 2,062,774
4.875%, due 5/18/12 2,000,000 2,149,330
5.50%, due 3/15/11 2,000,000 2,084,928
------------
8,370,788
------------
V UNITED STATES TREASURY NOTES 14.2%
0.875%, due 1/31/12 4,875,000 4,877,477
1.00%, due 7/31/11 800,000 804,313
1.00%, due 12/31/11 10,500,000 10,534,041
1.00%, due 3/31/12 6,650,000 6,659,110
1.125%, due 12/15/12 11,485,000 11,433,857
1.375%, due 4/15/12 3,000,000 3,025,431
1.375%, due 5/15/12 14,064,000 14,174,979
1.375%, due 9/15/12 5,875,000 5,905,292
1.375%, due 3/15/13 11,250,000 11,226,262
1.75%, due 4/15/13 16,750,000 16,875,625
2.50%, due 3/31/15 620,000 623,150
2.50%, due 4/30/15 6,000,000 6,022,500
3.625%, due 2/15/20 3,780,000 3,768,777
------------
95,930,814
------------
Total U.S. Government &
Federal Agencies
(Cost $126,815,507) 127,966,995
------------
YANKEE BONDS 2.3% (G)
- -------------------------------------------------------
BANKS 0.9%
Bank of Nova Scotia
3.40%, due 1/22/15 1,000,000 1,012,987
Barclays Bank PLC
5.00%, due 9/22/16 725,000 751,162
5.125%, due 1/8/20 1,000,000 999,956
Credit Suisse/New York NY
5.30%, due 8/13/19 1,000,000 1,046,127
Svenska Handelsbanken AB
4.875%, due 6/10/14 (e) 600,000 639,214
Westpac Banking Corp.
4.875%, due 11/19/19 1,450,000 1,472,530
------------
5,921,976
------------
OIL & GAS 0.4%
Petroleos Mexicanos
4.875%, due 3/15/15 (e) 1,000,000 1,030,000
Shell International Finance
B.V.
4.00%, due 3/21/14 1,500,000 1,589,415
------------
2,619,415
------------
PHARMACEUTICALS 0.1%
Novartis Securities
Investment, Ltd.
5.125%, due 2/10/19 900,000 967,218
------------
SOVEREIGN 0.1%
Svensk Exportkredit AB
3.25%, due 9/16/14 1,000,000 1,027,923
------------
TELECOMMUNICATIONS 0.8%
America Movil SAB de C.V.
5.00%, due 3/30/20 (e) 500,000 503,433
Deutsche Telekom
International Finance B.V.
6.00%, due 7/8/19 1,500,000 1,625,137
Telefonica Emisiones SAU
5.134%, due 4/27/20 1,600,000 1,601,587
</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>
PRINCIPAL
AMOUNT VALUE
YANKEE BONDS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
Vodafone Group PLC
5.625%, due 2/27/17 $ 1,300,000 $ 1,399,808
------------
5,129,965
------------
Total Yankee Bonds
(Cost $15,042,104) 15,666,497
------------
Total Long-Term Bonds
(Cost $255,864,184) 264,146,125
------------
<Caption>
SHARES
COMMON STOCKS 59.9%
- -------------------------------------------------------
ADVERTISING 0.0%++
Clear Channel Outdoor
Holdings, Inc. Class A (h) 13,762 159,364
------------
AEROSPACE & DEFENSE 1.0%
General Dynamics Corp. 18,784 1,434,346
L-3 Communications Holdings,
Inc. 7,710 721,425
Northrop Grumman Corp. 64,179 4,353,262
------------
6,509,033
------------
AGRICULTURE 0.6%
Altria Group, Inc. 105,907 2,244,169
Archer-Daniels-Midland Co. 54,335 1,518,120
Reynolds American, Inc. 688 36,753
------------
3,799,042
------------
AIRLINES 0.1%
Copa Holdings S.A. Class A 13,560 768,581
------------
APPAREL 0.4%
Polo Ralph Lauren Corp. 28,936 2,601,346
------------
AUTO MANUFACTURERS 1.6%
V Ford Motor Co. (h) 489,777 6,376,897
Oshkosh Corp. (h) 109,975 4,247,234
------------
10,624,131
------------
AUTO PARTS & EQUIPMENT 0.1%
Autoliv, Inc. (h) 12,787 700,088
------------
BANKS 3.5%
BancorpSouth, Inc. 47,254 1,046,203
Capital One Financial Corp. 85,864 3,727,356
CapitalSource, Inc. 60,600 361,782
M&T Bank Corp. 21,976 1,919,604
Marshall & Ilsley Corp. 192,973 1,756,054
PNC Financial Services
Group, Inc. 45,389 3,050,595
Popular, Inc. (h) 467,499 1,841,946
Regions Financial Corp. 603,427 5,334,295
SunTrust Banks, Inc. 85,211 2,522,246
Wilmington Trust Corp. 3,042 52,718
Zions Bancorp 77,603 2,229,534
------------
23,842,333
------------
BEVERAGES 0.1%
Molson Coors Brewing Co.
Class B 19,305 856,370
------------
BIOTECHNOLOGY 0.2%
Amgen, Inc. (h) 23,569 1,351,918
------------
BUILDING MATERIALS 0.2%
Armstrong World Industries,
Inc. (h) 21,893 953,440
USG Corp. (h) 14,686 346,590
------------
1,300,030
------------
CHEMICALS 1.9%
V Ashland, Inc. 111,969 6,668,874
Cabot Corp. 58,963 1,918,656
Cytec Industries, Inc. 19,794 951,300
Huntsman Corp. 68,035 776,279
Lubrizol Corp. (The) 20,746 1,874,194
RPM International, Inc. 27,927 616,628
------------
12,805,931
------------
COMMERCIAL SERVICES 0.7%
H&R Block, Inc. 52,861 967,885
R.R. Donnelley & Sons Co. 100,978 2,170,017
SAIC, Inc. (h) 30,547 531,823
Service Corp. International 14,578 130,911
Washington Post Co. Class B 903 457,966
Weight Watchers
International, Inc. 8,588 228,183
------------
4,486,785
------------
COMPUTERS 1.5%
Computer Sciences Corp. (h) 18,451 966,648
Hewlett-Packard Co. 96,292 5,004,295
Lexmark International, Inc.
Class A (h) 24,187 896,128
Western Digital Corp. (h) 76,073 3,125,840
------------
9,992,911
------------
COSMETICS & PERSONAL CARE 0.6%
Procter & Gamble Co. (The) 61,915 3,848,636
------------
DISTRIBUTION & WHOLESALE 0.1%
Ingram Micro, Inc. Class A
(h) 21,747 394,926
------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
17
PORTFOLIO OF INVESTMENTS APRIL 30, 2010 UNAUDITED (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
DIVERSIFIED FINANCIAL SERVICES 1.9%
Ameriprise Financial, Inc. 26,547 $ 1,230,719
BlackRock, Inc. 20,951 3,854,984
Discover Financial Services 270,518 4,182,208
Interactive Brokers Group,
Inc. (h) 8,701 149,135
Investment Technology Group,
Inc. (h) 9,585 166,492
JPMorgan Chase & Co. 75,538 3,216,408
Student Loan Corp. (The) 368 10,392
------------
12,810,338
------------
ELECTRIC 3.2%
AES Corp. (The) (h) 85,861 990,836
Alliant Energy Corp. 9,432 322,574
Ameren Corp. 65,660 1,704,534
American Electric Power Co.,
Inc. 110,502 3,790,219
Consolidated Edison, Inc. 24,371 1,101,569
Constellation Energy Group,
Inc. 4,320 152,712
DTE Energy Corp. 70,619 3,401,717
FirstEnergy Corp. 12,778 483,903
Great Plains Energy, Inc. 9,950 192,333
Hawaiian Electric
Industries, Inc. 21,774 508,423
Integrys Energy Group, Inc. 7,926 393,209
Mirant Corp. (h) 309,791 3,612,163
NRG Energy, Inc. (h) 9,591 231,814
PG&E Corp. 16,727 732,643
Pinnacle West Capital Corp. 28,555 1,066,244
Progress Energy, Inc. 66,701 2,662,704
Westar Energy, Inc. 3,908 92,580
------------
21,440,177
------------
ELECTRICAL COMPONENTS & EQUIPMENT 0.1%
Emerson Electric Co. 687 35,882
General Cable Corp. (h) 15,709 448,806
Hubbel, Inc. Class B 8,370 388,954
------------
873,642
------------
ELECTRONICS 0.7%
Arrow Electronics, Inc. (h) 11,391 347,425
FLIR Systems, Inc. (h) 7,761 237,409
Garmin, Ltd. 37,352 1,396,218
Jabil Circuit, Inc. 1,273 19,502
Tech Data Corp. (h) 68,653 2,945,214
------------
4,945,768
------------
ENGINEERING & CONSTRUCTION 0.6%
Fluor Corp. 36,033 1,903,984
Shaw Group, Inc. (The) (h) 62,724 2,401,074
------------
4,305,058
------------
ENTERTAINMENT 0.1%
Penn National Gaming, Inc.
(h) 11,413 353,347
------------
ENVIRONMENTAL CONTROLS 0.1%
Nalco Holding Co. 5,506 136,163
Waste Connections, Inc. (h) 7,221 258,440
------------
394,603
------------
FOOD 1.8%
ConAgra Foods, Inc. 71,149 1,741,016
Del Monte Foods Co. 26,555 396,732
H.J. Heinz Co. 58,751 2,753,659
J.M. Smucker Co. (The) 10,269 627,128
Ralcorp Holdings, Inc. (h) 6,923 460,726
Safeway, Inc. 132,130 3,118,268
SUPERVALU, Inc. 85,739 1,277,511
Tyson Foods, Inc. Class A 75,899 1,486,861
------------
11,861,901
------------
FOREST PRODUCTS & PAPER 0.6%
International Paper Co. 140,541 3,758,067
MeadWestvaco Corp. 16,572 450,261
------------
4,208,328
------------
GAS 0.8%
Atmos Energy Corp. 4,203 124,325
Energen Corp. 32,938 1,609,680
NiSource, Inc. 132,327 2,156,930
Sempra Energy 33,213 1,633,415
------------
5,524,350
------------
HEALTH CARE--PRODUCTS 0.6%
CareFusion Corp. (h) 14,098 388,823
Cooper Cos., Inc. (The) 5,343 207,789
Hill-Rom Holdings, Inc. 9,197 291,637
Hologic, Inc. (h) 61,831 1,104,920
Johnson & Johnson 35,536 2,284,965
------------
4,278,134
------------
HEALTH CARE--SERVICES 2.3%
CIGNA Corp. 148,169 4,750,298
Coventry Health Care, Inc.
(h) 26,842 637,229
Humana, Inc. (h) 78,488 3,588,471
LifePoint Hospitals, Inc.
(h) 22,071 842,671
Lincare Holdings, Inc. (h) 15,072 703,712
UnitedHealth Group, Inc. 146,032 4,426,230
WellPoint, Inc. (h) 10,098 543,272
------------
15,491,883
------------
INSURANCE 5.2%
Alleghany Corp. (h) 206 61,215
Allied World Assurance
Holdings, Ltd./Bermuda 51,335 2,236,666
American Financial Group,
Inc. 118,162 3,477,508
Arch Capital Group, Ltd. (h) 44,713 3,379,409
Aspen Insurance Holdings,
Ltd. 19,263 519,716
Assurant, Inc. 87,768 3,197,388
</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>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
INSURANCE (CONTINUED)
Axis Capital Holdings, Ltd. 114,284 $ 3,562,232
Chubb Corp. (The) 1,616 85,438
Cincinnati Financial Corp. 4,790 136,036
Endurance Specialty
Holdings, Ltd. 53,348 1,965,874
Everest Re Group, Ltd. 8,433 646,389
Genworth Financial, Inc.
Class A (h) 111,387 1,840,113
Mercury General Corp. 1,981 89,125
MetLife, Inc. 97,022 4,422,263
Old Republic International
Corp. 39,925 599,274
OneBeacon Insurance Group,
Ltd. Class A 16,588 269,057
PartnerRe, Ltd. 20,371 1,580,382
Principal Financial Group,
Inc. 591 17,269
Protective Life Corp. 36,410 876,389
Prudential Financial, Inc. 17,423 1,107,406
Transatlantic Holdings, Inc. 16,642 827,607
Unitrin, Inc. 24,925 729,056
Unum Group 150,998 3,694,921
White Mountains Insurance
Group, Ltd. 217 74,561
------------
35,395,294
------------
INTERNET 0.6%
AOL, Inc. (h) 37,151 867,847
eBay, Inc. (h) 113,073 2,692,268
IAC/InterActiveCorp (h) 24,320 545,255
------------
4,105,370
------------
IRON & STEEL 0.6%
Reliance Steel & Aluminum
Co. 76,321 3,725,228
------------
LODGING 0.9%
Boyd Gaming Corp. (h) 34,321 435,877
V Las Vegas Sands Corp. (h) 228,786 5,687,620
------------
6,123,497
------------
MACHINERY--DIVERSIFIED 0.6%
Cummins, Inc. 51,912 3,749,604
Manitowoc Co., Inc. (The) 31,668 443,668
------------
4,193,272
------------
MEDIA 3.8%
V Comcast Corp. Class A 364,092 7,187,176
Gannett Co., Inc. 179,991 3,063,447
Liberty Media-Starz, Series
A (h) 6,127 339,375
Meredith Corp. 16,553 594,749
Time Warner Cable, Inc. 89,005 5,006,531
Time Warner, Inc. 152,588 5,047,611
Walt Disney Co. (The) 126,185 4,648,655
------------
25,887,544
------------
METAL FABRICATE & HARDWARE 0.3%
Precision Castparts Corp. 11,208 1,438,435
Timken Co. (The) 8,530 300,085
------------
1,738,520
------------
MINING 0.8%
Freeport-McMoRan Copper &
Gold, Inc. 61,520 4,646,605
Titanium Metals Corp. (h) 61,216 943,951
------------
5,590,556
------------
MISCELLANEOUS--MANUFACTURING 2.8%
AptarGroup, Inc. 2,440 105,018
Carlisle Cos., Inc. 39,503 1,490,448
Dover Corp. 15,772 823,614
V General Electric Co. 291,712 5,501,688
ITT Corp. 75,710 4,207,205
Leggett & Platt, Inc. 27,173 666,554
Parker Hannifin Corp. 53,910 3,729,494
Trinity Industries, Inc. 104,024 2,589,157
------------
19,113,178
------------
OFFICE EQUIPMENT/SUPPLIES 0.2%
Pitney Bowes, Inc. 27,821 706,653
Xerox Corp. 88,760 967,484
------------
1,674,137
------------
OIL & GAS 6.2%
Chevron Corp. 61,411 5,001,312
Cimarex Energy Co. 34,986 2,381,847
V ConocoPhillips 94,750 5,608,252
Forest Oil Corp. (h) 110,358 3,233,489
Marathon Oil Corp. 72,948 2,345,278
Murphy Oil Corp. 61,258 3,684,669
Occidental Petroleum Corp. 56,212 4,983,756
Patterson-UTI Energy, Inc. 56,646 866,117
Plains Exploration &
Production Co. (h) 101,502 2,975,024
Rowan Cos., Inc. (h) 47,622 1,419,136
Tesoro Corp. 61,726 811,697
Unit Corp. (h) 75,024 3,583,896
Valero Energy Corp. 250,597 5,209,912
------------
42,104,385
------------
OIL & GAS SERVICES 0.3%
Helix Energy Solutions
Group, Inc. (h) 80,048 1,167,100
National-Oilwell Varco, Inc. 5,975 263,079
SEACOR Holdings, Inc. (h) 10,819 910,635
------------
2,340,814
------------
PACKAGING & CONTAINERS 0.4%
Crown Holdings, Inc. (h) 50,594 1,315,444
Sealed Air Corp. 16,614 357,201
Sonoco Products Co. 10,229 338,887
Temple-Inland, Inc. 24,968 582,254
------------
2,593,786
------------
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
19
PORTFOLIO OF INVESTMENTS APRIL 30, 2010 UNAUDITED (CONTINUED)
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS 1.9%
Abbott Laboratories 25,136 $ 1,285,958
AmerisourceBergen Corp. 104,938 3,237,337
Eli Lilly & Co. 49,500 1,731,015
Endo Pharmaceuticals
Holdings, Inc. (h) 75,081 1,644,274
Forest Laboratories, Inc.
(h) 87,035 2,372,574
Herbalife, Ltd. 560 27,020
King Pharmaceuticals, Inc.
(h) 123,397 1,209,291
Pfizer, Inc. 58,060 970,763
------------
12,478,232
------------
REAL ESTATE INVESTMENT TRUSTS 2.6%
V Annaly Capital
Management, Inc. 389,035 6,594,143
Brandywine Realty Trust 22,809 290,587
Chimera Investment Corp. 8,937 36,374
Duke Realty Corp. 135,482 1,833,071
Hospitality Properties Trust 21,557 571,045
HRPT Properties Trust 34,509 270,550
Macerich Co. (The) 59,742 2,671,065
ProLogis 213,840 2,816,273
Senior Housing Properties
Trust 33,286 748,269
SL Green Realty Corp. 22,987 1,429,102
------------
17,260,479
------------
RETAIL 3.4%
Big Lots, Inc. (h) 109,023 4,164,679
BJ's Wholesale Club, Inc.
(h) 35,902 1,374,329
Foot Locker, Inc. 126,152 1,936,433
GameStop Corp. Class A (h) 132,317 3,216,626
Gap, Inc. (The) 85,350 2,110,705
RadioShack Corp. 160,622 3,461,404
Ross Stores, Inc. 60,724 3,400,544
Signet Jewelers, Ltd. (h) 6,620 211,972
Wal-Mart Stores, Inc. 37,350 2,003,828
Williams-Sonoma, Inc. 28,790 829,152
------------
22,709,672
------------
SAVINGS & LOANS 0.2%
New York Community Bancorp,
Inc. 68,839 1,133,778
------------
SEMICONDUCTORS 1.4%
Fairchild Semiconductor
International, Inc. (h) 37,627 422,175
Integrated Device
Technology, Inc. (h) 9,616 63,562
Intel Corp. 213,909 4,883,542
Micron Technology, Inc. (h) 443,649 4,148,118
------------
9,517,397
------------
SOFTWARE 0.0%++
Compuware Corp. (h) 30,522 262,489
------------
TELECOMMUNICATIONS 1.3%
Amdocs, Ltd. (h) 57,565 1,838,626
AT&T, Inc. 173,708 4,526,831
CenturyTel, Inc. 52,869 1,803,362
EchoStar Corp. (h) 4,235 81,354
Tellabs, Inc. 88,274 801,528
------------
9,051,701
------------
TRANSPORTATION 1.0%
Frontline, Ltd. 28,059 1,024,153
Overseas Shipholding Group,
Inc. 23,787 1,190,777
Ryder System, Inc. 25,141 1,169,559
Teekay Corp. 7,650 191,633
Tidewater, Inc. 27,934 1,497,542
Union Pacific Corp. 24,546 1,857,150
------------
6,930,814
------------
Total Common Stocks
(Cost $341,064,491) 404,459,097
------------
EXCHANGE TRADED FUND 0.6% (I)
- -------------------------------------------------------
S&P 500 Index-SPDR Trust
Series 1 32,428 3,854,392
------------
Total Exchange Traded Fund
(Cost $3,575,847) 3,854,392
------------
<Caption>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENT 0.1%
- -------------------------------------------------------
REPURCHASE AGREEMENT 0.1%
State Street Bank and Trust
Co.
0.01%, dated 4/30/10
due 5/3/10
Proceeds at Maturity
$844,780
(Collateralized by a
United States Treasury
Bill with a rate of 0.107%
and with a maturity date
of 6/3/10,
with a Principal Amount of
$870,000
and a Market Value of
$869,913) $ 844,779 844,779
------------
Total Short-Term Investment
(Cost $844,779) 844,779
------------
Total Investments
(Cost $601,349,301) (j) 99.7% 673,304,393
Other Assets, Less
Liabilities 0.3 1,781,934
----------- ------------
Net Assets 100.0% $675,086,327
=========== ============
</Table>
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.
<Table>
++ Less than one-tenth of a percent.
(a) Issue in default.
(b) Restricted security.
(c) Illiquid security--The total market value
of this security at April 30, 2010 is
$18, which represents less than one-tenth
of a percent of the Fund's net assets.
(d) Fair valued security--The total market
value of this security at April 30, 2010
is $18, which represents less than one-
tenth of a percent of the Fund's net
assets.
(e) May be sold to institutional investors
only under Rule 144A or securities
offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
(f) The debt is guaranteed under the Federal
Deposit Insurance Corporation (FDIC)
Temporary Liquidity Guarantee Program and
is backed by the full faith and credit of
the United States. The expiration date of
the FDIC's guarantee is the earlier of
the maturity date of the debt or June 30,
2012.
(g) Yankee Bond--dollar-denominated bond
issued in the United States by a foreign
bank or corporation.
(h) Non-income producing security.
(i) Exchange Traded Fund--An investment
vehicle that represents a basket of
securities that is traded on an exchange.
(j) At April 30, 2010, cost is $601,741,347
for federal income tax purposes and net
unrealized appreciation is as follows:
</Table>
<Table>
Gross unrealized appreciation $ 83,712,740
Gross unrealized depreciation (12,149,694)
------------
Net unrealized appreciation $ 71,563,046
============
</Table>
The following is a summary of the fair valuations according to the inputs used
as of April 30, 2010, for valuing the Fund's assets.
ASSET VALUATION INPUTS
<Table>
<Caption>
QUOTED
PRICES IN
ACTIVE SIGNIFICANT
MARKETS FOR OTHER SIGNIFICANT
IDENTICAL OBSERVABLE UNOBSERVABLE
ASSETS INPUTS INPUTS
DESCRIPTION (LEVEL 1) (LEVEL 2) (LEVEL 3) TOTAL
Investments in Securities (a)
Long-Term Bonds
Asset-Backed Security $ -- $ 1,261,476 $ -- $ 1,261,476
Convertible Bond -- -- 18 18
Corporate Bonds -- 110,427,074 -- 110,427,074
Mortgage-Backed Securities -- 8,824,065 -- 8,824,065
U.S. Government & Federal Agencies -- 127,966,995 -- 127,966,995
Yankee Bonds -- 15,666,497 -- 15,666,497
------------ ------------ ------------- ------------
Total Long-Term Bonds -- 264,146,107 18 264,146,125
------------ ------------ ------------- ------------
Common Stocks 404,459,097 -- -- 404,459,097
Exchange Traded Funds 3,854,392 -- -- 3,854,392
Short-Term Investment
Repurchase Agreement -- 844,779 -- 844,779
------------ ------------ ------------- ------------
Total Investments in Securities $408,313,489 $264,990,886 $18 $673,304,393
============ ============ ============= ============
</Table>
(a) For detailed industry descriptions, see the Portfolio of Investments.
At April 30, 2010, the Fund did not have any transfers between Level 1 and Level
2.
The following is a reconciliation of investments in which significant
unobservable inputs (Level 3) were used in determining value:
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
21
PORTFOLIO OF INVESTMENTS APRIL 30, 2010 UNAUDITED (CONTINUED)
<Table>
<Caption>
BALANCE CHANGE IN NET NET
AS OF ACCRUED REALIZED UNREALIZED TRANSFERS TRANSFERS
INVESTMENTS IN OCTOBER 31, DISCOUNTS GAIN APPRECIATION NET NET IN TO OUT OF
SECURITIES 2009 (PREMIUMS) (LOSS) (DEPRECIATION) PURCHASES SALES LEVEL 3 LEVEL 3
Convertible Bond $18 $-- $-- $-- $-- $-- $-- $--
--- --- --- --- --- --- --- ---
Total $18 $-- $-- $-- $-- $-- $-- $--
=== === === === === === === ===
<Caption>
CHANGE IN
UNREALIZED
APPRECIATION
(DEPRECIATION)
FROM
INVESTMENTS
BALANCE STILL
AS OF HELD AT
INVESTMENTS IN APRIL 30, APRIL 30,
SECURITIES 2010 2010 (A)
Convertible Bond $18 $--
--- ---
Total $18 $--
=== ===
</Table>
(a) Included in "Net change in unrealized appreciation (depreciation) on
investments" in the Statement of Operations.
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.
STATEMENT OF ASSETS AND LIABILITIES AS OF APRIL 30, 2010 UNAUDITED
<Table>
ASSETS:
Investment in securities, at value
(identified cost $601,349,301) $ 673,304,393
Receivables:
Investment securities sold 9,420,692
Dividends and interest 2,557,400
Fund shares sold 618,918
Other assets 108,239
-------------
Total assets 686,009,642
-------------
LIABILITIES:
Payables:
Investment securities purchased 8,969,397
Fund shares redeemed 876,587
Manager (See Note 3) 397,356
Transfer agent (See Note 3) 324,502
NYLIFE Distributors (See Note 3) 178,307
Shareholder communication 113,920
Professional fees 43,926
Custodian 7,665
Trustees 2,903
Accrued expenses 8,752
-------------
Total liabilities 10,923,315
-------------
Net assets $ 675,086,327
=============
COMPOSITION OF NET ASSETS:
Share of beneficial interest
outstanding (par value of $.01
per share) unlimited number of
shares authorized $ 273,282
Additional paid-in capital 737,793,866
-------------
738,067,148
Accumulated undistributed net
investment income 431,188
Accumulated net realized loss on
investments and futures
transactions (135,367,101)
Net unrealized appreciation on
investments 71,955,092
-------------
Net assets $ 675,086,327
=============
INVESTOR CLASS
Net assets applicable to
outstanding shares $ 60,194,490
=============
Shares of beneficial interest
outstanding 2,435,840
=============
Net asset value per share
outstanding $ 24.71
Maximum sales charge (5.50% of
offering price) 1.44
-------------
Maximum offering price per share
outstanding $ 26.15
=============
CLASS A
Net assets applicable to
outstanding shares $ 161,613,600
=============
Shares of beneficial interest
outstanding 6,542,081
=============
Net asset value per share
outstanding $ 24.70
Maximum sales charge (5.50% of
offering price) 1.44
-------------
Maximum offering price per share
outstanding $ 26.14
=============
CLASS B
Net assets applicable to
outstanding shares $ 76,963,167
=============
Shares of beneficial interest
outstanding 3,124,465
=============
Net asset value and offering price
per share outstanding $ 24.63
=============
CLASS C
Net assets applicable to
outstanding shares $ 68,067,772
=============
Shares of beneficial interest
outstanding 2,764,361
=============
Net asset value and offering price
per share outstanding $ 24.62
=============
CLASS I
Net assets applicable to
outstanding shares $ 223,436,825
=============
Shares of beneficial interest
outstanding 9,028,527
=============
Net asset value and offering price
per share outstanding $ 24.75
=============
CLASS R1
Net assets applicable to
outstanding shares $ 23,373,352
=============
Shares of beneficial interest
outstanding 945,574
=============
Net asset value and offering price
per share outstanding $ 24.72
=============
CLASS R2
Net assets applicable to
outstanding shares $ 61,307,064
=============
Shares of beneficial interest
outstanding 2,482,105
=============
Net asset value and offering price
per share outstanding $ 24.70
=============
CLASS R3
Net assets applicable to
outstanding shares $ 130,057
=============
Shares of beneficial interest
outstanding 5,266
=============
Net asset value and offering price
per share outstanding $ 24.70
=============
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
23
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 2010 UNAUDITED
<Table>
INVESTMENT INCOME:
INCOME:
Dividends $ 4,645,384
Interest 4,337,712
-----------
Total income 8,983,096
-----------
EXPENSES:
Manager (See Note 3) 2,311,877
Distribution/Service--Investor
Class (See Note 3) 71,902
Distribution/Service--Class A (See
Note 3) 198,242
Distribution/Service--Class B (See
Note 3) 380,955
Distribution/Service--Class C (See
Note 3) 333,691
Distribution/Service--Class R2
(See Note 3) 76,570
Distribution/Service--Class R3
(See Note 3) 282
Transfer agent (See Note 3) 916,515
Shareholder communication 77,651
Professional fees 70,180
Registration 69,162
Shareholder service (See Note 3) 42,982
Custodian 19,374
Trustees 11,924
Miscellaneous 45,645
-----------
Total expenses 4,626,952
-----------
Net investment income 4,356,144
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on:
Security transactions 27,415,286
Futures transactions 147,209
-----------
Net realized gain on investments
and futures transactions 27,562,495
-----------
Net change in unrealized
appreciation on investments 46,604,697
-----------
Net realized and unrealized gain on
investments and futures
transactions 74,167,192
-----------
Net increase in net assets resulting
from operations $78,523,336
===========
</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.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 2010 UNAUDITED AND THE YEAR ENDED OCTOBER 31,
2009
<Table>
<Caption>
2010 2009
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 4,356,144 $ 7,391,572
Net realized gain (loss)
on investments and
futures transactions 27,562,495 (92,912,672)
Net change in unrealized
appreciation
(depreciation) on
investments and futures
contracts 46,604,697 169,984,928
---------------------------
Net increase in net assets
resulting from operations 78,523,336 84,463,828
---------------------------
Dividends to shareholders:
From net investment
income:
Investor Class (356,573) (650,339)
Class A (1,123,830) (2,199,504)
Class B (180,910) (386,496)
Class C (159,857) (353,938)
Class I (1,817,557) (3,424,277)
Class R1 (184,101) (444,011)
Class R2 (396,915) (791,195)
Class R3 (633) (709)
---------------------------
Total dividends to
shareholders (4,220,376) (8,250,469)
---------------------------
Capital share transactions:
Net proceeds from sale of
shares 41,253,712 85,747,780
Net asset value of shares
issued to shareholders in
reinvestment of dividends 4,025,326 7,853,390
Cost of shares redeemed (95,462,673) (182,278,015)
---------------------------
Decrease in net assets
derived from capital
share transactions (50,183,635) (88,676,845)
---------------------------
Net increase (decrease)
in net assets 24,119,325 (12,463,486)
NET ASSETS:
Beginning of period 650,967,002 663,430,488
---------------------------
End of period $675,086,327 $ 650,967,002
===========================
Accumulated undistributed
net investment income at
end of period $ 431,188 $ 295,420
===========================
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
25
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
INVESTOR CLASS
-------------------------------------------------
FEBRUARY 28,
SIX MONTHS 2008**
ENDED YEAR ENDED THROUGH
APRIL 30, OCTOBER 31, OCTOBER 31,
2010* 2009 2008
Net asset value at beginning of
period $ 22.09 $ 19.41 $ 25.29
------- ------- -------
Net investment income 0.15 (a) 0.22 (a) 0.29 (a)
Net realized and unrealized gain
(loss) on investments 2.62 2.71 (5.82)
------- ------- -------
Total from investment operations 2.77 2.93 (5.53)
------- ------- -------
Less dividends and distributions:
From net investment income (0.15) (0.25) (0.35)
From net realized gain on
investments -- -- --
------- ------- -------
Total dividends and distributions (0.15) (0.25) (0.35)
------- ------- -------
Net asset value at end of period $ 24.71 $ 22.09 $ 19.41
======= ======= =======
Total investment return (b) 12.54%(c) 15.30% (22.12%)(c)
Ratios (to average net
assets)/Supplemental Data:
Net investment income 1.27%++ 1.11% 1.81% ++
Net expenses 1.45%++ 1.48% 1.38% ++
Expenses (before waiver) 1.45%++ 1.53% 1.38% ++
Portfolio turnover rate 64% 162% 69%
Net assets at end of period (in
000's) $60,194 $54,956 $49,971
</Table>
<Table>
<Caption>
CLASS B
----------------------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2010* 2009 2008 2007 2006 2005
Net asset value at beginning of
period $ 22.02 $ 19.35 $ 28.34 $ 27.84 $ 26.84 $ 25.37
------- ------- ------- -------- -------- --------
Net investment income 0.06 (a) 0.08 (a) 0.26 (a) 0.28 (a) 0.23 0.18
Net realized and unrealized gain
(loss) on investments 2.61 2.69 (7.25) 1.24 2.22 1.89
------- ------- ------- -------- -------- --------
Total from investment operations 2.67 2.77 (6.99) 1.52 2.45 2.07
------- ------- ------- -------- -------- --------
Less dividends and distributions:
From net investment income (0.06) (0.10) (0.25) (0.29) (0.20) (0.14)
From net realized gain on
investments -- -- (1.75) (0.73) (1.25) (0.46)
------- ------- ------- -------- -------- --------
Total dividends and distributions (0.06) (0.10) (2.00) (1.02) (1.45) (0.60)
------- ------- ------- -------- -------- --------
Net asset value at end of period $ 24.63 $ 22.02 $ 19.35 $ 28.34 $ 27.84 $ 26.84
======= ======= ======= ======== ======== ========
Total investment return (b) 12.12%(c) 14.42% (26.47%) 5.56% 9.49% 8.19%
Ratios (to average net
assets)/Supplemental Data:
Net investment income 0.53%++ 0.39% 1.06% 0.99% 0.94% 0.57%
Net expenses 2.21%++ 2.23% 2.10% 2.03% 2.07% 2.07%
Expenses (before waiver) 2.21%++ 2.28% 2.10% 2.03% 2.07% 2.07%
Portfolio turnover rate 64% 162% 69% 68% 55% 93%
Net assets at end of period (in
000's) $76,963 $74,932 $81,144 $145,919 $156,284 $206,074
</Table>
<Table>
* Unaudited.
** Commencement of operations.
++ Annualized.
(a) Per share data based on average shares outstanding during the period.
(b) Total return is calculated exclusive of sales charges and assumes the
reinvestment of dividends and distributions. Class I, Class R1, Class R2 and
Class R3 shares are not subject to sales charges.
(c) Total return is not annualized.
</Table>
26 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 A
----------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2010* 2009 2008 2007 2006 2005
$ 22.09 $ 19.41 $ 28.42 $ 27.92 $ 26.90 $ 25.41
-------- -------- -------- -------- -------- --------
0.17 (a) 0.27 (a) 0.46 (a) 0.49 (a) 0.44 0.35
2.61 2.70 (7.26) 1.25 2.23 1.91
-------- -------- -------- -------- -------- --------
2.78 2.97 (6.80) 1.74 2.67 2.26
-------- -------- -------- -------- -------- --------
(0.17) (0.29) (0.46) (0.51) (0.40) (0.31)
-- -- (1.75) (0.73) (1.25) (0.46)
-------- -------- -------- -------- -------- --------
(0.17) (0.29) (2.21) (1.24) (1.65) (0.77)
-------- -------- -------- -------- -------- --------
$ 24.70 $ 22.09 $ 19.41 $ 28.42 $ 27.92 $ 26.90
======== ======== ======== ======== ======== ========
12.61%(c) 15.52% (25.84%) 6.34% 10.35% 8.96%
1.46%++ 1.36% 1.87% 1.74% 1.63% 1.32%
1.27%++ 1.27% 1.29% 1.28% 1.32% 1.32%
1.27%++ 1.31% 1.29% 1.28% 1.32% 1.32%
64% 162% 69% 68% 55% 93%
$161,614 $154,728 $173,834 $405,912 $420,694 $307,538
</Table>
<Table>
<Caption>
CLASS C
--------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2010* 2009 2008 2007 2006 2005
$ 22.01 $ 19.34 $ 28.33 $ 27.83 $ 26.83 $ 25.37
------- ------- ------- -------- -------- --------
0.06 (a) 0.08 (a) 0.26 (a) 0.28 (a) 0.24 0.17
2.61 2.69 (7.25) 1.24 2.21 1.89
------- ------- ------- -------- -------- --------
2.67 2.77 (6.99) 1.52 2.45 2.06
------- ------- ------- -------- -------- --------
(0.06) (0.10) (0.25) (0.29) (0.20) (0.14)
-- -- (1.75) (0.73) (1.25) (0.46)
------- ------- ------- -------- -------- --------
(0.06) (0.10) (2.00) (1.02) (1.45) (0.60)
------- ------- ------- -------- -------- --------
$ 24.62 $ 22.01 $ 19.34 $ 28.33 $ 27.83 $ 26.83
======= ======= ======= ======== ======== ========
12.12%(c) 14.43% (26.48%) 5.56% 9.49% 8.15%
0.53%++ 0.40% 1.06% 0.99% 0.89% 0.57%
2.21%++ 2.23% 2.10% 2.03% 2.07% 2.07%
2.21%++ 2.28% 2.10% 2.03% 2.07% 2.07%
64% 162% 69% 68% 55% 93%
$68,068 $66,407 $79,423 $161,163 $169,609 $141,279
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
27
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<Table>
<Caption>
CLASS I
------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2010* 2009 2008 2007 2006 2005
Net asset value at beginning of
period $ 22.12 $ 19.44 $ 28.47 $ 27.96 $ 26.94 $ 25.43
-------- -------- -------- -------- -------- --------
Net investment income 0.20 (a) 0.33 (a) 0.55 (a) 0.60 (a) 0.53 0.45
Net realized and unrealized gain
(loss) on investments 2.63 2.71 (7.28) 1.25 2.27 1.94
-------- -------- -------- -------- -------- --------
Total from investment operations 2.83 3.04 (6.73) 1.85 2.80 2.39
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income (0.20) (0.36) (0.55) (0.61) (0.53) (0.42)
From net realized gain on
investments -- -- (1.75) (0.73) (1.25) (0.46)
-------- -------- -------- -------- -------- --------
Total dividends and distributions (0.20) (0.36) (2.30) (1.34) (1.78) (0.88)
-------- -------- -------- -------- -------- --------
Net asset value at end of period $ 24.75 $ 22.12 $ 19.44 $ 28.47 $ 27.96 $ 26.94
======== ======== ======== ======== ======== ========
Total investment return (b) 12.82%(c) 15.89% (25.62%) 6.77% 10.84% 9.46%
Ratios (to average net
assets)/Supplemental Data:
Net investment income 1.72%++ 1.65% 2.22% 2.10% 2.11% 1.77%
Net expenses 1.01%++ 0.96% 0.94% 0.91% 0.85% 0.86%
Expenses (before waiver) 1.01%++ 1.06% 1.01% 0.95% 0.85% 0.86%
Portfolio turnover rate 64% 162% 69% 68% 55% 93%
Net assets at end of period (in
000's) $223,437 $208,393 $199,126 $410,355 $376,763 $269,652
</Table>
<Table>
<Caption>
CLASS R2
---------------------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2010* 2009 2008 2007 2006 2005
Net asset value at beginning of
period $ 22.08 $ 19.41 $ 28.42 $ 27.91 $ 26.90 $ 25.41
------- ------- ------- -------- -------- -------
Net investment income 0.16 (a) 0.26 (a) 0.46 (a) 0.50 (a) 0.46 0.39
Net realized and unrealized gain
(loss) on investments 2.62 2.70 (7.26) 1.25 2.23 1.90
------- ------- ------- -------- -------- -------
Total from investment operations 2.78 2.96 (6.80) 1.75 2.69 2.29
------- ------- ------- -------- -------- -------
Less dividends and distributions:
From net investment income (0.16) (0.29) (0.46) (0.51) (0.43) (0.34)
From net realized gain on
investments -- -- (1.75) (0.73) (1.25) (0.46)
------- ------- ------- -------- -------- -------
Total dividends and distributions (0.16) (0.29) (2.21) (1.24) (1.68) (0.80)
------- ------- ------- -------- -------- -------
Net asset value at end of period $ 24.70 $ 22.08 $ 19.41 $ 28.42 $ 27.91 $ 26.90
======= ======= ======= ======== ======== =======
Total investment return (b) 12.60%(c) 15.45% (25.86%) 6.40% 10.44% 9.05%
Ratios (to average net
assets)/Supplemental Data:
Net investment income 1.37%++ 1.30% 1.87% 1.76% 1.75% 1.43%
Net expenses 1.37%++ 1.31% 1.29% 1.26% 1.20% 1.21%
Expenses (before waiver) 1.37%++ 1.41% 1.36% 1.30% 1.20% 1.21%
Portfolio turnover rate 64% 162% 69% 68% 55% 93%
Net assets at end of period (in
000's) $61,307 $60,425 $54,849 $105,100 $109,637 $70,872
</Table>
<Table>
* Unaudited.
** Commencement of operations.
++ Annualized.
(a) Per share data based on average shares outstanding during the period.
(b) Total return is calculated exclusive of sales charges and assumes the
reinvestment of dividends and distributions. Class I, Class R1, Class R2 and
Class R3 shares are not subject to sales charges.
(c) Total return is not annualized.
</Table>
28 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 R1
------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2010* 2009 2008 2007 2006 2005
$ 22.10 $ 19.42 $ 28.44 $ 27.94 $ 26.93 $ 25.43
------- ------- ------- ------- -------- -------
0.19 (a) 0.30 (a) 0.53 (a) 0.57 (a) 0.53 0.43
2.62 2.72 (7.28) 1.25 2.23 1.93
------- ------- ------- ------- -------- -------
2.81 3.02 (6.75) 1.82 2.76 2.36
------- ------- ------- ------- -------- -------
(0.19) (0.34) (0.52) (0.59) (0.50) (0.40)
-- -- (1.75) (0.73) (1.25) (0.46)
------- ------- ------- ------- -------- -------
(0.19) (0.34) (2.27) (1.32) (1.75) (0.86)
------- ------- ------- ------- -------- -------
$ 24.72 $ 22.10 $ 19.42 $ 28.44 $ 27.94 $ 26.93
======= ======= ======= ======= ======== =======
12.73%(c) 15.80% (25.69%) 6.64% 10.70% 9.33%
1.64%++ 1.53% 2.13% 2.02% 1.99% 1.68%
1.11%++ 1.06% 1.04% 1.01% 0.95% 0.96%
1.11%++ 1.16% 1.11% 1.05% 0.95% 0.96%
64% 162% 69% 68% 55% 93%
$23,373 $31,039 $25,038 $69,474 $108,739 $77,397
</Table>
<Table>
<Caption>
CLASS R3
-------------------------------------------------------------------------------------
SIX MONTHS APRIL 28, 2006**
ENDED THROUGH
APRIL 30, YEAR ENDED OCTOBER 31, OCTOBER 31,
2010* 2009 2008 2007 2006
$22.08 $19.41 $ 28.41 $27.91 $27.25
------ ------ ------- ------ ------
0.13 (a) 0.20 (a) 0.40 (a) 0.41 (a) 0.20
2.62 2.71 (7.26) 1.26 0.66
------ ------ ------- ------ ------
2.75 2.91 (6.86) 1.67 0.86
------ ------ ------- ------ ------
(0.13) (0.24) (0.39) (0.44) (0.20)
-- -- (1.75) (0.73) --
------ ------ ------- ------ ------
(0.13) (0.24) (2.14) (1.17) (0.20)
------ ------ ------- ------ ------
$24.70 $22.08 $ 19.41 $28.41 $27.91
====== ====== ======= ====== ======
12.47%(c) 15.17% (26.02%) 6.10% 3.18%(c)
1.08%++ 0.98% 1.62% 1.46% 1.36%++
1.62%++ 1.56% 1.54% 1.52% 1.48%++
1.62%++ 1.65% 1.61% 1.56% 1.48%++
64% 162% 69% 68% 55%
$ 130 $ 88 $ 45 $ 37 $ 10
</Table>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements. mainstayinvestments.com
29
NOTES TO FINANCIAL STATEMENTS UNAUDITED
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 two 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 eight classes of shares. Class I shares commenced
operations on May 1, 1989. Class C shares commenced operations on December 30,
2002. Class A shares, Class B shares, Class R1 shares and Class R2 shares
commenced operations on January 2, 2004. Class R3 shares commenced operations on
April 28, 2006. Investor Class shares commenced operations on February 28, 2008.
Investor Class and Class A shares are offered at net asset value ("NAV") per
share plus an initial sales charge. No sales charge applies on investments of $1
million or more (and certain other qualified purchases) in Investor Class and
Class A shares, but a contingent deferred sales charge 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 at NAV without an initial sales charge,
although a declining contingent deferred sales charge may be imposed on
redemptions made within six years of purchase of Class B shares and a 1.00%
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 offered at NAV and are not subject to a sales charge. Depending upon
eligibility, Class B shares convert to either Investor Class or Class A shares
eight years after the date they were purchased. Additionally, depending upon
eligibility, Investor Class shares may convert to Class A shares and Class A
shares may convert to Investor Class shares. The eight classes of shares have
the same voting (except for issues that relate solely to one class), dividend,
liquidation and other rights, and the same terms and conditions, except that
Class B and Class C shares are subject to higher distribution and/or service fee
rates than Investor Class, Class A, Class R2 and Class R3 shares under a
distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I and Class
R1 shares are not subject to a distribution and/or service fee. Class R1, Class
R2 and Class R3 shares are authorized to pay a shareholder service fee to the
Manager, as defined in Note 3(A), its affiliates, or third-party service
providers, as compensation for services rendered to shareholders of Class R1,
Class R2 or Class R3 shares.
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 ("GAAP") and
follows the significant accounting policies described below.
(A) SECURITIES VALUATION. Debt securities are valued at prices supplied by a
pricing agent or broker selected by the Fund's Manager (as defined in Note 3(A))
in consultation with the Fund's Subadvisor, if any (as defined in Note 3(A)),
whose prices reflect broker/dealer supplied valuations and electronic data
processing techniques, if such prices are deemed by the Fund's Manager, in
consultation with the Fund's Subadvisor, if any, to be representative of market
values, at the regular close of trading of the New York Stock Exchange
("Exchange") (generally 4:00 p.m. Eastern time) on each day the Fund is open for
business ("valuation date").
Equity securities are valued at the latest quoted sales prices as of the close
of regular trading on the Exchange on each valuation date. Securities that are
not traded on the valuation date are valued at the mean of the latest quoted bid
and asked prices. Prices normally are taken from the principal market in which
each security trades. Futures contracts are valued at the last posted settlement
price on the market where such futures are primarily traded. Investments in
other mutual funds are valued at their NAVs as of the close of the Exchange on
the valuation date.
Temporary cash investments acquired over 60 days prior to maturity are valued
using the latest bid prices or using valuations based on a matrix system (which
considers such factors as security prices, yields, maturities, and ratings),
both as furnished by independent pricing services. Other temporary cash
investments which mature in 60 days or less ("short-term investments") are
valued at amortized cost. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between 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 to represent fair value. Equity
and non-equity securities which may be valued in this manner include, but are
not limited to: (i) a security the trading for which has been halted or
suspended; (ii) a debt security that has recently gone into default and for
which there is not a current market quotation; (iii) a security of an issuer
that has entered into a restructuring; (iv) a security that has been de-listed
from a national exchange; (v) a security the market price of which is not
available from an independent pricing source or, if so provided, does not, in
the opinion of the Fund's Manager or Subadvisor, as defined in Note 3(A),
reflect the security's market value; and (vi) a security where the trading on
that security's principal market is temporarily closed at a time when, under
normal conditions, it would be open. At April 30, 2010, the Fund held securities
with a value of $18 that were valued in such a manner.
30 MainStay Balanced Fund
"Fair value" is defined as the price that the Fund would receive upon selling an
investment in an orderly transaction to an independent buyer in the principal or
most advantageous market of the investment. Fair value measurements are
determined within a framework that has established a three-tier hierarchy which
maximizes the use of observable market data and minimizes the use of
unobservable inputs to establish classification of fair value measurements for
disclosure purposes. "Inputs" refer broadly to the assumptions that market
participants would use in pricing the asset or liability, including assumptions
about risk, such as the risk inherent in a particular valuation technique used
to measure fair value using a pricing model and/or the risk inherent in the
inputs for the valuation technique. Inputs may be observable or unobservable.
Observable inputs are inputs that reflect the assumptions market participants
would use in pricing the asset or liability based on market data obtained from
sources independent of the reporting entity. Unobservable inputs are inputs that
reflect the reporting entity's own assumptions about the assumptions market
participants would use in pricing the asset or liability developed based on the
information available in the circumstances. The inputs or methodology used for
valuing securities may not be an indication of the risks associated with
investing in those securities. The three-tier hierarchy of inputs is summarized
in the three broad Levels listed below.
- - Level 1--quoted prices in active markets for identical investments
- - Level 2--other significant observable inputs (including quoted prices for
similar investments in active markets, interest rates and yield curves,
prepayment speeds, credit risks, etc.)
- - Level 3--significant unobservable inputs (including the Fund's own assumptions
about the assumptions that market participants would use in determining the
fair value of investments)
The aggregate value by input level, as of April 30, 2010, for the Fund's
investments is included at the end of the Fund's Portfolio of Investments.
The valuation techniques used by the Fund to measure fair value during the six-
month period ended April 30, 2010 maximized the use of observable inputs and
minimized the use of unobservable inputs. The Fund may have utilized some of the
following fair value techniques: multi-dimensional relational pricing models,
option adjusted spread pricing and estimating the price that would have
prevailed in a liquid market for an international equity security given
information available at the time of evaluation, when there are significant
events after the close of local foreign markets. For the six-month period ended
April 30, 2010, there have been no changes to the fair value methodologies.
Generally, a security is considered illiquid if it cannot be sold or disposed of
in the ordinary course of business at approximately the price at which it is
valued. Its illiquidity might prevent the sale of such security at a time when
the Manager or Subadvisor, if any, as defined in Note 3(A) might wish to sell,
and these securities could have the effect of decreasing the overall level of a
Fund's liquidity. Further, the lack of an established secondary market may make
it more difficult to value illiquid securities, requiring the Fund to rely on
judgments that may be somewhat subjective in determining value, which could vary
from the amount that the Fund could realize upon disposition. Difficulty in
selling illiquid securities may result in a loss or may be costly to the Fund.
Under the supervision of the Board, the Manager or Subadvisor, if any,
determines the liquidity of a Fund's investments; in doing so, the Manager or
Subadvisor, if any, may consider various factors, including (1) the frequency of
trades and quotations, (2) the number of dealers and prospective purchasers, (3)
the dealer undertakings to make a market, and (4) the nature of the security and
the market in which it trades (e.g., the time needed to dispose of the security,
the method of soliciting offers and the mechanics of transfer). Illiquid
securities generally will be valued in such manner, as the Board in good faith
deems appropriate to reflect their fair market value.
(B) FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements
of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code")
applicable to regulated investment companies and to distribute all of the
taxable income to the shareholders of the Fund within the allowable time limits.
Therefore, no federal income tax provision is required.
Management evaluates its tax positions to determine if the tax positions taken
meet the minimum recognition threshold in connection with accounting for
uncertainties in income tax positions taken or expected to be taken for the
purposes of measuring and recognizing tax liabilities in the financial
statements. Recognition of tax benefits of an uncertain tax position is required
only when the position is "more likely than not" to be sustained assuming
examination by taxing authorities. Management has analyzed the Fund's tax
positions taken on federal income tax returns for all open tax years (current
and prior three tax years), and has concluded that no provision for federal
income tax is required in the Fund's financial statements. The Fund's federal
and state income and federal excise tax returns for tax years for which the
applicable statutes of limitations have not expired are subject to examination
by the Internal Revenue Service and state departments of revenue.
(C) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions
are recorded on the ex-dividend date. The Fund intends to declare and pay
dividends of net investment income, if any, quarterly and distributions of net
realized capital and currency gains, if any, annually. Unless the shareholder
elects otherwise, all dividends and distributions are reinvested in the same
class of shares of
mainstayinvestments.com 31
NOTES TO FINANCIAL STATEMENTS UNAUDITED (CONTINUED)
the Fund, at NAV. Dividends and distributions to shareholders are determined in
accordance with federal income tax regulations and may differ from GAAP.
(D) SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method and include gains
and losses from repayments of principal on mortgage-backed securities. Dividend
income is recognized on the ex-dividend date and interest income is accrued as
earned using the effective interest rate method. Discounts and premiums on
securities purchased, other than short-term investments, for the Fund are
accreted and amortized, respectively, on the effective interest rate method over
the life of the respective securities or, in the case of a callable security,
over the period to the first date of call. Discounts and premiums on short-term
investments are accreted and amortized, respectively, on the straight-line
method.
Investment income and realized and unrealized gains and losses on investments of
the Fund are allocated to separate classes of shares pro rata based upon their
relative net assets on the date the income is earned or realized and unrealized
gains and losses are incurred.
(E) EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred, except where direct allocations of expenses can be made. Expenses
(other than transfer agent expenses and fees incurred under the shareholder
services plans and the distribution plans further discussed in Note 3(B)) are
allocated to separate classes of shares pro rata based upon their relative NAV
on the date the expenses are incurred. The expenses borne by the Fund, including
those of related parties to the Fund, are shown in the Statement of Operations.
(F) USE OF ESTIMATES. In preparing financial statements in conformity with
GAAP, management makes estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
(G) REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements to
earn income. The Fund may enter into repurchase agreements only with financial
institutions that are deemed by the Manager or Subadvisor to be creditworthy,
pursuant to guidelines established by the Fund's Board. Repurchase agreements
are considered under the 1940 Act to be collateralized loans by a Fund to the
seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund's custodian takes
possession of the collateral pledged for investments in such repurchase
agreements. The underlying collateral is valued daily on a mark-to-market basis
to determine that the value, including accrued interest, exceeds the repurchase
price. In the event of the seller's default of the obligation to repurchase, the
Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings and possible
realized loss to the Fund.
(H) FUTURES CONTRACTS. A futures contract is an agreement to purchase or sell a
specified quantity of an underlying instrument at a specified future date and
price, or to make or receive a cash payment based on the value of a financial
instrument (e.g., foreign currency, interest rate, security, or securities
index.) The Fund is subject to equity price risk and interest rate risk in the
normal course of investing in these transactions. During the period the futures
contract is open, changes in the value of the contract are recognized as
unrealized gains or losses by "marking to market" such contract on a daily basis
to reflect the market value of the contract at the end of each day's trading.
The Fund agrees to receive from or pay to the broker an amount of cash equal to
the daily fluctuation in the value of the contract. Such receipts or payments
are known as "variation margin". When the futures contract is closed, the Fund
records a realized gain or loss equal to the difference between the proceeds
from (or cost of) the closing transaction and the Fund's basis in the contract.
The use of futures contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the Statement of Assets and
Liabilities. The contract or notional amounts and variation margin reflect the
extent of the Fund's involvement in open futures positions. Risks arise from the
possible imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets, and the possible inability of
counterparties to meet the terms of their contracts. However, the Fund's
activities in futures contracts have minimal counterparty risk as they are
conducted through regulated exchanges that guarantee the futures against default
by the counterparty. The Fund invests in futures contracts to help manage the
duration and yield curve of the portfolio while minimizing the exposure to wider
bid/ask spreads in traditional bonds. The Fund's investment in futures contracts
and other derivatives may increase the volatility of the Fund's NAV and may
result in a loss to the Fund.
(I) SECURITIES LENDING. In order to realize additional income, the Fund may
engage in securities lending, subject to the limitations set forth in the 1940
Act, and relevant guidance by the staff of the Securities and Exchange
Commission. In the event the Fund does engage in securities lending, the Fund
will lend through its custodian, State Street Bank and Trust Company ("State
Street"). State Street will manage the Fund's cash collateral in accordance with
the Lending Agreement between the Fund and State Street, and indemnify the
Fund's portfolio against counterparty risk. The loans will be collateralized by
cash or securities at
32 MainStay Balanced Fund
least equal at all times to the market value of the securities loaned.
Collateral will consist of U.S. Government securities, cash equivalents or
irrevocable letters of credit. The Fund may bear the risk of delay in recovery
of, or loss of rights in, the securities loaned should the borrower of the
securities experience financial difficulty. The Fund may also record realized
gain or loss on securities deemed sold due to a borrower's inability to return
securities on loan. The Fund will receive compensation for lending its
securities in the form of fees or retain a portion of interest on the investment
of any cash received as collateral. The Fund also will continue to receive
interest and dividends on the securities loaned and any gain or loss in the
market price of the securities loaned that may occur during the term of the loan
will be for the account of the Fund.
Although the Fund and New York Life Investments (as defined in Note 3(A)) have
temporarily suspended securities lending, the Fund and New York Life Investments
reserve the right to reinstitute lending when deemed appropriate. The Fund had
no portfolio securities on loan as of April 30, 2010.
(J) RESTRICTED SECURITIES. A restricted security is a security which has been
purchased through a private offering and cannot be resold to the general public
without prior registration under the Securities Act of 1933. The Fund may not
have the right to demand that such securities be registered. Disposal of these
securities may involve time-consuming negotiations and expenses and it may be
difficult to obtain a prompt sale at an acceptable price. (See Note 5.)
(K) CONCENTRATION OF RISK. The ability of issuers of debt securities held by
the Fund to meet their obligations may be affected by economic or political
developments in a specific country, industry or region.
(L) INDEMNIFICATIONS. Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities that may arise out of
performance of their duties to the Trust. Additionally, in the normal course of
business, the Fund enters into contracts with third-party service providers that
contain a variety of representations and warranties and which provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the Fund
that have not yet occurred. Based on experience, management is of the view that
the risk of loss in connection with these potential indemnification obligations
is remote. However, there can be no assurance that material liabilities related
to such obligations will not arise in the future, which could adversely impact
the Fund.
(M) QUANTITATIVE DISCLOSURE OF DERIVATIVE HOLDINGS. The following tables show
additional disclosures about the Fund's derivative and hedging activities,
including how such activities are accounted for and their effect on the Fund's
financial positions, performance and cash flows. These derivatives are not
accounted for as hedging instruments.
The effect of derivative instruments on the Statement of Operations for the six-
month period ended April 30, 2010.
REALIZED GAIN (LOSS)
<Table>
<Caption>
STATEMENT OF EQUITY
OPERATIONS CONTRACTS
LOCATION RISK TOTAL
Net realized gain
on futures
Futures Contracts transactions $147,209 $147,209
-------------------
Total Realized Gain $149,209 $149,209
===================
</Table>
NUMBER OF CONTRACTS, NOTIONAL AMOUNTS OR SHARES/UNITS (1)
<Table>
<Caption>
EQUITY
CONTRACTS
RISK TOTAL
Futures Contracts (2) 33-198 33-198
=================
</Table>
(1) Amounts disclosed represent the minimum and maximum held during the six-
month period.
(2) Amount(s) represent(s) number of contracts.
NOTE 3--FEES AND RELATED PARTY TRANSACTIONS:
(A) MANAGER AND SUBADVISOR. New York Life Investment Management LLC ("New York
Life Investments" or "Manager"), a registered investment adviser and an
indirect, wholly-owned subsidiary of New York Life Insurance Company ("New York
Life"), serves as the Fund's Manager, pursuant to an Amended and Restated
Management Agreement ("Management Agreement"). The Manager provides offices,
conducts clerical, recordkeeping and bookkeeping services, and keeps most of the
financial and accounting records required to be maintained by the Fund. Except
for the portion of salaries and expenses that are the responsibility of the
Fund, the Manager also pays the salaries and expenses of all personnel
affiliated with the Fund and the operational expenses of the Fund. The fixed-
income portion of the Fund is advised by New York Life Investments directly,
without a subadvisor. Madison Square Investors LLC ("Madison Square Investors"
or "Subadvisor"), a registered investment adviser and an indirect, wholly-owned
subsidiary of New York Life, serves as Subadvisor to the equity portion of the
Fund and is responsible for the day-to-day portfolio management of the equity
portion of the Fund. Pursuant to the terms of an Amended and Restated
Subadvisory Agreement between New York Life Investments and the Subadvisor, New
York Life Investments pays for the services of the Subadvisor.
The Fund pays the Manager a monthly fee for services performed and facilities
furnished at an annual rate of the Fund's average daily net assets as follows:
0.70% on assets up to $1 billion, 0.65% on assets from $1 billion to $2 billion
and 0.60% on assets in excess of $2 billion. The effective management fee rate
(exclusive of any applicable waivers/
mainstayinvestments.com 33
NOTES TO FINANCIAL STATEMENTS UNAUDITED (CONTINUED)
reimbursements) was 0.70% for the six-month period ended April 30, 2010.
Effective August 1, 2009, New York Life Investments entered into a written
expense limitation agreement under which it has agreed to waive a portion of the
management fee or reimburse expenses to the extent necessary to ensure that the
total ordinary operating expenses (total ordinary operating expenses excludes
taxes, interest, litigation, extraordinary expenses, brokerage, other
transaction expenses relating to the purchase or sale of portfolio investments,
and the fees and expenses of any other funds in which the Fund invests) for the
Fund's Class A shares do not exceed 1.28% of its average net assets. New York
Life Investments will apply an equivalent waiver or reimbursement, in an equal
number of basis points, to the other share classes of the Fund. This agreement
expires on July 31, 2010 and is reviewed annually by the Board in connection
with its review of the Fund's investment advisory agreements. Based on its
review, the Board may agree to maintain, modify or terminate the agreement.
For the six-month period ended April 30, 2010, New York Life Investments earned
fees from the Fund in the amount of $2,311,877.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-
administration and sub-accounting services to the Fund pursuant to an agreement
with New York Life Investments. These services include calculating the daily
NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the
calculation of the Fund's respective NAVs, and assisting New York Life
Investments in conducting various aspects of the Fund's administrative
operations. For providing these services to the Fund, State Street is
compensated by New York Life Investments.
(B) DISTRIBUTION, SERVICE AND SHAREHOLDER SERVICE FEES. The Trust, on behalf of
the Fund, has entered into a Distribution Agreement with NYLIFE Distributors LLC
(the "Distributor"), an indirect, wholly-owned subsidiary of New York Life. The
Fund has adopted distribution plans, (the "Plans") in accordance with the
provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class, Class A and Class R2 Plans, the Distributor
receives a monthly distribution fee from the Investor Class, Class A and Class
R2 shares, at an annual rate of 0.25% of the average daily net assets of the
Investor Class, Class A and Class R2 shares for distribution or service
activities as designated by the Distributor. Pursuant to the Class B and Class C
Plans, Class B and Class C shares of the Fund pay the Distributor a monthly
distribution fee at an annual rate of 0.75% of the average daily net assets of
the Fund's Class B and Class C shares, along with a service fee at an annual
rate of 0.25% of the average daily net assets of the Class B and Class C shares
of the Fund for a total 12b-1 fee of 1.00%. Pursuant to the Class R3 Plan, the
Distributor receives a monthly distribution and shareholder service fee from the
Class R3 shares at an annual rate of 0.50% of the average daily net assets of
the Class R3 shares, which is an expense of the Class R3 shares for distribution
and 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.
Shareholder Service Fees incurred by the Fund for the six-month period ended
April 30, 2010, were as follows:
<Table>
Class R1 $12,347
- ----------------------------------------------
Class R2 30,579
- ----------------------------------------------
Class R3 56
- ----------------------------------------------
</Table>
(C) SALES CHARGES. The Fund was advised by the Distributor that the amount of
sales charges retained on sales of Investor Class and Class A shares were
$13,901 and $7,020, respectively, for the six-month period ended April 30, 2010.
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 $247,
$65,833 and $2,439, respectively, for the six-month period ended April 30, 2010.
(D) TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. NYLIM
Service Company LLC, an affiliate of New York Life Investments, is the Fund's
transfer, dividend disbursing and shareholder servicing agent pursuant to an
agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company
LLC has entered into an agreement with Boston Financial Data Services, Inc.
("BFDS") pursuant to which BFDS performs certain transfer agent services on
behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the
Fund for the six-month period ended April 30, 2010, were as follows:
<Table>
Investor Class $116,833
- -----------------------------------------------
Class A 174,559
- -----------------------------------------------
Class B 155,202
- -----------------------------------------------
Class C 135,839
- -----------------------------------------------
Class I 238,941
- -----------------------------------------------
Class R1 27,313
- -----------------------------------------------
Class R2 67,705
- -----------------------------------------------
Class R3 123
- -----------------------------------------------
</Table>
34 MainStay Balanced Fund
(E) SMALL ACCOUNT FEE. Shareholders with small accounts adversely impact the
cost of providing transfer agency services. In an effort to reduce total
transfer agency expenses, the Fund has implemented a small account fee on
certain types of accounts. Certain shareholders with an account balance of less
than $1,000 are charged an annual per account fee of $20 (assessed semi-
annually). These fees are included in transfer agent fees shown on the Statement
of Operations.
(F) CAPITAL. At April 30, 2010, New York Life and its affiliates beneficially
held shares of the Fund with the following values and percentages of net assets
as follows:
<Table>
Class A $ 1,548 0.0%++
- ------------------------------------------------
Class B 1225 0.0++
- ------------------------------------------------
Class C 1648 0.0++
- ------------------------------------------------
Class R1 1306 0.0++
- ------------------------------------------------
Class R2 1287 0.0++
- ------------------------------------------------
Class R3 10,490 8.1
- ------------------------------------------------
</Table>
++ Less than one-tenth of a percent.
(G) OTHER. Pursuant to the Management Agreement, a portion of the cost of legal
services provided to the Fund by the Office of the General Counsel of New York
Life Investments is payable directly by the Fund. For the six-month period ended
April 30, 2010, these fees, which are included in professional fees shown on the
Statement of Operations, were $16,636.
NOTE 4--FEDERAL INCOME TAX:
At October 31, 2009, for federal income tax purposes, capital loss carryforwards
of $162,537,550 were available as shown in the table below, to the extent
provided by the regulations to offset future realized gains of the fund through
the years indicated. To the extent that these loss carryforwards are used to
offset future capital gains, it is probable that the capital gains so offset
will not be distributed to shareholders. No capital gain distributions shall be
made until any capital loss carryforwards have been fully utilized or expired.
<Table>
<Caption>
CAPITAL LOSS CAPITAL LOSS
AVAILABLE THROUGH AMOUNTS (000'S)
2016 $ 67,354
2017 95,184
- ---------------------------------- -----
Total $162,538
- ---------------------------------- -----
</Table>
The tax character of distributions paid during the year ended October 31, 2009,
shown in the Statement of Changes in Net Assets, was as follows:
<Table>
<Caption>
2009
Distributions paid from:
Ordinary Income $8,250,469
- ------------------------------------------------
</Table>
NOTE 5--RESTRICTED SECURITY:
As of April 30, 2010, the Fund held the following restricted security:
<Table>
<Caption>
DATE OF PRINCIPAL 4/30/10 PERCENTAGE OF
SECURITY ACQUISITION AMOUNT COST VALUE NET ASSETS
At Home Corp. Convertible Bond 4.75%,
due 12/31/49 7/25/01 $177,810 $13,325 $18 0.0%++
- --------------------------------------------------------------------------------------------------------
</Table>
++ Less than one-tenth of a percent.
mainstayinvestments.com 35
NOTES TO FINANCIAL STATEMENTS UNAUDITED (CONTINUED)
NOTE 6--CUSTODIAN:
State Street is the custodian of the cash and the securities of the Fund.
Custodial fees are charged to the Fund based on the market value of securities
in the Fund and the number of certain cash transactions incurred by the Fund.
NOTE 7--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with a syndicate
of banks in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests.
The line of credit is in the amount of $125,000,000 and the commitment fee rate
is an annual rate of 0.10% of the average commitment amount, plus a 0.04% up-
front payment payable, regardless of usage, to The Bank of New York Mellon,
which serves as agent to the syndicate. The commitment fee and upfront payment
are allocated among certain MainStay Funds based upon net assets and other
factors. Interest on any revolving credit loan is charged based upon the Federal
Funds Advances rate or the one month LIBOR rate, whichever is higher. There were
no borrowings made or outstanding with respect to the Fund on the line of credit
during the six-month period ended April 30, 2010.
NOTE 8--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six-month period ended April 30, 2010, purchases and sales of U.S.
Government securities were $51,799 and $102,788, respectively. Purchases and
sales of securities, other than U.S. Government securities and short-term
securities, were $366,338 and $359,627, respectively.
NOTE 9--CAPITAL SHARE TRANSACTIONS:
<Table>
<Caption>
INVESTOR CLASS SHARES AMOUNT
Six-month period ended April
30, 2010:
Shares sold 124,038 $ 2,952,030
Shares issued to shareholders
in reinvestment of
dividends 14,796 353,920
Shares redeemed (184,787) (4,359,777)
------------------------
Net decrease in shares
outstanding before
conversion (45,953) (1,053,827)
Shares converted into
Investor Class (See Note 1) 71,569 1,695,920
Shares converted from
Investor Class (See Note 1) (77,423) (1,840,045)
------------------------
Net decrease (51,807) $ (1,197,952)
========================
Year ended October 31, 2009:
Shares sold 224,107 $ 4,373,824
Shares issued to shareholders
in reinvestment of
dividends 33,512 645,645
Shares redeemed (453,376) (8,757,870)
------------------------
Net decrease in shares
outstanding before
conversion (195,757) (3,738,401)
Shares converted into
Investor Class (See Note 1) 275,972 5,144,758
Shares converted from
Investor Class (See Note 1) (166,478) (3,653,609)
------------------------
Net decrease (86,263) $ (2,247,252)
========================
<Caption>
CLASS A SHARES AMOUNT
Six-month period ended April
30, 2010:
Shares sold 226,816 $ 5,387,451
Shares issued to shareholders
in reinvestment of
dividends 42,107 1,005,416
Shares redeemed (800,123) (18,827,097)
------------------------
Net decrease in shares
outstanding before
conversion (531,200) (12,434,230)
Shares converted into Class A
(See Note 1) 122,055 2,893,599
Shares converted from Class A
(See Note 1) (17,491) (426,083)
Shares converted from Class A
(a) (37,263) (871,593)
------------------------
Net decrease (463,899) $(10,838,307)
========================
Year ended October 31, 2009:
Shares sold 480,855 $ 9,384,382
Shares issued to shareholders
in reinvestment of
dividends 101,775 1,962,498
Shares redeemed (2,646,009) (50,495,231)
------------------------
Net decrease in shares
outstanding before
conversion (2,063,379) (39,148,351)
Shares converted into Class A
(See Note 1) 253,284 5,342,659
Shares converted from Class A
(See Note 1) (142,085) (2,614,756)
------------------------
Net decrease (1,952,180) $(36,420,448)
========================
</Table>
36 MainStay Balanced Fund
<Table>
<Caption>
CLASS B SHARES AMOUNT
Six-month period ended April
30, 2010:
Shares sold 113,891 $ 2,687,750
Shares issued to shareholders
in reinvestment of
dividends 6,758 163,349
Shares redeemed (299,818) (7,059,681)
------------------------
Net decrease in shares
outstanding before
conversion (179,169) (4,208,582)
Shares converted from Class B
(See Note 1) (99,100) (2,323,391)
------------------------
Net decrease (278,269) $ (6,531,973)
========================
Year ended October 31, 2009:
Shares sold 271,760 $ 5,281,597
Shares issued to shareholders
in reinvestment of
dividends 18,573 344,161
Shares redeemed (859,439) (16,475,970)
------------------------
Net decrease in shares
outstanding before
conversion (569,106) (10,850,212)
Shares converted from Class B
(See Note 1) (221,563) (4,219,052)
------------------------
Net decrease (790,669) $(15,069,264)
========================
<Caption>
CLASS C SHARES AMOUNT
Six-month period ended April
30, 2010:
Shares sold 83,103 $ 1,964,563
Shares issued to shareholders
in reinvestment of
dividends 4,857 117,348
Shares redeemed (340,301) (7,947,961)
------------------------
Net decrease (252,341) $ (5,866,050)
========================
Year ended October 31, 2009:
Shares sold 245,889 $ 4,747,176
Shares issued to shareholders
in reinvestment of
dividends 14,237 263,638
Shares redeemed (1,349,419) (25,514,731)
------------------------
Net decrease (1,089,293) $(20,503,917)
========================
<Caption>
CLASS I SHARES AMOUNT
Six-month period ended April
30, 2010:
Shares sold 893,209 $ 21,114,623
Shares issued to shareholders
in reinvestment of
dividends 75,493 1,803,657
Shares redeemed (1,396,668) (33,041,128)
------------------------
Net decrease in shares
outstanding before
conversion (427,966) (10,122,848)
Shares converted into Class I
(a) 37,184 871,593
------------------------
Net decrease (390,782) $ (9,251,255)
========================
Year ended October 31, 2009:
Shares sold 1,816,150 $ 35,594,202
Shares issued to shareholders
in reinvestment of
dividends 175,382 3,402,416
Shares redeemed (2,814,473) (54,060,892)
------------------------
Net decrease (822,941) $(15,064,274)
========================
<Caption>
CLASS R1 SHARES AMOUNT
Six-month period ended April
30, 2010:
Shares sold 68,634 $ 1,626,363
Shares issued to shareholders
in reinvestment of
dividends 7,711 184,101
Shares redeemed (535,271) (12,455,714)
------------------------
Net decrease (458,926) $(10,645,250)
========================
Year ended October 31, 2009:
Shares sold 365,340 $ 7,204,418
Shares issued to shareholders
in reinvestment of
dividends 22,820 444,011
Shares redeemed (272,821) (5,261,657)
------------------------
Net increase 115,339 $ 2,386,772
========================
<Caption>
CLASS R2 SHARES AMOUNT
Six-month period ended April
30, 2010:
Shares sold 234,578 $ 5,487,541
Shares issued to shareholders
in reinvestment of
dividends 16,623 396,902
Shares redeemed (505,643) (11,767,359)
------------------------
Net decrease (254,442) $ (5,882,916)
========================
Year ended October 31, 2009:
Shares sold 992,150 $ 19,106,857
Shares issued to shareholders
in reinvestment of
dividends 40,982 790,312
Shares redeemed (1,122,559) (21,688,189)
------------------------
Net decrease (89,427) $ (1,791,020)
========================
<Caption>
CLASS R3 SHARES AMOUNT
Six-month period ended April
30, 2010:
Shares sold 1,424 $ 33,391
Shares issued to shareholders
in reinvestment of
dividends 26 633
Shares redeemed (166) (3,956)
------------------------
Net increase 1,284 $ 30,068
========================
Year ended October 31, 2009:
Shares sold 2,724 $ 55,324
Shares issued to shareholders
in reinvestment of
dividends 36 709
Shares redeemed (1,116) (23,475)
------------------------
Net increase 1,644 $ 32,558
========================
</Table>
(a) In addition to any automatic conversion features described above in Note 1
with respect to Investor Class, Class A and B shares, you generally may also
elect to convert your shares on a voluntary basis into another share class
of the same fund for which you are eligible. However, the following
limitations apply:
- Investor Class and Class A shares that remain subject to a CDSC are
ineligible for a voluntary conversion; and
- All Class B and C shares are ineligible for a voluntary conversion.
These limitations do not impact any automatic conversion features described in
Note 1 with respect to Investor Class, Class A and B shares.
mainstayinvestments.com 37
NOTES TO FINANCIAL STATEMENTS UNAUDITED (CONTINUED)
An investor or an investor's financial intermediary may contact the Fund to
request a voluntary conversion between shares classes of the same Fund. You may
be required to provide sufficient information to establish eligibility to
convert to the new share class. All permissible conversions will be made on the
basis of the relevant NAVs of the two classes without the imposition of any
sales load, fee or other charge. If you fail to remain eligible for the new
share class, you may automatically be converted back to your original share
class, or into another share class, if appropriate.
NOTE 10--NEW ACCOUNTING PRONOUNCEMENT:
In January 2010, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2010-06 "Improving Disclosures about
Fair Value Measurements". ASU 2010-06 requires reporting entities to make new
disclosures about amount and reasons for significant transfers in and out of
Level 1 and Level 2 fair value measurements and input and valuation techniques
used to measure fair value for both recurring and nonrecurring fair value
measurements that fall in either Level 2 or Level 3, and information on
purchased, sales, issuances, and settlements in the roll forward of activity in
Level 3 fair value measures. The new and revised disclosure requirements are
effective for interim and annual reporting periods beginning after December 15,
2009 except for the disclosures about purchased, sales, issuances, and
settlements in the roll forward of activity in Level 3 fair value measures,
which are effective for fiscal years beginning after December 15, 2010. As of
April 30, 2010, the Fund has adopted ASU 2010-06. The adoption of ASU 2010-06
has not impacted the amounts reported in the financial statements; however,
there are additional disclosures in the Portfolio of Investments.
NOTE 11--SUBSEQUENT EVENTS:
In connection with the preparation of the financial statements of the Fund as of
and for the fiscal six-month period ended April 30, 2010, events and
transactions subsequent to April 30, 2010 through the date the financial
statements were issued have been evaluated by the Fund's management for possible
adjustment and/or disclosure. No subsequent events requiring financial statement
adjustment or disclosure have been identified.
38 MainStay Balanced Fund
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
A description of the policies and procedures that New York Life Investments uses
to vote proxies related to the Fund's securities is available without charge,
upon request, (i) by visiting the Funds's website at mainstayinvestments.com;
and (ii) on the Securities and Exchange Commission's ("SEC") website at
www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-
month period ending June 30 on Form N-PX. The Fund's most recent Form N-PX is
available free of charge upon request by calling 800-MAINSTAY (624-6782);
visiting the Funds' website at mainstayinvestments.com; or on the SEC's website
at www.sec.gov.
SHAREHOLDER REPORTS AND QUARTERLY PORTFOLIO DISCLOSURE
The Fund is required to file its complete schedule of portfolio holdings with
the SEC for its first and third fiscal quarters on Form N-Q. The Funds' Form N-Q
is available without charge, on the SEC's website at www.sec.gov or by calling
MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review
copies of Form N-Q by visiting the SEC's Public Reference Room in Washington, DC
(information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330).
mainstayinvestments.com 39
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 Common Stock Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Fund
MainStay Equity Index Fund(1)
MAINSTAY GROWTH EQUITY FUND
MAINSTAY ICAP EQUITY FUND
MAINSTAY ICAP SELECT EQUITY FUND
MAINSTAY LARGE CAP GROWTH FUND
MAINSTAY MAP FUND
MAINSTAY S&P 500 INDEX FUND
MAINSTAY U.S. SMALL CAP FUND
INCOME FUNDS
MainStay Cash Reserves Fund
MainStay Diversified Income Fund
MainStay Floating Rate Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Municipal Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Money Market Fund
MainStay Principal Preservation Fund
MainStay Short Term Bond Fund
MainStay Tax Free Bond Fund
BLENDED FUNDS
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
INTERNATIONAL FUNDS
MainStay 130/30 International Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay Global High Income Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
ASSET ALLOCATION FUNDS
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
RETIREMENT FUNDS
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
MANAGER
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
New York, New York
SUBADVISORS
EPOCH INVESTMENT PARTNERS, INC.
New York, New York
INSTITUTIONAL CAPITAL LLC(2)
Chicago, Illinois
MACKAY SHIELDS LLC(2)
New York, New York
MADISON SQUARE INVESTORS LLC(2)
New York, New York
MARKSTON INTERNATIONAL LLC
White Plains, New York
WINSLOW CAPITAL MANAGEMENT, INC.
Minneapolis, Minnesota
LEGAL COUNSEL
DECHERT LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
1. Closed to new investors and new purchases as of January 1, 2002.
2. An affiliate of New York Life Investment Management LLC.
Not part of the Semiannual Report
MAINSTAYINVESTMENTS.COM
MainStay Investments, an indirect subsidiary of New York Life Insurance
Company, New York, NY 10010, provides investment
advisory products and services. Securities are distributed by 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.
2010 by NYLIFE Distributors LLC. All rights reserved.
<Table>
<Caption>
- -----------------------------------------------------------------
Not Not a May Lose No Bank Not Insured by Any
FDIC/NCUA Deposit Value Guarantee Government Agency
Insured
- -----------------------------------------------------------------
</Table>
NYLIM-AO18300 MS121-10 MSBL10-06/10
B7
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The Schedule of Investments is included as part of Item 1 of this
report.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on an evaluation of the 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) Not Applicable.
(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: July 6, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ Stephen P. Fisher
--------------------------------------------------------
Stephen P. Fisher
President and Principal Executive Officer
Date: July 6, 2010
By: /s/ Jack R. Benintende
--------------------------------------------------------
Jack R. Benintende
Treasurer and Principal Financial and Accounting Officer
Date: July 6, 2010
EXHIBIT INDEX
(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.