J. Kevin Gao, Esq.
| Item 1. |
Reports to Stockholders. |
MainStay MacKay DefinedTerm Municipal Opportunities Fund
Message from the President and Annual Report
May 31, 2022 | NYSE Symbol
MMD
Sign up for e-delivery of your shareholder reports. For full
details on e-delivery, including who can participate and what you can receive via e-delivery,
please log in to www.computershare.com/investor.
| Not
FDIC/NCUA Insured |
Not
a Deposit |
May
Lose Value |
No
Bank Guarantee |
Not
Insured by Any Government Agency |
This page intentionally left blank
Message from the President
The 12-month reporting period ended May 31, 2022, began on a generally
positive note. Despite a new wave of COVID-19 infections that disrupted life and commerce, financial markets were buoyed during the spring and summer of 2021 by economic recovery and the widespread availability of vaccines. Most global economies
expanded, exceeding pre-pandemic levels, as businesses reopened and supportive government policies bore fruit. As the period progressed, however, inflation began to creep up in response to government stimulus and accommodative monetary policies.
Rising prices were further aggravated by wage increases, pandemic-related supply-chain bottlenecks and commodity price spikes. Bond prices slid as interest rates rose, and equity markets faltered. Market sentiment turned negative in the first five
months of 2022 as aggressive Russian rhetoric regarding Ukraine culminated in Russia’s invasion of its neighbor, a development that exacerbated global inflationary pressures while increasing investor uncertainty. Domestic supply shortages,
international trade imbalances and rising inflation caused U.S. GDP (gross domestic product) to contract in the first quarter of 2022, for the first time since the height of the pandemic, although consumer spending, a primary driver of U.S. economic
growth, remained strong. Prices for petroleum surged to multi-year highs, while many key agricultural chemicals and industrial metals reached record levels.
In general, municipal bonds benefited from continued U.S.
economic growth and accommodative fiscal and monetary policies during the first half of the reporting period. Municipal bonds also benefited from the passage of the $1.2 trillion Infrastructure Investment and Jobs Act in November 2021; this appeared
likely to strengthen municipal credit while expanding the use of private
activity bonds to fund a variety of municipal projects, ranging from
broadband to transportation. However, rising inflationary pressures and increasing prospects for Federal Reserve tightening in late 2021 and 2022 caused long-term bond prices to weaken substantially across all sectors. For the reporting period as a
whole, long-end maturities underperformed their shorter-end counterparts by a wide margin.
Today, despite the continuing impact of COVID-19, most of the
world appears intent on a return to post-pandemic normalcy. Instead, the focus of global political and economic attention has increasingly turned to the war in Ukraine and the impact of rising inflation. Municipal bond prices are likely to remain
subject to the Federal Reserve’s further efforts to fight inflation while limiting the risks of recession. As a MainStay investor, you can depend on us to remain watchful of developments that may affect your Fund, taking considered and
appropriate action to help you stay on financial track in the midst of uncertain times. As always, we remain dedicated to providing you with the disciplined investment tools you have come to expect from us over the years. Thank you for continuing to
place your trust in our team.
Sincerely,
Kirk C. Lehneis
President
The opinions expressed are 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. Past performance is no guarantee of future
results.
Not part of the Annual Report
Certain material in this report may include statements that
constitute “forward-looking statements” under the U.S. securities laws. Forward-looking statements include, among other things, projections, estimates and information about possible or future results or events related to the Fund, market
or regulatory developments. The views expressed herein are not guarantees of future performance or economic results and involve certain risks, uncertainties and assumptions that could cause actual outcomes and results to differ materially from the
views expressed herein. The views expressed herein are subject to change at any time based upon economic, market, or other conditions and the Fund undertakes no obligation to update the views expressed herein.
Fund Performance
and Statistics (Unaudited)
Performance data quoted represents past performance of Common shares of the
Fund. Past performance is no guarantee of future results. Because of market volatility and other factors, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate. For performance
information current to the most recent month-end, please visit newyorklifeinvestments.com/mmd.
The performance table and graph do not reflect the deduction of
taxes that a shareholder would pay on distributions or the sale of Fund shares.
| Average
Annual Total Returns for the Year-Ended May 31, 2022 |
| |
One
Year |
Five
Years |
Since
Inception
6/26/12 |
| Net
Asset Value (“NAV”)1 |
(9.68)%
|
3.16%
|
5.43%
|
| Market
Price1 |
(13.62)
|
4.03
|
5.39
|
| Bloomberg
Municipal Bond Index2 |
(6.79)
|
1.78
|
2.58
|
| Morningstar
Muni National Long Category Average3 |
(11.28)
|
1.93
|
3.73
|
| 1.
|
Total
returns assume dividends and capital gains distributions are reinvested. For periods of less than one year, total return is not annualized. |
| 2.
|
The
Bloomberg Municipal Bond Index is considered representative of the broad market for investment-grade, tax-exempt bonds with a maturity of at least one year. Bonds subject to the alternative minimum tax or with floating or zero coupons are excluded.
An investment cannot be made directly in an index. |
| 3.
|
The
Morningstar Muni National Long Category Average is representative of funds that invest in bonds issued by various state and local governments to fund public projects. The income from these bonds is generally free from federal taxes. These
portfolios have durations of more than 7 years. Results are based on average total returns of similar funds with all dividends and capital gain distributions reinvested. |
Fund Statistics as of May 31, 2022
| NYSE
Symbol |
MMD
|
Premium/Discount
1 |
2.90%
|
| CUSIP
|
56064K100
|
Total
Net Assets (millions) |
$508.8
|
| Inception
Date |
6/26/2012
|
Total
Managed Assets (millions)2 |
$836.9
|
| Market
Price |
$18.80
|
Leverage
3 |
39.20%
|
| NAV
|
$18.27
|
Percent
of AMT Bonds4 |
11.09%
|
| 1.
|
Premium/Discount
is the percentage (%) difference between the market price and the NAV. When the market price exceeds the NAV, the Fund is trading at a premium. When the market price is less than the NAV, the Fund is trading at a discount. |
| 2.
|
“Managed
Assets” is defined as the Fund’s total assets, minus the sum of its accrued liabilities (other than Fund liabilities incurred for the purpose of creating effective leverage (i.e. tender option bonds) or Fund liabilities related to
liquidation preference of any Preferred shares issued). |
| 3.
|
Leverage
is based on the use of proceeds received from tender option bond transactions, issuance of Preferred shares, funds borrowed from banks or other institutions or derivative transactions, expressed as a percentage of Managed Assets. |
| 4.
|
Alternative
Minimum Tax (“AMT”) is a separate tax computation under the Internal Revenue Code that, in effect, eliminates many deductions and credits and creates a tax liability for an individual who would otherwise pay little or no tax, expressed
as a percentage of Managed Assets. |
Portfolio Composition as of May 31, 2022†(Unaudited)
| California
|
15.8%
|
| Florida
|
11.6
|
| Illinois
|
11.4
|
| New
York |
11.0
|
| Puerto
Rico1 |
7.3
|
| Michigan
|
6.6
|
| Nevada
|
5.0
|
| Pennsylvania
|
3.7
|
| Washington
|
3.2
|
| Texas
|
2.9
|
| Colorado
|
2.5
|
| New
Jersey |
2.5
|
| U.S.
Virgin Islands |
2.0
|
| Indiana
|
1.8
|
| South
Carolina |
1.8
|
| Utah
|
1.5
|
| Guam
|
1.4
|
| Massachusetts
|
0.9%
|
| Oregon
|
0.8
|
| Wisconsin
|
0.8
|
| Maryland
|
0.7
|
| Virginia
|
0.6
|
| New
Hampshire |
0.5
|
| Ohio
|
0.4
|
| West
Virginia |
0.4
|
| District
of Columbia |
0.3
|
| Tennessee
|
0.3
|
| Georgia
|
0.3
|
| Arizona
|
0.2
|
| Kentucky
|
0.2
|
| Minnesota
|
0.1
|
| Other
Assets, Less Liabilities |
1.5
|
| |
100.0%
|
| †
|
As a
percentage of Managed Assets. |
| 1.
|
As
of May 31, 2022, 75.0% of the Puerto Rico municipal securities held by the Fund were insured and all bonds continue to pay full principal and interest. |
See Portfolio of Investments beginning on page 10
for specific holdings within these categories. The Fund's holdings are subject to change.
| 6
|
MainStay MacKay DefinedTerm
Municipal Opportunities Fund |
Top Ten Holdings and/or Issuers Held as of May 31, 2022 (excluding short-term investments)# (Unaudited)
| 1.
|
Los
Angeles Department of Water & Power System, 5.00%, due 7/1/47 |
| 2.
|
Great
Lakes Water Authority Sewage Disposal System, 5.00%, due 7/1/34 (a) |
| 3.
|
Puerto
Rico Sales Tax Financing Corp., 4.55%-5.00%, due 7/1/40–7/1/58 |
| 4.
|
Orange
County Convention Center, 4.00%, due 10/1/33 |
| 5.
|
University
of California, 5.00%, due 5/15/43 |
| 6.
|
State
of Illinois, 5.25%-5.50%, due 5/1/30–7/1/31 |
| 7.
|
Metropolitan
Transportation Authority, 5.00%, due 11/15/45 |
| 8.
|
Michigan
Finance Authority, 5.25%, due 12/1/41 |
| 9.
|
Las
Vegas Convention & Visitors Authority, 5.00%, due 7/1/43 |
| 10.
|
City
of Sacramento CA, 5.00%, due 9/1/42 |
| #
|
Some of
these holdings have been transferred to a Tender Option Bond (“TOB”) Issuer in exchange for TOB Residuals and cash. |
| (a)
|
Municipal
security may feature credit enhancements, such as bond insurance. |
Credit Quality as of May 31, 2022^
(Unaudited)
^ As a
percentage of total investments.
Ratings apply
to the underlying portfolio of bonds held by the Fund and are rated by an independent rating agency, such as Standard & Poor’s (“S&P”), Moody’s Investors Service, Inc. and/or Fitch Ratings, Inc. If the ratings
provided by the ratings agencies differ, the higher rating will be utilized. If only one rating is provided, the available rating will be utilized. Securities that are unrated by the rating agencies are reflected as such in the breakdown. Unrated
securities do not necessarily indicate low quality. S&P rates borrowers on a scale from AAA to D. AAA through BBB- represent investment grade, while BB+ through D represent non-investment grade.
Portfolio
Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Robert
DiMella, CFA, John Loffredo, CFA, Michael Petty, Scott Sprauer, David Dowden and John Lawlor of MacKay Shields LLC, the Fund’s Subadvisor.
How did MainStay MacKay DefinedTerm Municipal Opportunities Fund perform
relative to its benchmark and peer group during the 12 months ended May 31, 2022?
For the 12 months ended May 31, 2022, MainStay MacKay
DefinedTerm Municipal Opportunities Fund returned −9.68% based on net asset value applicable to Common shares and −13.62% based on market price. At net asset value and at market price, the Fund underperformed the −6.79% return of
its benchmark, the Bloomberg Municipal Bond Index (the “Index”). At net asset value the Fund outperformed, and at market price underperformed, the −11.28% return of the Morningstar Muni National Long Category Average.1
What factors affected the Fund’s relative
performance during the reporting period?
During the
reporting period, the Fund underperformed the Index primarily due to yield curve2 positioning although positive security selection offset some of those losses. The Fund’s
overweight exposure to bonds with maturities 20 years and over, as well as longer-duration3 bonds, detracted from relative performance. The Fund’s underweight allocation
among bonds rated AAA4 made a positive contribution to relative performance. (Contributions take weightings and total returns into account.)
During the reporting period, were there any market
events that materially impacted the Fund’s performance or liquidity?
Late in the reporting period, U.S. Treasury rates rose
significantly, as the U.S. Federal Reserve took a more hawkish stance against inflation indicating increased rate hikes in the year ahead. This had a direct influence on the shape of the yield curve and produced a widening in credit spreads5 as well as a higher overall level of interest rates.
How was the Fund’s leverage strategy implemented
during the reporting period?
During the reporting
period, the Fund’s leverage increased to 39.20%. The Fund continued to exit positions that no longer
represented spread tightening opportunities. Following a significant rise in
municipal yields throughout the first five months of 2022, the Fund executed tax loss swaps and reinvested in higher yielding bonds and structures with potential spread tightening characteristics.
What was the Fund’s duration strategy during the
reporting period?
The Fund held a neutral position
relative to the Index. As of the end of the reporting period, the Fund's modified duration to worst6 was 4.93 years compared to 5.26 years for the Index.
During the reporting period, which sectors were the
strongest positive contributors to the Fund’s relative performance and which sectors were particularly weak?
During the reporting period, the Fund’s state and local
general obligation holdings contributed positively to performance, as did security selection among the hospital names. Conversely, the special tax and leasing sectors detracted from relative performance.
What were some of the Fund’s largest purchases and
sales during the reporting period?
As the Fund remained
focused on diversification and liquidity, no individual transaction was considered significant. However, sector overweights or security structure, in their entirety, did have an impact on the Fund's performance during the reporting period.
How did the Fund’s weightings change during the
reporting period?
During the reporting period, the Fund
increased sector exposure to transportation, electric and water/sewer. In addition, the Fund increased its credit exposure to bonds rated AAA and AA.7 Furthermore, the Fund
increased its state exposure to Florida. Conversely, the Fund decreased its sector exposure to leasing and IDR/PCR (industry development revenue/pollution control
| 1.
|
See page 5 for more information
on benchmark and peer group returns. |
| 2.
|
The yield curve is a line that
plots the yields of various securities of similar quality—typically U.S. Treasury issues—across a range of maturities. The U.S. Treasury yield curve serves as a benchmark for other debt and is used in economic forecasting.
|
| 3.
|
Duration is a measure of the
price sensitivity of a fixed-income investment to changes in interest rates. Duration is expressed as a number of years and is considered a more accurate sensitivity gauge than average maturity. |
| 4.
|
An obligation rated
‘AAA’ has the highest rating assigned by Standard & Poor’s (“S&P”), and in the opinion of S&P, the obligor’s capacity to meet its financial commitment on the obligation is extremely strong. When
applied to Fund holdings, ratings are based solely on the creditworthiness of the bonds in the portfolio and are not meant to represent the security or safety of the Fund. |
| 5.
|
The terms “spread”
and “yield spread” may refer to the difference in yield between a security or type of security and comparable U.S. Treasury issues. The terms may also refer to the difference in yield between two specific securities or types of
securities at a given time. The term “credit spread” typically refers to the difference in yield between corporate or municipal bonds (or a specific category of these bonds) and comparable U.S. Treasury issues. |
| 6.
|
Modified duration is inversely
related to the approximate percentage change in price for a given change in yield. Duration to worst is the duration of a bond computed using the bond’s nearest call date or maturity, whichever comes first. This measure ignores future cash
flow fluctuations due to embedded optionality. |
| 7.
|
An obligation rated
‘AA’ by S&P is deemed by S&P to differ from the highest-rated obligations only to a small degree. In the opinion of S&P, the obligor's capacity to meet its financial commitment on the obligation is very strong. When applied
to Fund holdings, ratings are based solely on the creditworthiness of the bonds in the portfolio and are not meant to represent the security or safety of the Fund. |
| 8
|
MainStay MacKay DefinedTerm
Municipal Opportunities Fund |
revenue). The Fund also
decreased its credit exposure to bonds rated BBB8 and state exposure to Missouri.
How was the Fund positioned at the end of the reporting
period?
As of May 31, 2022, the Fund held an overweight
position relative to the Index in the special tax sector and non-investment-grade bonds that are not held in the Index. In addition, the Fund held overweight positions relative to the Index in bonds from Puerto Rico and Illinois, as well as bonds
maturing fifteen years and over.
As of the same date,
the Fund held underweight positions in the state general obligation sector and securities rated AAA. The Fund also held underweight positions in bonds from New York and California, as well as in bonds maturing within 10 years.
| 8.
|
An obligation rated
‘BBB’ by S&P is deemed by S&P to exhibit adequate protection parameters. In the opinion of S&P, however, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to
meet its financial commitment on the obligation. When applied to Fund holdings, ratings are based solely on the creditworthiness of the bonds in the portfolio and are not meant to represent the security or safety of the Fund. |
The opinions expressed are those of the portfolio
managers as of the date of this report and are subject to change. There is no guarantee that any forecasts will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
Portfolio of
Investments May 31, 2022†
| |
Principal
Amount |
Value
|
| Municipal
Bonds 161.9% |
| Arizona
0.4% (0.2% of Managed Assets) |
| Industrial
Development Authority of the City of Phoenix (The), Espiritu Community Development Corp., Revenue Bonds |
|
|
| Series
A |
|
|
| 6.25%,
due 7/1/36 |
$
1,805,000 |
$ 1,804,941
|
| California
25.9% (15.8% of Managed Assets) |
| California
Municipal Finance Authority, LINXS APM Project, Revenue Bonds, Senior Lien |
|
|
| Series
A |
|
|
| 5.00%,
due 12/31/36 (a) |
5,000,000 |
5,270,079 |
| California
Municipal Finance Authority, United Airlines, Inc. Project, Revenue Bonds |
|
|
| 4.00%,
due 7/15/29 (a) |
2,405,000
|
2,356,522
|
| City
of Los Angeles LA, Department of Airports, Revenue Bonds |
|
|
| Series
A |
|
|
| 5.00%,
due 5/15/51 (a) |
4,045,000
|
4,428,421
|
| City
of Sacramento CA, Water, Revenue Bonds |
|
|
| 5.00%,
due 9/1/42 (b) |
19,500,000
|
20,274,808
|
| Fontana
Unified School District, Election 2006, Unlimited General Obligation |
|
|
| Insured:
BAM |
|
|
| 3.00%,
due 8/1/41 |
2,000,000
|
1,808,346
|
| Golden
State Tobacco Securitization Corp., Asset-Backed, Revenue Bonds |
|
|
| Series
A-2 |
|
|
| 5.30%,
due 6/1/37 (c) |
7,955,000
|
7,955,000
|
| Hayward
Unified School District, Unlimited General Obligation |
|
|
| Series
A, Insured: BAM |
|
|
| 4.00%,
due 8/1/40 |
2,000,000
|
2,058,233
|
| Los
Angeles Department of Water & Power System, Revenue Bonds |
|
|
| Series
A |
|
|
| 5.00%,
due 7/1/47 (b) |
28,900,000
|
31,363,335
|
| Regents
of the University of California Medical Center Pooled, Revenue Bonds |
|
|
| 5.00%,
due 5/15/47 (b) |
10,000,000
|
11,341,521
|
| |
Principal
Amount |
Value
|
| California
|
| San
Diego County Regional Airport Authority, Revenue Bonds |
|
|
| Series
B |
|
|
| 5.00%,
due 7/1/51 (a) |
$
5,955,000 |
$ 6,445,124
|
| San
Francisco City & County Airport Commission, International Airport, Revenue Bonds |
|
|
| Series
B |
|
|
| 5.00%,
due 5/1/46 (a)(b) |
9,500,000 |
9,938,733 |
| Sweetwater
Union High School District, Unlimited General Obligation |
|
|
| Insured:
BAM |
|
|
| 4.00%,
due 8/1/47 |
5,000,000 |
5,009,220 |
| University
of California, Regents Medical Center, Revenue Bonds |
|
|
| Series
J |
|
|
| 5.00%,
due 5/15/43 (b) |
23,260,000
|
23,696,351
|
| |
|
131,945,693
|
| Colorado
4.1% (2.5% of Managed Assets) |
| City
& County of Denver CO, Airport System, Revenue Bonds |
|
|
| Series
A |
|
|
| 4.00%,
due 12/1/43 (a)(b) |
12,500,000
|
12,473,268
|
| Copper
Ridge Metropolitan District, Revenue Bonds |
|
|
| 5.00%,
due 12/1/39 |
3,950,000
|
3,813,400
|
| Dominion
Water & Sanitation District, Revenue Bonds |
|
|
| 6.00%,
due 12/1/46 |
3,383,000
|
3,456,740
|
| Sterling
Ranch Community Authority Board, Metropolitan District No. 3, Revenue Bonds |
|
|
| Series
A, Insured: MUN GOVT GTD |
|
|
| 5.00%,
due 12/1/30 |
1,315,000
|
1,336,263
|
| |
|
21,079,671
|
| District
of Columbia 0.6% (0.3% of Managed Assets) |
| Metropolitan
Washington Airports Authority, Dulles Toll Road, Revenue Bonds, Second Lien |
|
|
| Series
C, Insured: AGC |
|
|
| 6.50%,
due 10/1/41 (c) |
2,400,000
|
2,838,273
|
| Florida
19.1% (11.6% of Managed Assets) |
| City
of Miami Beach FL, Unlimited General Obligation |
|
|
| 4.00%,
due 5/1/44 |
15,000,000
|
15,552,876
|
The notes to the financial statements are an integral part of, and
should be read in conjunction with, the financial statements.
| 10
|
MainStay MacKay DefinedTerm
Municipal Opportunities Fund |
| |
Principal
Amount |
Value
|
| Florida
(continued) |
| County
of Broward FL, Convention Center Expansion Project, Revenue Bonds |
|
|
| 4.00%,
due 9/1/47 |
$
3,500,000 |
$ 3,621,909
|
| 4.00%,
due 9/1/51 |
3,500,000 |
3,608,063 |
| County
of Broward FL, Convention Center Hotel, Revenue Bonds, First Tier |
|
|
| 5.50%,
due 1/1/55 (b) |
15,600,000
|
18,069,957 |
| County
of Lee Airport FL, Airport, Revenue Bonds |
|
|
| Series
B |
|
|
| 4.00%,
due 10/1/51 (a) |
2,000,000 |
1,954,652 |
| JEA
Electric System, Revenue Bonds |
|
|
| Series
C |
|
|
| 5.00%,
due 10/1/37 (b) |
12,980,000
|
13,106,217
|
| Orange
County Convention Center, Revenue Bonds |
|
|
| Series
B |
|
|
| 4.00%,
due 10/1/33 (b) |
25,000,000
|
25,803,767
|
| South
Broward Hospital District, Revenue Bonds |
|
|
| 4.00%,
due 5/1/48 (b) |
15,750,000
|
15,712,464
|
| |
|
97,429,905
|
| Georgia
0.5% (0.3% of Managed Assets) |
| Municipal
Electric Authority of Georgia, Plant Vogtle Units 3&4 Project, Revenue Bonds |
|
|
| Insured:
AGM |
|
|
| 4.00%,
due 1/1/44 |
2,470,000
|
2,499,619
|
| Guam
2.2% (1.4% of Managed Assets) |
| Antonio
B Won Pat International Airport Authority, Revenue Bonds |
|
|
| Series
C, Insured: AGM |
|
|
| 6.00%,
due 10/1/34 (a) |
2,440,000
|
3,601,304
|
| Guam
Government Waterworks Authority, Water and Wastewater System, Revenue Bonds |
|
|
| 5.50%,
due 7/1/43 |
7,550,000
|
7,849,526
|
| |
|
11,450,830
|
| Illinois
18.8% (11.4% of Managed Assets) |
| Chicago
Board of Education, Unlimited General Obligation |
|
|
| Series
A |
|
|
| 7.00%,
due 12/1/44 |
2,880,000
|
3,161,339
|
| |
Principal
Amount |
Value
|
| Illinois
|
| Chicago
Board of Education, Dedicated Capital Improvement, Revenue Bonds |
|
|
| 5.75%,
due 4/1/34 |
$
8,000,000 |
$ 8,556,902
|
| Chicago
Board of Education, Dedicated Capital Improvement, Unlimited General Obligation (d) |
|
|
| Series
A |
|
|
| 7.00%,
due 12/1/46 |
4,000,000 |
4,530,019 |
| Series
B |
|
|
| 7.00%,
due 12/1/42 |
3,500,000 |
3,985,780 |
| Chicago
O'Hare International Airport, Customer Facility Charge, Revenue Bonds, Senior Lien |
|
|
| Insured:
AGM-CR |
|
|
| 5.75%,
due 1/1/38 |
5,000,000
|
5,070,787
|
| City
of Chicago IL, Unlimited General Obligation |
|
|
| Series
A |
|
|
| 5.25%,
due 1/1/27 |
3,000,000
|
3,124,078
|
| Series
A |
|
|
| 5.50%,
due 1/1/49 |
5,000,000
|
5,350,819
|
| Series
A |
|
|
| 6.00%,
due 1/1/38 |
7,180,000
|
7,829,681
|
| Series
E |
|
|
| 5.50%,
due 1/1/42 |
2,000,000
|
2,077,029
|
| City
of Chicago IL, Wastewater Transmission, Revenue Bonds, Second Lien |
|
|
| Series
C |
|
|
| 5.00%,
due 1/1/32 |
7,120,000
|
7,484,590
|
| Metropolitan
Pier & Exposition Authority, McCormick Place Expansion Project, Revenue Bonds |
|
|
| Series
A |
|
|
| 5.00%,
due 6/15/57 |
4,665,000
|
4,946,833
|
| Series
B-1, Insured: AGM |
|
|
| (zero
coupon), due 6/15/44 |
10,000,000
|
3,995,430
|
| Sales
Tax Securitization Corp., Revenue Bonds |
|
|
| Series
C, Insured: BAM |
|
|
| 5.25%,
due 1/1/48 (b) |
11,000,000
|
12,119,215
|
| State
of Illinois, Unlimited General Obligation |
|
|
| 5.25%,
due 7/1/31 (b) |
20,000,000
|
20,438,066
|
| 5.50%,
due 5/1/30 |
2,500,000
|
2,832,326
|
| |
|
95,502,894
|
The notes to the financial statements are an integral part of, and
should be read in conjunction with, the financial statements.
11
Portfolio of
Investments May 31, 2022† (continued)
| |
Principal
Amount |
Value
|
| Indiana
3.0% (1.8% of Managed Assets) |
| Indianapolis
Local Public Improvement Bond Bank, Revenue Bonds |
|
|
| Series
A, Insured: AGM |
|
|
| 4.00%,
due 6/1/39 (b) |
$
14,880,000 |
$ 15,429,204
|
| Kentucky
0.3% (0.2% of Managed Assets) |
| Louisville/Jefferson
County Metropolitan Government, Norton Healthcare Obligated Group, Revenue Bonds |
|
|
| Series
A |
|
|
| 3.00%,
due 10/1/43 |
2,000,000 |
1,708,677
|
| Maryland
1.1% (0.7% of Managed Assets) |
| County
of Anne Arundel MD, Limited General Obligation |
|
|
| 3.00%,
due 10/1/49 |
6,340,000
|
5,549,311
|
| Massachusetts
1.4% (0.9% of Managed Assets) |
| Massachusetts
Development Finance Agency, North Eastern University Issue, Revenue Bonds |
|
|
| Series
A |
|
|
| 5.00%,
due 3/1/44 (b) |
7,000,000
|
7,133,740
|
| Michigan
10.8% (6.6% of Managed Assets) |
| City
of Detroit MI, Great Lakes Water Authority Sewage Disposal System, Revenue Bonds, Senior Lien |
|
|
| Series
A |
|
|
| 5.25%,
due 7/1/39 |
5,000,000
|
5,016,790
|
| Great
Lakes Water Authority Sewage Disposal System, Revenue Bonds, Senior Lien |
|
|
| Series
B, Insured: AGM-CR |
|
|
| 5.00%,
due 7/1/34 (b) |
24,940,000
|
27,061,502
|
| Michigan
Finance Authority, Trinity Health Group, Revenue Bonds |
|
|
| Series
2016MI |
|
|
| 5.25%,
due 12/1/41 (b) |
21,630,000
|
23,012,962
|
| |
|
55,091,254
|
| Minnesota
0.2% (0.1% of Managed Assets) |
| City
of Blaine MN, Crest View Senior Community Project, Revenue Bonds |
|
|
| Series
A |
|
|
| 5.75%,
due 7/1/35 |
1,060,000
|
868,647
|
| |
Principal
Amount |
Value
|
| Nevada
8.2% (5.0% of Managed Assets) |
| Clark
County School District, Tax Building, Limited General Obligation |
|
|
| Series
A, Insured: BAM |
|
|
| 5.00%,
due 6/15/34 (b) |
$
9,680,000 |
$ 10,830,983
|
| County
of Clark NV, Regional Transportation Commission of Southern Nevada Motor Fuel Tax Revenue, Revenue Bonds |
|
|
| Insured:
AGM |
|
|
| 4.00%,
due 7/1/40 (b) |
8,500,000 |
8,800,803 |
| Las
Vegas Convention & Visitors Authority, Convention Center Expansion, Revenue Bonds |
|
|
| Series
B |
|
|
| 5.00%,
due 7/1/43 (b) |
20,000,000
|
22,043,749
|
| |
|
41,675,535
|
| New
Hampshire 0.9% (0.5% of Managed Assets) |
| Manchester
Housing and Redevelopment Authority, Inc., Meals & Rooms Tax, Revenue Bonds |
|
|
| Series
B, Insured: ACA |
|
|
| (zero
coupon), due 1/1/24 |
4,740,000
|
4,467,593
|
| New
Jersey 4.0% (2.5% of Managed Assets) |
| New
Jersey Economic Development Authority, Continental Airlines, Inc. Project, Revenue Bonds |
|
|
| 5.25%,
due 9/15/29 |
5,000,000
|
5,035,741
|
| New
Jersey Economic Development Authority, New Jersey Transit Transportation Project, Revenue Bonds |
|
|
| Series
A |
|
|
| 4.00%,
due 11/1/39 |
3,400,000
|
3,419,358
|
| New
Jersey Transportation Trust Fund Authority, Transportation Program, Revenue Bonds |
|
|
| Series
BB |
|
|
| 4.00%,
due 6/15/44 |
1,000,000
|
995,935
|
| State
of New Jersey, COVID-19 General Obligation Emergency Bonds, Unlimited General Obligation |
|
|
| Series
A |
|
|
| 4.00%,
due 6/1/31 |
10,000,000
|
10,796,250
|
The notes to the financial statements are an integral part of, and
should be read in conjunction with, the financial statements.
| 12
|
MainStay MacKay DefinedTerm
Municipal Opportunities Fund |
| |
Principal
Amount |
Value
|
| New
Jersey (continued) |
| Tobacco
Settlement Financing Corp., Revenue Bonds |
|
|
| Series
A |
|
|
| 5.00%,
due 6/1/46 |
$
300,000 |
$ 318,319
|
| |
|
20,565,603
|
| New
York 18.1% (11.0% of Managed Assets) |
| Metropolitan
Transportation Authority, Revenue Bonds |
|
|
| Series
A-1 |
|
|
| 5.00%,
due 11/15/45 (b) |
22,695,000
|
23,233,888 |
| New
York City Transitional Finance Authority, Future Tax Secured, Revenue Bonds |
|
|
| Series
A |
|
|
| 4.00%,
due 5/1/43 |
5,000,000
|
5,158,121
|
| Series
C |
|
|
| 5.00%,
due 2/1/51 |
3,500,000
|
3,987,561
|
| New
York Liberty Development Corp., 3 World Trade Center Project, Revenue Bonds |
|
|
| Class
3 |
|
|
| 7.25%,
due 11/15/44 (b)(d) |
10,890,000
|
11,071,951
|
| New
York Liberty Development Corp., Port Authority of New York & New Jersey, Revenue Bonds |
|
|
| Series
1WTC |
|
|
| 3.00%,
due 2/15/42 |
5,080,000
|
4,423,938
|
| New
York State Housing Finance Agency, Revenue Bonds |
|
|
| Series
P |
|
|
| 3.15%,
due 11/1/54 |
2,375,000
|
1,933,084
|
| New
York State Urban Development Corp., State of New York Personal Income Tax, Revenue Bonds |
|
|
| Series
E |
|
|
| 4.00%,
due 3/15/41 |
2,000,000
|
2,067,390
|
| New
York Transportation Development Corp., LaGuardia Airport Terminal B Redevelopment Project, Revenue Bonds |
|
|
| Series
A, Insured: AGM |
|
|
| 4.00%,
due 7/1/36 (a)(b) |
20,000,000
|
20,126,568
|
| Onondaga
County Trust for Cultural Resources, Syracuse University Project, Revenue Bonds |
|
|
| 4.00%,
due 12/1/47 |
5,000,000
|
5,063,341
|
| |
Principal
Amount |
Value
|
| New
York |
| Port
Authority of New York & New Jersey, Revenue Bonds |
|
|
| 5.50%,
due 8/1/52 (a)(b) |
$
10,000,000 |
$ 11,457,829
|
| Riverhead
Industrial Development Agency, Riverhead Charter School, Revenue Bonds |
|
|
| Series
A |
|
|
| 7.00%,
due 8/1/43 |
3,395,000 |
3,522,390
|
| |
|
92,046,061
|
| Ohio
0.7% (0.4% of Managed Assets) |
| Ohio
Higher Educational Facility Commission, University Circle, Inc., Revenue Bonds, Senior Lien |
|
|
| 5.00%,
due 1/15/50 |
3,200,000 |
3,344,074
|
| Oregon
1.4% (0.8% of Managed Assets) |
| Port
of Portland OR, International Airport, Revenue Bonds |
|
|
| Series
27-A |
|
|
| 5.00%,
due 7/1/45 (a)(b) |
6,330,000
|
6,884,867
|
| Pennsylvania
6.1% (3.7% of Managed Assets) |
| Allentown
Neighborhood Improvement Zone Development Authority, City Center Project, Revenue Bonds |
|
|
| 5.00%,
due 5/1/42 (d) |
1,000,000
|
1,056,744
|
| Commonwealth
Financing Authority, Tobacco Master Settlement Payment, Revenue Bonds |
|
|
| Insured:
AGM |
|
|
| 4.00%,
due 6/1/39 |
2,370,000
|
2,429,967
|
| County
of Lehigh PA, Unlimited General Obligation |
|
|
| 3.00%,
due 11/15/43 |
3,340,000
|
2,930,070
|
| Pennsylvania
Economic Development Financing Authority, Capital Region Parking System, Revenue Bonds |
|
|
| Series
B, Insured: County Guaranteed |
|
|
| 6.00%,
due 7/1/53 (b) |
14,260,000
|
14,870,996
|
| Pennsylvania
Turnpike Commission, Revenue Bonds |
|
|
| Series
A, Insured: AGM |
|
|
| 4.00%,
due 12/1/49 (b) |
7,470,000
|
7,691,236
|
The notes to the financial statements are an integral part of, and
should be read in conjunction with, the financial statements.
13
Portfolio of
Investments May 31, 2022† (continued)
| |
Principal
Amount |
Value
|
| Pennsylvania
(continued) |
| Philadelphia
Authority for Industrial Development, Nueva Esperanza, Inc., Revenue Bonds |
|
|
| 8.20%,
due 12/1/43 |
$
2,000,000 |
$ 2,074,620
|
| |
|
31,053,633
|
| Puerto
Rico 12.0% (7.3% of Managed Assets) |
| Children's
Trust Fund, Asset-Backed, Revenue Bonds |
|
|
| 5.50%,
due 5/15/39 |
12,965,000
|
13,171,519 |
| Puerto
Rico Electric Power Authority, Revenue Bonds (e) |
|
|
| Series
DDD, Insured: AGM |
|
|
| 3.625%,
due 7/1/23 |
755,000 |
763,763 |
| Series
DDD, Insured: AGM |
|
|
| 3.65%,
due 7/1/24 |
2,830,000
|
2,862,849
|
| Series
PP, Insured: NATL-RE |
|
|
| 5.00%,
due 7/1/24 |
1,130,000
|
1,155,362
|
| Series
PP, Insured: NATL-RE |
|
|
| 5.00%,
due 7/1/25 |
165,000
|
168,703
|
| Series
TT, Insured: AGM-CR |
|
|
| 5.00%,
due 7/1/27 |
310,000
|
315,993
|
| Puerto
Rico Highway & Transportation Authority, Revenue Bonds (e) |
|
|
| Series
AA-1, Insured: AGM |
|
|
| 4.95%,
due 7/1/26 |
5,575,000
|
5,614,581
|
| Series
D, Insured: AGM |
|
|
| 5.00%,
due 7/1/32 |
960,000
|
967,296
|
| Series
N, Insured: AMBAC |
|
|
| 5.25%,
due 7/1/31 |
3,485,000
|
3,565,261
|
| Series
N, Insured: AMBAC |
|
|
| 5.50%,
due 7/1/29 |
1,025,000
|
1,065,994
|
| Puerto
Rico Municipal Finance Agency, Revenue Bonds |
|
|
| Series
A, Insured: AGM |
|
|
| 5.00%,
due 8/1/22 |
835,000
|
841,346
|
| Series
A, Insured: AGM |
|
|
| 5.00%,
due 8/1/27 |
2,770,000
|
2,811,211
|
| Series
A, Insured: AGM |
|
|
| 5.00%,
due 8/1/30 |
1,685,000
|
1,710,068
|
| Puerto
Rico Sales Tax Financing Corp., Revenue Bonds |
|
|
| Series
A-1 |
|
|
| 4.55%,
due 7/1/40 |
2,500,000
|
2,532,381
|
| Series
A-1 |
|
|
| 4.75%,
due 7/1/53 |
7,000,000
|
7,042,712
|
| |
Principal
Amount |
Value
|
| Puerto
Rico |
| Puerto
Rico Sales Tax Financing Corp., Revenue Bonds (continued) |
|
|
| Series
A-1 |
|
|
| 5.00%,
due 7/1/58 |
$
15,940,000 |
$ 16,246,297
|
| |
|
60,835,336
|
| South
Carolina 3.0% (1.8% of Managed Assets) |
| Patriots
Energy Group Financing Agency, Gas Supply, Revenue Bonds |
|
|
| Series
A |
|
|
| 4.00%,
due 10/1/48 (b)(f) |
10,000,000
|
10,221,161 |
| South
Carolina Public Service Authority, Santee Cooper, Revenue Bonds |
|
|
| Series
A, Insured: BAM |
|
|
| 4.00%,
due 12/1/52 |
5,000,000
|
5,030,030
|
| |
|
15,251,191
|
| Tennessee
0.5% (0.3% of Managed Assets) |
| Metropolitan
Nashville Airport Authority (The), Revenue Bonds |
|
|
| Series
B |
|
|
| 5.00%,
due 7/1/54 (a) |
2,500,000
|
2,669,883
|
| Texas
4.7% (2.9% of Managed Assets) |
| City
of Georgetown TX, Utility System, Revenue Bonds |
|
|
| Insured:
AGM |
|
|
| 5.25%,
due 8/15/52 (b) |
7,500,000
|
8,506,918
|
| Grand
Parkway Transportation Corp., Revenue Bonds, First Tier |
|
|
| Insured:
AGM-CR |
|
|
| 4.00%,
due 10/1/49 |
10,000,000
|
10,054,233
|
| Harris
County-Houston Sports Authority, Revenue Bonds, Senior Lien |
|
|
| Series
A, Insured: AGM, NATL-RE |
|
|
| (zero
coupon), due 11/15/38 |
175,000
|
76,697
|
| Harris
County-Houston Sports Authority, Revenue Bonds, Junior Lien |
|
|
| Series
H, Insured: NATL-RE |
|
|
| (zero
coupon), due 11/15/28 |
50,000
|
39,226
|
| Series
H, Insured: NATL-RE |
|
|
| (zero
coupon), due 11/15/38 |
260,000
|
111,918
|
| Mission
Economic Development Corp., Natgasoline LLC, Revenue Bonds, Senior Lien |
|
|
| 4.625%,
due 10/1/31 (a)(d) |
5,000,000
|
5,189,354
|
| |
|
23,978,346
|
The notes to the financial statements are an integral part of, and
should be read in conjunction with, the financial statements.
| 14
|
MainStay MacKay DefinedTerm
Municipal Opportunities Fund |
| |
Principal
Amount |
Value
|
| U.S.
Virgin Islands 3.3% (2.0% of Managed Assets) |
| Matching
Fund Special Purpose Securitization Corp., United States Virgin Islands Federal Excise Tax, Revenue Bonds |
|
|
| Series
A |
|
|
| 5.00%,
due 10/1/30 |
$
1,570,000 |
$ 1,627,791
|
| Series
A |
|
|
| 5.00%,
due 10/1/32 |
1,570,000 |
1,628,801 |
| Series
A |
|
|
| 5.00%,
due 10/1/39 |
4,710,000 |
4,796,089 |
| Virgin
Islands Public Finance Authority, Gross Receipts Taxes Loan, Revenue Bonds |
|
|
| Series
A |
|
|
| 5.00%,
due 10/1/29 |
2,980,000
|
2,978,761
|
| Series
A |
|
|
| 5.00%,
due 10/1/32 |
3,020,000
|
2,988,046
|
| Series
A, Insured: AGM-CR |
|
|
| 5.00%,
due 10/1/32 |
2,690,000
|
2,709,715
|
| |
|
16,729,203
|
| Utah
2.4% (1.5% of Managed Assets) |
| Intermountain
Power Agency, Revenue Bonds |
|
|
| 5.00%,
due 7/1/43 (b) |
10,580,000
|
12,145,000
|
| Virginia
1.0% (0.6% of Managed Assets) |
| Tobacco
Settlement Financing Corp., Asset-Backed, Revenue Bonds, Senior Lien |
|
|
| Series
B-1 |
|
|
| 5.00%,
due 6/1/47 |
5,000,000
|
5,007,954
|
| Washington
5.3% (3.2% of Managed Assets) |
| Washington
Health Care Facilities Authority, Multicare Health System, Revenue Bonds |
|
|
| Series
A |
|
|
| 5.00%,
due 8/15/44 (b) |
19,665,000
|
19,753,058
|
| Washington
State Convention Center Public Facilities District, Revenue Bonds |
|
|
| Series
B, Insured: AGM-CR |
|
|
| 3.00%,
due 7/1/58 |
9,705,000
|
7,082,494
|
| |
Principal
Amount |
|
Value
|
| Washington
|
| Washington
State Housing Finance Commission, Single Family Program, Revenue Bonds |
|
|
|
| Series
1N |
|
|
|
| 4.00%,
due 6/1/49 |
$
125,000 |
|
$ 128,203
|
| |
|
|
26,963,755
|
| West
Virginia 0.6% (0.4% of Managed Assets) |
| West
Virginia Hospital Finance Authority, West Virginia University Health System Obligated Group, Revenue Bonds |
|
|
|
| Series
A |
|
|
|
| 4.00%,
due 6/1/51 |
3,275,000 |
|
3,201,327
|
| Wisconsin
1.3% (0.8% of Managed Assets) |
| Public
Finance Authority, Bancroft NeuroHealth Project, Revenue Bonds |
|
|
|
| Series
A |
|
|
|
| 5.00%,
due 6/1/36 (d) |
500,000
|
|
510,519
|
| Public
Finance Authority, Ultimate Medical Academy Project, Revenue Bonds |
|
|
|
| Series
A |
|
|
|
| 5.00%,
due 10/1/39 (d) |
5,750,000
|
|
6,041,035
|
| |
|
|
6,551,554
|
Total
Investments
(Cost $811,635,338) |
161.9%
|
|
823,703,574
|
| Floating
Rate Note Obligations (g) |
(64.2)
|
|
(326,745,000)
|
| Other
Assets, Less Liabilities |
2.3
|
|
11,852,113
|
| Net
Assets Applicable to Common Shares |
100.0%
|
|
$ 508,810,687
|
| †
|
Percentages
indicated are based on Fund net assets applicable to Common shares. |
| (a)
|
Interest
on these securities was subject to alternative minimum tax. |
| (b)
|
All or
portion of principal amount transferred to a Tender Option Bond (“TOB”) Issuer in exchange for TOB Residuals and cash. |
| (c)
|
Step
coupon—Rate shown was the rate in effect as of May 31, 2022. |
| (d)
|
May be
sold to institutional investors only under Rule 144A or securities offered pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. |
| (e)
|
Bond
insurance is paying principal and interest, since the issuer is in default. |
| (f)
|
Coupon
rate may change based on changes of the underlying collateral or prepayments of principal. Rate shown was the rate in effect as of May 31, 2022. |
The notes to the financial statements are an integral part of, and
should be read in conjunction with, the financial statements.
15
Portfolio of
Investments May 31, 2022† (continued)
| (g)
|
Face
value of Floating Rate Notes issued in TOB transactions. |
"Managed Assets" is defined as the Fund’s total assets,
minus the sum of its accrued liabilities (other than Fund liabilities incurred for the purpose of creating effective leverage (i.e. tender option bonds) or Fund liabilities related to liquidation preference of any preferred shares issued), which was
$836,869,337 as of May 31, 2022.
| Abbreviation(s):
|
| ACA—ACA Financial
Guaranty Corp. |
| AGC—Assured
Guaranty Corp. |
| AGM—Assured
Guaranty Municipal Corp. |
| AMBAC—Ambac
Assurance Corp. |
| BAM—Build
America Mutual Assurance Co. |
| CR—Custodial
Receipts |
| MUN GOVT
GTD—Municipal Government Guaranteed |
| NATL-RE—National
Public Finance Guarantee Corp. |
The following is a summary of the fair valuations
according to the inputs used as of May 31, 2022, for valuing the Fund’s assets:
| Description
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1) |
|
Significant
Other
Observable
Inputs
(Level 2) |
|
Significant
Unobservable
Inputs
(Level 3) |
|
Total
|
| Asset
Valuation Inputs |
|
|
|
|
|
|
|
| Investments
in Securities (a) |
|
|
|
|
|
|
|
| Municipal
Bonds |
$ —
|
|
$ 823,703,574
|
|
$ —
|
|
$ 823,703,574
|
| (a)
|
For
a complete listing of investments and their industries, see the Portfolio of Investments. |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements.
| 16
|
MainStay MacKay DefinedTerm
Municipal Opportunities Fund |
Statement of
Assets and Liabilities as of May 31, 2022
| Assets
|
Investment
in securities, at value
(identified cost $811,635,338) |
$823,703,574
|
| Cash
|
2,584,743
|
| Receivables:
|
|
| Interest
|
11,632,389
|
| Common
shares sold |
134,960
|
| Other
assets |
30,628
|
| Total
assets |
838,086,294
|
| Liabilities
|
| Due
to custodian |
621,048
|
| Payable
for Floating Rate Note Obligations |
326,745,000
|
| Payables:
|
|
| Manager
(See Note 3) |
415,139
|
| Professional
fees |
108,412
|
| Shareholder
communication |
17,115
|
| Custodian
|
14,902
|
| Transfer
agent |
969
|
| Trustees
|
18
|
| Accrued
expenses |
39,354
|
| Interest
expense and fees payable |
1,313,650
|
| Total
liabilities |
329,275,607
|
| Net
assets applicable to Common shares |
$508,810,687
|
| Common
shares outstanding |
27,853,271
|
| Net
asset value per Common share (Net assets applicable to Common shares divided by Common shares outstanding) |
$
18.27 |
| Net
Assets Applicable to Common Shares Consist of |
| Common
shares, $0.001 par value per share, unlimited number of shares authorized |
$
27,853 |
| Additional
paid-in-capital |
530,519,286
|
| |
530,547,139
|
| Total
distributable earnings (loss) |
(21,736,452)
|
| Net
assets applicable to Common shares |
$508,810,687
|
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements.
17
Statement of
Operations for the year ended May 31, 2022
| Investment
Income (Loss) |
| Income
|
|
| Interest
|
$
36,014,829 |
| Expenses
|
|
| Manager
(See Note 3) |
5,381,950
|
| Interest
expense and fees |
4,321,733
|
| Professional
fees |
204,395
|
| Custodian
|
35,354
|
| Shareholder
communication |
33,263
|
| Transfer
agent |
15,976
|
| Trustees
|
11,396
|
| Miscellaneous
|
130,650
|
| Total
expenses |
10,134,717
|
| Net
investment income (loss) |
25,880,112
|
| Realized
and Unrealized Gain (Loss) |
| Net
realized gain (loss) on investments |
(18,321,721)
|
Net
change in unrealized appreciation (depreciation)
on investments |
(62,585,644)
|
| Net
realized and unrealized gain (loss) |
(80,907,365)
|
Net
increase (decrease) in net assets to Common shares
resulting from operations |
$(55,027,253)
|
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements.
| 18
|
MainStay MacKay DefinedTerm
Municipal Opportunities Fund |
Statements of
Changes in Net Assets
for the years ended May 31, 2022 and May 31, 2021
| |
2022
|
2021
|
| Increase
(Decrease) in Net Assets Applicable to Common Shares |
| Operations:
|
|
|
| Net
investment income (loss) |
$
25,880,112 |
$
28,088,294 |
| Net
realized gain (loss) |
(18,321,721)
|
11,953,725
|
| Net
change in unrealized appreciation (depreciation) |
(62,585,644)
|
29,096,609
|
| Net
increase (decrease) in net assets applicable to Common shares resulting from operations |
(55,027,253)
|
69,138,628
|
| Distributions
to Common shareholders |
(28,372,977)
|
(28,279,253)
|
Capital
share transactions
(Common shares): |
|
|
| Net
proceeds issued to shareholders resulting from reinvestment of dividends |
1,559,157
|
2,048,836
|
| Net
increase (decrease) in net assets applicable to Common shares |
(81,841,073)
|
42,908,211
|
| Net
Assets Applicable to Common Shares |
| Beginning
of year |
590,651,760
|
547,743,549
|
| End
of year |
$508,810,687
|
$590,651,760
|
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements.
19
Statement of Cash
Flows
for the year ended May 31, 2022
| Cash
Flows From (Used in) Operating Activities: |
| Net
decrease in net assets resulting from operations |
$
(55,027,253) |
| Adjustments
to reconcile net increase in net assets resulting from operations to net cash used in operating activities: |
|
| Investments
purchased |
(406,518,145)
|
| Investments
sold |
406,136,596
|
| Amortization
(accretion) of discount and premium, net |
4,220,630
|
| Decrease
in interest receivable |
1,369,881
|
| Decrease
in other assets |
925
|
| Increase
in professional fees payable |
6,699
|
| Increase
in custodian payable |
1,862
|
| Increase
in due to custodian |
621,048
|
| Decrease
in shareholder communication payable |
(13,979)
|
| Decrease
in due to Trustees |
(207)
|
| Decrease
in due to manager |
(56,560)
|
| Decrease
in due to transfer agent |
(9,917)
|
| Increase
in accrued expenses |
38,841
|
| Increase
in interest expense and fees payable |
452,084
|
| Net
realized loss from investments |
18,321,721
|
| Net
change in unrealized (appreciation) depreciation on unaffiliated investments |
62,585,644
|
| Net
cash from operating activities |
32,129,870
|
| Cash
Flows From (Used in) Financing Activities: |
| Net
proceeds resulting from reinvestment of dividends |
1,594,935
|
| Proceeds
from floating rate note obligations |
123,765,000
|
| Payments
on floating rate note obligations |
(132,945,000)
|
| Cash
distributions paid, net of change in Common share dividend payable |
(28,372,977)
|
| Net
cash used in financing activities |
(35,958,042)
|
| Net
decrease in cash |
(3,828,172)
|
| Cash
at beginning of year |
6,412,915
|
| Cash
at end of year |
$
2,854,743 |
The notes to the financial statements are an integral part of,
and should be read in conjunction with, the financial statements.
| 20
|
MainStay MacKay DefinedTerm
Municipal Opportunities Fund |
Financial
Highlights selected per share data and ratios
| |
Year
Ended May 31, |
| |
2022
|
|
2021
|
|
2020
|
|
2019
|
|
2018
|
| Net
asset value at beginning of year applicable to Common shares |
$
21.26 |
|
$
19.79 |
|
$
20.41 |
|
$
20.11 |
|
$
20.14 |
| Net
investment income (loss) |
0.93
|
|
1.01
|
|
0.99
|
|
1.01
|
|
1.05
|
| Net
realized and unrealized gain (loss) |
(2.90)
|
|
1.48
|
|
(0.59)
|
|
0.32
|
|
0.00‡
|
| Total
from investment operations |
(1.97)
|
|
2.49
|
|
0.40
|
|
1.33
|
|
1.05
|
| Dividends
and distributions to Common shareholders |
(1.02)
|
|
(1.02)
|
|
(1.02)
|
|
(1.03)
|
|
(1.08)
|
| Net
asset value at end of year applicable to Common shares |
$
18.27 |
|
$
21.26 |
|
$
19.79 |
|
$
20.41 |
|
$
20.11 |
| Market
price at end of year applicable to Common shares |
$
18.80 |
|
$
22.89 |
|
$
20.94 |
|
$
20.65 |
|
$
19.41 |
| Total
investment return on market price (a) |
(13.62)%
|
|
14.79%
|
|
6.62%
|
|
12.05%
|
|
2.88%
|
| Total
investment return on net asset value (a) |
(9.68)%
|
|
12.82%
|
|
1.94%
|
|
6.80%
|
|
5.31%
|
Ratios
(to average net assets of Common shareholders)/
Supplemental Data: |
|
|
|
|
|
|
|
|
|
| Net
investment income (loss) |
4.56%
|
|
4.88%
|
|
4.44%
|
|
5.03%
|
|
5.21%
|
| Net
expenses (including interest expense and fees) |
1.79%
|
|
1.64%
|
|
2.33%
|
|
2.47%
|
|
2.11%
|
| Interest
expense and fees (b) |
0.76%
|
|
0.61%
|
|
1.31%
|
|
1.45%
|
|
1.10%
|
| Portfolio
Turnover Rate |
46%
|
|
20%
|
|
38%(c)
|
|
27%
|
|
20%
|
| Net
assets applicable to Common shareholders at end of year (in 000’s) |
$
508,811 |
|
$
590,652 |
|
$
547,744 |
|
$
563,098 |
|
$
554,332 |
Preferred
shares outstanding at $100,000 liquidation preference,
end of year (in 000’s) (d)(e) |
$
— |
|
$
— |
|
$
70,000 |
|
$
70,000 |
|
$
70,000 |
| Assets
coverage per Preferred share, end of year (d)(e) |
$
— |
|
$
— |
|
$
882,491(f) |
|
$
904,426(f) |
|
$
891,903(f) |
| Average
market value per Preferred share: |
|
|
|
|
|
|
|
|
|
| Series
A (d) |
$
— |
|
$
— |
|
$
100,000 |
|
$
100,000 |
|
$
100,006 |
| Series
B (e) |
$
— |
|
$
— |
|
$
99,999 |
|
$
100,000 |
|
$
100,000 |
| ‡
|
Less than one
cent per share. |
| (a)
|
Total
investment return on market price is calculated assuming a purchase of a Common share at the market price on the first day and a sale on the last day business day of each month. Dividends and distributions are assumed to be reinvested at prices
obtained under the Fund’s dividend reinvestment plan. Total investment return on net asset value reflects the changes in net asset value during each period and assumes the reinvestment of dividends and distributions at net asset value on the
last business day of each month. This percentage may be different from the total investment return on market price, due to differences between the market price and the net asset value. For periods less than one year, total investment return is not
annualized. |
| (b)
|
Interest
expense and fees relate to the costs of tender option bond transactions (See Note 2(G)) and the issuance of fixed rate municipal term preferred shares, where applicable, for the years ended May 31, 2022, 2021, 2020, 2019 and 2018, respectively.
|
| (c)
|
The
portfolio turnover rate includes variable rate demand notes. |
| (d)
|
Redeemed on
June 15, 2020. |
| (e)
|
Redeemed on
December 15, 2020. |
| (f)
|
Calculated
by subtracting the Fund’s total liabilities (not including the Preferred shares) from the Fund’s total assets, and dividing the result by the number of Preferred shares outstanding. |
The notes to the
financial statements are an integral part of, and should be read in conjunction with, the financial statements.
21
Notes to Financial
Statements
Note 1-Organization and Business
MainStay MacKay DefinedTerm Municipal Opportunities Fund (the
“Fund”) was organized as a Delaware statutory trust on April 20, 2011, pursuant to an agreement and declaration of trust, which was most recently amended and restated on June 10, 2022 (“Declaration of Trust’’). The Fund
is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a “diversified”, closed-end management investment company, as those terms are defined in the 1940 Act, as interpreted or modified by
regulatory authorities having jurisdiction, from time to time. The Fund first offered Common shares through an initial public offering on June 26, 2012.
Pursuant to the terms of the Declaration of Trust, the Fund
will commence the process of liquidation and dissolution at the close of business on December 31, 2024 (the “Termination Date”) unless otherwise extended by a majority of the Board of Trustees (the “Board”) (as discussed in
further detail below). During the six-month period preceding the Termination Date or Extended Termination Date (as defined below), the Board may, without shareholder approval unless such approval is required by the 1940 Act, determine to (i) merge
or consolidate the Fund so long as the surviving or resulting entity is an open-end registered investment company that is managed by the same investment adviser which serves as the investment adviser to the Fund at that time or is an affiliate of
such investment adviser; or (ii) convert the Fund from a closed-end fund into an open-end registered investment company. Upon liquidation and termination of the Fund, shareholders will receive an amount equal to the Fund’s net asset value
(“NAV”) at that time, which may be greater or less than the price at which Common shares were issued. The Fund’s investment objectives and policies are not designed to return to investors who purchased Common shares in the initial
offering of such shares their initial investment on the Termination Date and such initial investors may receive more or less than their original investment upon termination.
Prior to the commencement of the six-month period preceding the
Termination Date, a majority of the Board may extend the Termination Date for a period of not more than two years or such shorter time as may be determined (the “Extended Termination Date”), upon a determination that taking such actions
as described in (i) or (ii) above would not, given prevailing market conditions, be in the best interests of the Fund’s shareholders. The Termination Date may be extended one or more times by the Board prior to the first business day of the
sixth month before the next occurring Extended Termination Date.
Pursuant to the June 10, 2022 amendment, if the Fund completes
an Eligible Tender Offer (as defined below), a majority of the Board may, without shareholder approval unless such approval is required by the 1940 Act, eliminate the Termination Date and cause the Fund to have a perpetual existence as a closed-end
fund. An “Eligible Tender Offer” is defined as a tender offer by the Fund to purchase 100% of the then outstanding Common shares of the Fund at a price equal to the NAV per Common share calculated in accordance with the Fund’s
valuation procedures as of the date specified in the tender offer, with the expiration
date of the tender offer being as of a date within twelve months preceding the
Termination Date.
If the payment for properly tendered
Common shares would result in the Fund’s net assets totaling less than $200 million (the “Termination Threshold”), the Eligible Tender Offer shall be canceled, no Common shares will be repurchased pursuant to the Eligible Tender
Offer, and the Fund would dissolve as set forth above. If an Eligible Tender Offer is conducted and the payment for properly tendered Common shares would result in the Fund’s net assets totaling greater than or equal to the Termination
Threshold, all Common shares properly tendered and not withdrawn will be purchased by the Fund pursuant to the terms of the Eligible Tender Offer. The Fund may conduct an Eligible Tender Offer upon the affirmative vote of a majority of the Board -
or by an instrument signed by a majority of the Board - without a vote of the shareholders.
The Fund's primary investment objective is to seek current
income exempt from regular U.S. Federal income taxes (but which may be includable in taxable income for the purpose of the Federal alternative minimum tax). Total return is a secondary objective.
Note 2–Significant Accounting Policies
The Fund is an investment company and accordingly follows the
investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services—Investment Companies. The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described
below.
(A) Securities Valuation. Investments are usually valued as of the close of regular trading on the New York Stock Exchange (the "Exchange") (usually 4:00 p.m. Eastern time) on each day the Fund is open for business
("valuation date").
The Board adopted procedures
establishing methodologies for the valuation of the Fund's securities and other assets and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Fund (the “Valuation
Committee”). The procedures state that, subject to the oversight of the Board and unless otherwise noted, the responsibility for the day-to-day valuation of portfolio assets (including fair value measurements for the Fund's assets and
liabilities) rests with New York Life Investment Management LLC (“New York Life Investments” or the "Manager") aided to whatever extent necessary by the Subadvisor (as defined in Note 3(A)). To assess the appropriateness of security
valuations, the Manager, the Subadvisor or the Fund's third-party service provider, who is subject to oversight by the Manager, regularly compares prior day prices, prices on comparable securities and the sale prices to the prior and current day
prices and challenges prices with changes exceeding certain tolerance levels with third-party pricing services or broker sources.
The Board authorized the Valuation Committee to appoint a
Valuation Subcommittee (the “Subcommittee”) to establish the prices of securities
| 22
|
MainStay MacKay
DefinedTerm Municipal Opportunities Fund |
for which market quotations are not readily available or the prices of which
are not otherwise readily determinable under the procedures. The Subcommittee meets (in person, via electronic mail or via teleconference) on an as-needed basis. The Valuation Committee meets to ensure that actions taken by the Subcommittee were
appropriate.
For those securities valued through either a
standardized fair valuation methodology or a fair valuation measurement, the Subcommittee deals with such valuation and the Valuation Committee reviews and affirms, if appropriate, the reasonableness of the valuation based on such methodologies and
measurements on a regular basis after considering information that is reasonably available and deemed relevant by the Valuation Committee. Any action taken by the Subcommittee with respect to the valuation of a portfolio security or other asset is
submitted for review and ratification (if appropriate) to the Valuation Committee and the Board at the next regularly scheduled meeting.
"Fair value" is defined as the price the Fund would reasonably
expect to receive upon selling an asset or liability in an orderly transaction to an independent buyer in the principal or most advantageous market for the asset or liability. Fair value measurements are determined within a framework that
establishes a three-tier hierarchy that maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. "Inputs" refer broadly to the
assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk
inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources
independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the information available. The inputs or methodology used for
valuing assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities. The three-tier hierarchy of inputs is summarized below.
| •
|
Level
1—quoted prices in active markets for an identical asset or liability |
| •
|
Level
2—other significant observable inputs (including quoted prices for a similar asset or liability in active markets, interest rates and yield curves, prepayment speeds, credit risk, etc.) |
| •
|
Level
3—significant unobservable inputs (including the Fund's own assumptions about the assumptions that market participants would use in measuring fair value of an asset or liability) |
The level of an asset or liability within the fair value
hierarchy is based on the lowest level of an input, both individually and in the aggregate, that is significant to the fair value measurement. The aggregate value by input level of the Fund’s assets and liabilities as of May 31, 2022, is
included at the end of the Portfolio of Investments.
The Fund may use third-party vendor evaluations, whose prices
may be derived from one or more of the following standard inputs, among others:
| •
Benchmark yields |
•
Reported trades |
| •
Broker/dealer quotes |
•
Issuer spreads |
| •
Two-sided markets |
•
Benchmark securities |
| •
Bids/offers |
•
Reference data (corporate actions or material event notices) |
| •
Industry and economic events |
•
Comparable bonds |
| •
Monthly payment information |
|
An asset or liability for which market values cannot be
measured using the methodologies described above is valued by methods deemed reasonable in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund generally
uses a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant information. The Fund may also use an income-based valuation approach in which the
anticipated future cash flows of the asset or liability are discounted to calculate fair value. Discounts may also be applied due to the nature and/or duration of any restrictions on the disposition of the asset or liability. Fair value represents a
good faith approximation of the value of a security. Fair value determinations involve the consideration of a number of subjective factors, an analysis of applicable facts and circumstances and the exercise of judgment. As a result, it is possible
that the fair value for a security determined in good faith in accordance with the Fund's valuation procedures may differ from valuations for the same security determined by other funds using their own valuation procedures. Although the Fund's
valuation procedures are designed to value a security at the price the Fund may reasonably expect to receive upon the security's sale in an orderly transaction, there can be no assurance that any fair value determination thereunder would, in fact,
approximate the amount that the Fund would actually realize upon the sale of the security or the price at which the security would trade if a reliable market price were readily available. During the year ended May 31, 2022, there were no material
changes to the fair value methodologies.
Securities which
may be valued in this manner include, but are not limited to: (i) a security for which trading 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 delisted from a national exchange; (v) a security for which the market price is not readily available from a third-party pricing source or, if so provided,
does not, in the opinion of the Manager or the Subadvisor, reflect the security's market value; (vi) a security subject to trading collars for which no or limited trading takes place; and (vii) a security whose principal market has been temporarily
closed at a time when, under normal conditions, it would be open. Securities valued in this manner are generally categorized as Level 3 in the hierarchy. No securities held by the Fund as of May 31, 2022, were fair valued in such a manner.
Notes to Financial
Statements (continued)
Municipal debt securities are valued at the evaluated mean prices supplied by
a pricing agent or broker selected by the Manager, in consultation with the Subadvisor. The evaluations are market-based measurements processed through a pricing application and represents the pricing agent’s good faith determination as to
what a holder may receive in an orderly transaction under market conditions. The rules-based logic utilizes valuation techniques that reflect participants’ assumptions and vary by asset class and per methodology, maximizing the use of relevant
observable data including quoted prices for similar assets, benchmark yield curves and market corroborated inputs. The evaluated bid or mean prices are deemed by the Manager, in consultation with the Subadvisor, to be representative of market
values, at the regular close of trading of the Exchange on each valuation date. Municipal debt securities purchased on a delayed delivery basis are marked to market daily until settlement at the forward settlement date. Municipal debt securities are
generally categorized as Level 2 in the hierarchy.
The
information above is not intended to reflect an exhaustive list of the methodologies that may be used to value portfolio investments. The valuation procedures permit the use of a variety of valuation methodologies in connection with valuing
portfolio investments. The methodology used for a specific type of investment may vary based on the market data available or other considerations. The methodologies summarized above may not represent the specific means by which portfolio investments
are valued on any particular business day.
(B) Income
Taxes. The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), applicable to regulated
investment companies and to distribute all of its taxable income to the shareholders of the Fund within the allowable time limits.
The Manager evaluates the Fund’s 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 permitted only to the extent the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Manager analyzed the
Fund's tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years) and has concluded that no provisions for federal, state and local income tax are required in the Fund's financial
statements. The Fund's federal, state and local income tax and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local
departments of revenue.
(C) Dividends and
Distributions to Common Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare dividends from net investment income at least
monthly and declares and pays distributions from net realized capital gains, if any, at least annually. Dividends and distributions are determined in accordance with federal income tax regulations and may
differ from determinations using GAAP. For information on the Fund’s
dividend reinvestment plan, please see page 34.
(D) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Interest income is accrued as
earned using the effective interest rate method. Discounts and premiums on securities purchased by the Fund, other than temporary cash investments that mature in 60 days or less at the time of purchase, are accreted and amortized, respectively,
using the effective interest rate method.
The Fund
may place a debt security on non-accrual status and reduce related interest income by ceasing current accruals and writing off all or a portion of any interest receivables when the collection of all or a portion of such interest has become doubtful.
A debt security is removed from non-accrual status when the issuer resumes interest payments or when collectability of interest is reasonably assured.
(E) Expenses. Expenses of the Fund are recorded 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. Certain expenses of the Fund are allocated in proportion to other funds within the MainStay Group of Funds.
(F) Use of Estimates. In preparing financial statements in conformity with GAAP, the Manager makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates and assumptions.
(G) Tender Option Bonds. The Fund may leverage its assets through the use of proceeds received from tender option bond (“TOB”) transactions. In a TOB transaction, a tender option bond trust (a
“TOB Issuer”) is typically established, which forms a special purpose trust into which the Fund, or an agent on behalf of the Fund, transfers municipal bonds or other municipal securities (“Underlying Securities”). A TOB
Issuer typically issues two classes of beneficial interests: short-term floating rate notes (“TOB Floaters”) with a fixed principal amount representing a senior interest in the Underlying Securities, and which are sold to third party
investors, and residual interest municipal tender option bonds (“TOB Residuals”) representing a subordinate interest in the Underlying Securities, and which are generally issued to the Fund. The interest rate on the TOB Floaters resets
periodically, usually weekly, to a prevailing market rate, and holders of the TOB Floaters are granted the option to tender their TOB Floaters back to the TOB Issuer for repurchase at their principal amount plus accrued interest thereon
periodically, usually daily or weekly. The Fund may invest in both TOB Floaters and TOB Residuals. The Fund may not invest more than 5% of its Managed Assets (as defined in Note 3(A)) in any single TOB Issuer. The Fund may invest in both TOB
Floaters and TOB Residuals issued by the same TOB Issuer.
Typically, a fund serves as the sponsor of the TOB issuer
(“Fund-sponsored TOB”). Under this structure, a fund establishes, structures and “sponsors” the TOB Issuer in which it holds TOB Residuals.
| 24
|
MainStay MacKay
DefinedTerm Municipal Opportunities Fund |
The Fund uses this or a similar structure for any TOB in which it invests. In
connection with Fund-sponsored TOBs, the fund sponsoring the Fund-sponsored TOB (“Fund Sponsor”) may contract with a third-party to perform some or all of the Fund Sponsor’s duties as sponsor. Regardless of whether the Fund Sponsor
delegates any of its sponsorship duties to a third party, the Fund Sponsor’s expanded role under the Fund-sponsored TOB structure may increase the Fund Sponsor’s operational and regulatory risk. If the third-party is unable to perform
its obligations as an administrative agent, the Fund Sponsor itself would be subject to such obligations or would need to secure a replacement agent. The obligations that the Fund Sponsor may be required to undertake could include reporting and
recordkeeping obligations under the Internal Revenue Code and federal securities laws and contractual obligations with other TOB service providers. The Fund may serve as a Fund Sponsor to a Fund-sponsored TOB. If the Fund serves as a Fund Sponsor,
it would be subject to the obligations discussed above and the risks attendant to such obligations.
Under the Fund-sponsored TOB structure, the TOB Issuer receives
Underlying Securities from the Fund through (or as) the Fund Sponsor and then issues TOB Floaters to third party investors and TOB Residuals to the Fund. The Fund is paid the cash (less transaction expenses, which are borne by the Fund) received by
the TOB Issuer from the sale of TOB Floaters and typically will invest the cash in additional municipal bonds or other investments permitted by its investment policies. TOB Floaters may have first priority on the cash flow from the securities held
by the TOB Issuer and are enhanced with a liquidity support arrangement from a bank or an affiliate of the sponsor (the “liquidity provider”), which allows holders to tender their position back to the TOB Issuer at par (plus accrued
interest). The Fund, in addition to receiving cash from the sale of TOB Floaters, also receives TOB Residuals. TOB Residuals provide the Fund with the right to (1) cause the holders of TOB Floaters to tender their notes to the TOB Issuer at par
(plus accrued interest), and (2) acquire the Underlying Securities from the TOB Issuer. In addition, all voting rights and decisions to be made with respect to any other rights relating to the Underlying Securities deposited in the TOB Issuer are
passed through to the Fund, as the holder of TOB Residuals. Such a transaction, in effect, creates exposure for the Fund to the entire return of the Underlying Securities deposited in the TOB Issuer, with a net cash investment by the Fund that is
less than the value of the Underlying Securities deposited in the TOB Issuer. This multiplies the positive or negative impact of the Underlying Securities’ return within the Fund (thereby creating leverage). Income received from TOB Residuals
will vary inversely with the short-term rate paid to holders of TOB Floaters and in most circumstances, TOB Residuals represent substantially all of the Underlying Securities’ downside investment risk and also benefits disproportionately from
any potential appreciation of the Underlying Securities’ value. The amount of such increase or decrease is a function, in part, of the amount of TOB Floaters sold by the TOB Issuer of these securities relative to the amount of TOB Residuals
that it sells. The greater the amount of TOB Floaters sold relative to TOB Residuals, the more volatile the income paid on TOB Residuals will be. The price of TOB Residuals will be more volatile than that of the Underlying Securities because the
interest rate is
dependent on not only the fixed coupon rate of the Underlying Securities, but
also on the short-term interest rate paid on TOB Floaters.
For TOB Floaters, generally, the interest rate earned will be
based upon the market rates for municipal securities with maturities or remarketing provisions that are comparable in duration to the periodic interval of the tender option, which may vary from weekly, to monthly, to extended periods of one year or
multiple years. Since the option feature has a shorter term than the final maturity or first call date of the Underlying Securities deposited in the TOB Issuer, the Fund, if it is the holder of the TOB Floaters, relies upon the terms of the
agreement with the financial institution furnishing the option as well as the credit strength of that institution. As further assurance of liquidity, the terms of the TOB Issuer provide for a liquidation of the Underlying Security deposited in the
TOB Issuer and the application of the proceeds to pay off the TOB Floaters.
The TOB Issuer may be terminated without the consent of the
Fund upon the occurrence of certain events, such as the bankruptcy or default of the issuer of the Underlying Securities deposited in the TOB Issuer, a substantial downgrade in the credit quality of the issuer of the securities deposited in the TOB
Issuer, the inability of the TOB Issuer to obtain liquidity support for the TOB Floaters, a substantial decline in the market value of the Underlying Securities deposited in the TOB Issuer, or the inability of the sponsor to remarket any TOB
Floaters tendered to it by holders of the TOB Floaters. In such an event, the TOB Floaters would be redeemed by the TOB Issuer at par (plus accrued interest) out of the proceeds from a sale of the Underlying Securities deposited in the TOB Issuer.
If this happens, the Fund would be entitled to the assets of the TOB Issuer, if any, that remain after the TOB Floaters have been redeemed at par (plus accrued interest). If there are insufficient proceeds from the sale of these Underlying
Securities to redeem all of the TOB Floaters at par (plus accrued interest), the liquidity provider or holders of the TOB Floaters would bear the losses on those securities and there would be no recourse to the Fund’s assets (unless the Fund
held a recourse TOB Residual).
To the extent that the
remarketing agent and/or the liquidity provider is a banking entity, the TOB may face heightened liquidity risks due to restrictions applicable to banking entities under the Volcker Rule. The Volcker Rule generally prohibits banking entities from
engaging in proprietary trading or from acquiring or retaining an ownership interest in, or sponsoring, a hedge fund or private equity fund (a “Covered Fund”). TOB Issuers are often structured as a Covered Fund, and therefore, a banking
entity that is a remarketing agent would not be able to repurchase tendered TOB Floaters for its own account upon a failed remarketing. In the event of a failed remarketing, a banking entity serving as liquidity provider may loan the necessary funds
to the TOB Issuer to purchase the tendered TOB Floaters. The TOB Issuer, not the Fund Sponsor or the Fund, would be the borrower and the loan from the liquidity provider will be secured by the purchased TOB Floaters now held by the TOB Issuer.
However, the Fund Sponsor and the Fund would bear the risk of loss with respect to any liquidity shortfall to the extent it entered into a reimbursement agreement with the liquidity provider. If a TOB Issuer in which the Fund invests experiences
adverse events in
Notes to Financial
Statements (continued)
connection with a failed remarketing of TOB Floaters or a liquidity shortfall,
the Fund would experience a loss.
For financial reporting
purposes, Underlying Securities that are deposited into a TOB Issuer are treated as investments of the Fund, and are presented in the Fund’s Portfolio of Investments. Outstanding TOB Floaters issued by a TOB Issuer are presented as a liability
at their face value as “Payable for Floating Rate Note Obligations” in the Fund’s Statement of Assets and Liabilities. The face value of the TOB Floaters approximates their fair value of the floating rate notes. Interest income
from the Underlying Securities are recorded by the Fund on an accrual basis. Interest expense incurred on the TOB Floaters and other expenses related to remarketing, administration and trustee services to a TOB Issuer are recognized as a component
of “Interest expense and fees” in the Statement of Operations.
At May 31, 2022, the aggregate value of the Underlying
Securities transferred to the TOB Issuer and the related liability for TOB Floaters were as follows:
Underlying
Securities Transferred
to TOB Issuers |
Liability
for
Floating Rate Note
Obligations |
| $474,614,115
|
$326,745,000
|
During the year ended May 31, 2022,
the Fund's average TOB Floaters outstanding and the daily weighted average interest rate, including fees, were as follows:
Average
Floating Rate Note
Obligations Outstanding |
Daily
Weighted
Average
Interest Rate |
| $324,321,356
|
1.33%
|
(H) Statement of Cash
Flows. The cash amount shown in the Fund’s Statement of Cash Flows is the amount included in the Fund’s Statement of Assets and Liabilities and represents the cash on
hand at its custodian and restricted cash, if any, as of May 31, 2022.
(I) Municipal Bond Risk. The Fund may invest more heavily in municipal bonds from certain cities, states, territories or regions than others, which may increase the Fund’s exposure to losses resulting from
economic, political, regulatory occurrences, or declines in tax revenue impacting these particular cities, states, territories or regions. In addition, many state and municipal governments that issue securities are under significant economic and
financial stress and may not be able to satisfy their obligations, and these events may be made worse due to economic challenges posed by COVID-19. The Fund may invest a substantial amount of its assets in municipal bonds whose interest is paid
solely from revenues of similar projects, such as tobacco settlement bonds. If the Fund concentrates its investments in this manner, it assumes the legal and economic risks relating to such projects and this may have a significant impact on the
Fund’s investment performance.
Certain of
the issuers in which the Fund may invest have recently experienced, or may experience, significant financial difficulties and repeated credit rating downgrades. On May 3, 2017, the Commonwealth
of Puerto Rico (the "Commonwealth") began proceedings pursuant to the Puerto
Rico Oversight, Management, and Economic Stability Act (“PROMESA”) to seek bankruptcy-type protections from approximately $74 billion in debt and approximately $48 billion in unfunded pension obligations. In addition, the economic
downturn following the outbreak of COVID-19 and the resulting pressure on Puerto Rico’s budget have further contributed to its financial challenges. The federal government has passed certain relief packages, including the Coronavirus Aid,
Relief, and Economic Security Act and the American Rescue Plan, which include an aggregate of more than $7 billion in disaster relief funds for the U.S. territories, including Puerto Rico. However, there can be no assurances that the federal funds
allocated to the Commonwealth will be sufficient to address the economic challenges arising from COVID-19.
The Commonwealth concluded its Title III restructuring
proceedings on behalf of itself and certain instrumentalities effective March 15th, 2022. Approximately $18.75 billion of claims related to debt guaranteed under Puerto Rico's constitution including the Commonwealth of Puerto Rico and Public
Building Authority were restructured with issuance of $7.4 billion in new Puerto Rico General Obligation Bonds, $7.1 billion of cash, and $3.5 billion of new Contingent Value instruments. In addition the Commonwealth's exit from the restructuring
proceedings resolved certain claims relating to the Commonwealth Employee Retirement System, Convention Center, Highway Authority, and Infrastructure Financing Authority. Several of Commonwealth's agencies are still under Title III restructuring
proceedings including the Highway Authority and Electric Authority.
Puerto Rico’s debt restructuring process and other
economic, political, social, environmental or health factors or developments could occur rapidly and may significantly affect the value of municipal securities of Puerto Rico. Due to the ongoing budget impact from COVID-19 on the
Commonwealth’s finances, the Federal Oversight and Management Board for Puerto Rico or the Commonwealth itself could seek to revise or even terminate earlier agreements reached with certain creditors prior to the outbreak of COVID-19. Any
agreement between the Federal Oversight and Management Board and creditors is subject to approval by the judge overseeing the Title III proceedings. The composition of the Federal Oversight and Management Board has changed during the recent period
due to existing members either stepping down or being replaced following the expiration of a member's term. There is no assurance that board members will approve the restructuring agreements the prior board had negotiated.
The Fund’s vulnerability to potential losses associated
with such developments may be reduced through investing in municipal securities that feature credit enhancements (such as bond insurance). The bond insurance provider pays both principal and interest when due to the bond holder. The magnitude of
Puerto Rico’s debt restructuring or other adverse economic developments could pose significant strains on the ability of municipal securities insurers to meet all future claims. As of May 31, 2022, 75.0% of the Puerto Rico municipal securities
held by the Fund were insured. The Fund’s largest bond insurance provider, Assured Guaranty Municipal Corp., insured certain Puerto Rico municipal
| 26
|
MainStay MacKay
DefinedTerm Municipal Opportunities Fund |
securities totaling 1.93% of the Fund’s total investments. Those
securities, whose principal and interest are covered by bond insurance providers, are shown in the Portfolio of Investments.
(J) Indemnifications. Under the Fund’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Fund.
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 that may provide general indemnifications. The Fund's maximum exposure
under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. The Manager believes 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 Investments, 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 pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund.
During a portion of the year ended May 31, 2022, the Fund reimbursed New York Life Investments in an amount equal to the portion of the compensation of the Chief Compliance Officer attributable to the Fund. MacKay Shields LLC ("MacKay Shields" or
the "Subadvisor"), a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life, serves as Subadvisor to the Fund and is responsible for the day-to-day portfolio management of the Fund. Pursuant to the terms of a
Subadvisory Agreement ("Subadvisory Agreement") between New York Life Investments and MacKay Shields, New York Life Investments pays for the services of the Subadvisor.
Under the Management Agreement, the Fund pays the Manager a
monthly fee for the services performed and the facilities furnished at an annual rate of 0.60% of the “Managed Assets”. Managed Assets is defined as the Fund’s total assets, minus the sum of its accrued liabilities (other than Fund
liabilities incurred for the purpose of creating effective leverage (i.e. tender option bonds) or Fund liabilities related to liquidation preference of any Preferred shares issued).
During the year ended May 31, 2022, New York Life Investments
earned fees from the Fund in the amount of $5,381,950 and paid the Subadvisor in the amount of $2,690,975.
JPMorgan Chase Bank, N.A. ("JPMorgan") 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 NAVs, and assisting New York Life Investments in conducting various aspects of the Fund's administrative operations. For providing these services
to the Fund, JPMorgan is compensated by New York Life Investments.
Pursuant to an agreement between the Fund and New York Life
Investments, New York Life Investments is responsible for providing or procuring certain regulatory reporting services for the Fund. The Fund will reimburse New York Life Investments for the actual costs incurred by New York Life Investments in
connection with providing or procuring these services for the Fund.
(B) Transfer, Dividend Disbursing and Shareholder Servicing
Agent. Computershare Trust Company, N.A. (“Computershare”), 150 Royall Street, Canton, Massachusetts, 02021, is the Fund’s transfer, dividend disbursing and
shareholder servicing agent pursuant to an agreement between the Fund and Computershare.
Note 4–Federal Income Tax
As of May 31, 2022, the cost and unrealized appreciation
(depreciation) of the Fund’s investment portfolio, including applicable derivative contracts and other financial instruments, as determined on a federal income tax basis, were as follows:
| |
Federal
Tax
Cost |
Gross
Unrealized
Appreciation |
Gross
Unrealized
(Depreciation) |
Net
Unrealized
Appreciation/
(Depreciation) |
| Investments
in Securities |
$496,692,360
|
$13,242,803
|
$(12,976,589)
|
$266,214
|
As of May 31, 2022, the components
of accumulated gain (loss) on a tax basis were as follows:
Ordinary
income |
Undistributed
Tax Exempt
Income |
Accumulated
Capital
and Other
Gain (Loss) |
Other
Temporary
Differences |
Unrealized
Appreciation
(Depreciation) |
Total
Accumulated
Gain (Loss) |
| $—
|
$9,201,192
|
$(30,157,789)
|
$—
|
$(779,855)
|
$(21,736,452)
|
The difference between book-basis
and tax basis unrealized depreciation is due to TOB transactions.
As of May 31, 2022, for federal income tax purposes, capital
loss carryforwards of $30,157,789, as shown in the table below, were available to the extent provided by the regulations to offset future realized gains of the Fund. Accordingly, no capital gains distributions are expected to be paid to shareholders
until net gains have been realized in excess of such amounts.
Capital
Loss
Available Through |
Short-Term
Capital Loss
Amounts (000’s) |
Long-Term
Capital Loss
Amounts (000’s) |
| Unlimited
|
$24,885
|
$5,273
|
Notes to Financial
Statements (continued)
During the years ended May 31, 2022 and May 31, 2021, the tax
character of distributions paid to Common shareholders (as reflected in the Statements of Changes in Net Assets) and Preferred shareholders (included as interest expense for financial statement purposes) was as follows:
| |
2022
|
|
2021
|
| Distributions
paid from: |
Ordinary
Income |
Exempt
Interest
Dividends |
Long-Term
Capital Gain |
|
Ordinary
Income |
Exempt
Interest
Dividends |
Long-Term
Capital Gain |
| Common
shares |
$1,090,377
|
$27,282,600
|
$—
|
|
$23,434
|
$28,255,819
|
$—
|
| Prefered
shares |
—
|
—
|
—
|
|
1,278
|
1,538,991
|
—
|
| Total
|
$1,090,377
|
$27,282,600
|
$—
|
|
$24,712
|
$29,794,810
|
$—
|
Note 5–Custodian
JPMorgan is the custodian of cash and securities held by the
Fund. Custodial fees are charged to the Fund based on the Fund's net assets and/or the market value of securities held by the Fund and the number of certain transactions incurred by the Fund.
Note 6–Purchases and Sales of Securities (in
000’s)
During the year ended May 31, 2022,
purchases and sales of securities, other than short-term securities, were $406,518 and $406,137, respectively.
Note 7–Capital Share Transactions
Transactions in capital shares for the years ended May 31, 2022
and May 31, 2021, were as follows:
| Common
Shares |
Shares
|
Amount
|
| Year
ended May 31, 2022: |
|
|
| Common
shares issued to shareholders in reinvestment of distributions (a) |
76,072
|
$1,559,157
|
| Year
ended May 31, 2021: |
|
|
| Common
shares issued to shareholders in reinvestment of distributions (a) |
98,420
|
$2,048,836
|
| (a)
|
See
page 34 for information on the Fund’s dividend reinvestment plan. |
Note 8–Other Matters
An outbreak of COVID-19, first detected in December 2019, has
developed into a global pandemic and has resulted in travel restrictions, closure of international borders, certain businesses and securities markets, restrictions on securities trading activities, prolonged quarantines, supply chain disruptions,
and lower consumer demand, as well as general concern and uncertainty. The continued impact of COVID-19 and related variants is uncertain and could further adversely affect the global economy, national economies, individual issuers and capital
markets in unforeseeable ways and result in a substantial and extended economic downturn. Developments that disrupt global economies and financial markets, such as COVID-19, may magnify factors that affect the Fund's performance.
Note 9–Subsequent Events
In connection with the preparation of the financial statements
of the Fund as of and for the year ended May 31, 2022, events and transactions subsequent to May 31, 2022, through the date the financial statements were issued have been evaluated by the Manager for possible adjustment and/or disclosure. No
subsequent events requiring financial statement adjustment or disclosure have been identified, other than the following:
On April 1, 2022, the Fund declared a dividend in the amount of
$0.085 per Common share, payable on June 30, 2022, to shareholders of record on June 15, 2022.
On July 1, 2022, the Fund declared dividends to Common
shareholders for the upcoming quarter as shown in the following schedule:
| Month
|
Ex-Date
|
Record
Date |
Payable
Date |
Amount
|
| July
|
7/14/22
|
7/15/22
|
7/29/22
|
$0.085
|
| August
|
8/12/22
|
8/15/22
|
8/31/22
|
$0.085
|
| September
|
9/14/22
|
9/15/22
|
9/30/22
|
$0.085
|
| 28
|
MainStay MacKay
DefinedTerm Municipal Opportunities Fund |
Report of Independent Registered
Public Accounting Firm
To the Board of Trustees and Shareholders of MainStay MacKay
DefinedTerm Municipal Opportunities Fund
Opinion on the
Financial Statements
We have audited the accompanying
statement of assets and liabilities, including the portfolio of investments, of MainStay MacKay DefinedTerm Municipal Opportunities Fund (the "Fund") as of May 31, 2022, the related statements of operations and cash flows for the year ended May 31,
2022, the statements of changes in net assets for each of the two years in the period ended May 31, 2022, including the related notes, and the financial highlights for each of the five years in the period ended May 31, 2022 (collectively referred to
as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of May 31, 2022, the results of its operations and its cash flows for the year then
ended, the changes in its net assets for each of the two years in the period ended May 31, 2022 and the financial highlights for each of the five years in the period ended May 31, 2022 in conformity with accounting principles generally accepted in
the United States of America.
Basis for Opinion
These financial statements are the responsibility of the
Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in
accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks
of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation
of securities owned as of May 31, 2022 by correspondence with the custodian and trust administrator. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
New York, New York
July
20, 2022
We have served as the auditor of one or more
investment companies in the MainStay group of funds since 1984.
Board
Consideration and Approval of Management Agreement and Subadvisory Agreement (Unaudited)
The continuation of the Management Agreement with respect to the MainStay
MacKay DefinedTerm Municipal Opportunities Fund (“Fund”) and New York Life Investment Management LLC (“New York Life Investments”) and the Subadvisory Agreement between New York Life Investments and MacKay Shields LLC
(“MacKay”) with respect to the Fund (together, “Advisory Agreements”), following an initial term of up to two years, is subject to annual review and approval by the Board of Trustees of the Fund (“Board”) in
accordance with Section 15 of the Investment Company Act of 1940, as amended (“1940 Act”). At its December 8–9, 2021 meeting, the Board, including the Trustees who are not an “interested person” (as such term is defined
in the 1940 Act) of the Fund (“Independent Trustees”) voting separately, unanimously approved the continuation of each of the Advisory Agreements for a one-year period.
In reaching the decision to approve the continuation of each of
the Advisory Agreements, the Board considered information and materials furnished by New York Life Investments and MacKay in connection with an annual contract review process undertaken by the Board that took place at meetings of the Board and its
Contracts Committee during September 2021 through December 2021, including information and materials furnished by New York Life Investments and MacKay in response to requests prepared on behalf of the Board, and in consultation with the Independent
Trustees, by independent legal counsel to the Independent Trustees, which encompassed a variety of topics, including those summarized below. Information and materials requested by and furnished to the Board for consideration in connection with the
contract review process included, among other items, reports on the Fund and “peer funds” prepared by Institutional Shareholder Services Inc. (“ISS”), an independent third-party service provider engaged by the Board to report
objectively on the Fund’s investment performance, management fee and total expenses. The Board also considered information on the fees charged to other investment advisory clients of New York Life Investments and/or MacKay that follow
investment strategies similar to those of the Fund, if any, and, when applicable, the rationale for any differences in the Fund’s management and subadvisory fees and the fees charged to those other investment advisory clients. In addition, the
Board considered information regarding the legal standards and fiduciary obligations applicable to its consideration of the continuation of each of the Advisory Agreements. The contract review process, including the structure and format for
information and materials provided to the Board, has been developed in consultation with the Board. The Independent Trustees also met in executive sessions with their independent legal counsel and, for portions thereof, with senior management of New
York Life Investments.
The Board’s deliberations
with respect to the continuation of each of the Advisory Agreements reflect a year-long process, and the Board also took into account information furnished to the Board and its Committees throughout the year, as deemed relevant and appropriate by
the Trustees, including, among other items, reports on investment performance of the Fund and investment-related matters for the Fund as well as presentations from New York Life Investments and MacKay personnel. In
addition, the Board took into account other information received from New York
Life Investments throughout the year, including, among other items, periodic reports on legal and compliance matters, risk management, portfolio turnover, brokerage commissions and non-advisory services provided to the Fund by New York Life
Investments, as deemed relevant and appropriate by the Trustees.
In considering the continuation of each of the Advisory
Agreements, the Trustees reviewed and evaluated the information and factors they believed to reasonably be necessary and appropriate in light of legal advice furnished to them by independent legal counsel to the Independent Trustees and through the
exercise of their own business judgment. Although individual Trustees may have weighed certain factors or information differently and the Board did not consider any single factor or information controlling in reaching its decision, the factors
considered by the Board are described in greater detail below and include, among other factors: (i) the nature, extent and quality of the services provided to the Fund by New York Life Investments and MacKay; (ii) the qualifications of the portfolio
managers of the Fund and the historical investment performance of the Fund, New York Life Investments and MacKay; (iii) the costs of the services provided, and profits realized, by New York Life Investments and MacKay with respect to their
relationships with the Fund; (iv) the extent to which economies of scale have been realized or may be realized if the Fund grows and the extent to which economies of scale have benefited or may benefit the Fund’s shareholders; and (v) the
reasonableness of the Fund’s management and subadvisory fees and total ordinary operating expenses. Although the Board recognized that comparisons between the Fund’s fees and expenses and those of other funds are imprecise given
different terms of agreements, variations in fund strategies and other factors, the Board considered the reasonableness of the Fund’s management fee and total ordinary operating expenses as compared to the peer funds identified by ISS.
Throughout their considerations, the Trustees acknowledged the commitment of New York Life Investments and its affiliates to serve the MainStay Group of Funds, as well as their capacity, experience, resources, financial stability and reputations.
The Trustees also acknowledged the entrepreneurial and other risks assumed by New York Life Investments in sponsoring and managing the Fund. Additionally, the Board took into account the Fund’s structure as a limited term trust.
The Trustees noted that, throughout the year, the Trustees are
afforded an opportunity to ask questions of, and request additional information or materials from, New York Life Investments and MacKay. The Board’s decision with respect to each of the Advisory Agreements may have also been based, in part, on
the Board’s knowledge of New York Life Investments and MacKay resulting from, among other things, the Board’s consideration of each of the Advisory Agreements in prior years, the advisory agreements for other funds in the MainStay Group
of Funds, the Board’s review throughout the year of the performance and operations of other funds in the MainStay Group of Funds and each Trustee’s business judgment and industry experience. In addition to considering the
above-referenced factors, the Board observed that in the marketplace
| 30
|
MainStay MacKay
DefinedTerm Municipal Opportunities Fund |
there are a range of investment options available to investors and that the
Fund’s shareholders, having had the opportunity to consider other investment options, have chosen to invest in the Fund.
The factors that figured prominently in the Board’s
decision to approve the continuation of each of the Advisory Agreements during its December 8–9, 2021 meeting are summarized in more detail below.
Nature, Extent and Quality of Services Provided by New York
Life Investments and MacKay
The Board examined the
nature, extent and quality of the services that New York Life Investments provides to the Fund. The Board evaluated New York Life Investments’ experience and capabilities in serving as manager of the Fund and considered that the Fund operates
in a “manager-of-managers” structure. The Board also considered New York Life Investments’ responsibilities and services provided pursuant to this structure, including evaluating the performance of MacKay, making recommendations to
the Board as to whether the Subadvisory Agreement should be renewed, modified or terminated and periodically reporting to the Board regarding the results of New York Life Investments’ evaluation and monitoring functions. The Board noted that
New York Life Investments manages other mutual funds, serves a variety of other investment advisory clients, including other pooled investment vehicles, and has experience overseeing mutual fund service providers, including subadvisors. The Board
also noted that the services provided to the Fund as a closed-end fund may differ from the services provided to open-end funds and other investment advisory clients, such as compliance services provided in connection with the Fund’s use of
leverage and trading of Fund shares on the New York Stock Exchange. The Board considered the experience of senior personnel at New York Life Investments providing management and administrative and other non-advisory services to the Fund as well as
New York Life Investments’ reputation and financial condition. The Board observed that New York Life Investments devotes significant resources and time to providing management and non-advisory services to the Fund, including New York Life
Investments’ supervision and due diligence reviews of MacKay and ongoing analysis of, and interactions with, MacKay with respect to, among other things, the Fund’s investment performance and risks as well as MacKay’s investment
capabilities and subadvisory services with respect to the Fund.
The Board also considered the range of services that New York
Life Investments provides to the Fund under the terms of the Management Agreement, including: (i) fund accounting and ongoing supervisory services provided by New York Life Investments’ Fund Administration and Accounting Group; (ii) investment
supervisory and analytical services provided by New York Life Investments’ Investment Consulting Group; (iii) compliance services provided by the Fund’s Chief Compliance Officer as well as New York Life Investments’ compliance
department, including supervision and implementation of the Fund’s compliance program; (iv) legal services provided by New York Life Investments’ Office of the General Counsel; and (v) risk management monitoring and analysis by
compliance and investment personnel. The Board noted that New York Life Investments provides certain other non-advisory services to the Fund.
In addition, the Board considered New York Life Investments’ willingness
to invest in personnel and other resources, such as cyber security, information security and business continuity planning, designed to benefit the Fund and noted that New York Life Investments is responsible for compensating the Fund’s
officers. The Board recognized that New York Life Investments has provided an increasingly broad array of non-advisory services to the MainStay Group of Funds as a result of regulatory and other developments.
The Board also examined the range, and the nature, extent and
quality, of the investment advisory services that MacKay provides to the Fund and considered the terms of each of the Advisory Agreements. The Board evaluated MacKay’s experience and performance in serving as subadvisor to the Fund and
advising other portfolios and MacKay’s track record and experience in providing investment advisory services, the experience of investment advisory, senior management and administrative personnel at MacKay and New York Life Investments’
and MacKay’s overall resources, legal and compliance environment, capabilities, reputation and history. In addition to information provided in connection with quarterly meetings with the Fund’s Chief Compliance Officer, the Board
considered information regarding the compliance policies and procedures of New York Life Investments and MacKay and acknowledged their commitment to further developing and strengthening compliance programs relating to the Fund. The Board reviewed
MacKay’s ability to attract and retain qualified investment professionals and willingness to invest in personnel to service and support the Fund. In this regard, the Board considered the qualifications and experience of the Fund’s
portfolio managers, the number of accounts managed by the portfolio managers and the method for compensating the portfolio managers.
In addition, the Board considered information provided by New
York Life Investments and MacKay regarding the operations of their respective business continuity plans in response to the ongoing COVID-19 pandemic, including the remote working environment.
Based on these considerations, the Board concluded that the
Fund would likely continue to benefit from the nature, extent and quality of these services.
Investment Performance
In evaluating the Fund’s investment performance, the
Board considered investment performance results over various periods in light of the Fund’s investment objective, strategies and risks. The Board considered investment reports on, and analysis of, the Fund’s performance provided to the
Board throughout the year. These reports include, among other items, information on the Fund’s use of leverage, the Fund’s gross and net returns, the Fund’s investment performance compared to relevant investment categories and the
Fund’s benchmark, the Fund’s risk-adjusted investment performance and the Fund’s investment performance as compared to peer funds, as appropriate, as well as
Board
Consideration and Approval of Management Agreement and Subadvisory Agreement (Unaudited) (continued)
portfolio attribution information and commentary on the effect of market
conditions. The Board also considered information provided by ISS showing the investment performance of the Fund as compared to peer funds.
The Board also gave weight to its discussions with senior
management at New York Life Investments concerning the Fund’s investment performance attributable to MacKay as well as discussions between the Fund’s portfolio management team and the members of the Board’s Investment Committee,
which generally occur on an annual basis. In addition, the Board considered any specific actions that New York Life Investments or MacKay had taken, or had agreed to take, to seek to enhance Fund investment performance and the results of those
actions.
Based on these considerations, the Board
concluded that its review of the Fund’s investment performance and related information supported a determination to approve the continuation of each of the Advisory Agreements.
Costs of the Services Provided, and Profits Realized, by New
York Life Investments and MacKay
The Board considered the
costs of the services provided under each of the Advisory Agreements. The Board also considered the profits realized by New York Life Investments and its affiliates, including MacKay, due to their relationships with the Fund. Because MacKay is an
affiliate of New York Life Investments whose subadvisory fee is paid by New York Life Investments, not the Fund, the Board considered cost and profitability information for New York Life Investments and MacKay in the aggregate.
In addition, the Board acknowledged the difficulty in obtaining
reliable comparative data about mutual fund managers’ profitability because such information generally is not publicly available and may be impacted by numerous factors, including the structure of a fund manager’s organization, the types
of funds it manages, the methodology used to allocate certain fixed costs to specific funds and the manager’s capital structure and costs of capital.
In evaluating the costs of the services provided by New York
Life Investments and MacKay and profits realized by New York Life Investments and its affiliates, including MacKay, the Board considered, among other factors, New York Life Investments’ and its affiliates’ continuing investments in, or
willingness to invest in, personnel and other resources to support and further enhance the management of the Fund, and that New York Life Investments is responsible for paying the subadvisory fee for the Fund. The Board also considered the financial
resources of New York Life Investments and MacKay and acknowledged that New York Life Investments and MacKay must be in a position to attract and retain experienced professional personnel and to maintain a strong financial position for New York Life
Investments and MacKay to continue to provide high-quality services to the Fund. The Board recognized that the Fund benefits from the allocation of certain fixed costs among the funds in the MainStay Group of Funds, among other expected benefits
resulting from its relationship with New York Life Investments.
The Board considered information regarding New York Life Investments’
methodology for calculating profitability and allocating costs provided by New York Life Investments in connection with the fund profitability analysis presented to the Board. The Board previously engaged an independent consultant to review the
methods used to allocate costs among the funds in the MainStay Group of Funds. The Board noted that the independent consultant had concluded that New York Life Investments’ methods for allocating costs and procedures for estimating overall
profitability of the relationship with the funds in the MainStay Group of Funds are reasonable and that New York Life Investments continued to use the same method of calculating profit and allocating costs since the independent consultant’s
review. The Board recognized the difficulty in calculating and evaluating a manager’s profitability with respect to the Fund and noted that other profitability methodologies may also be reasonable.
The Board also considered certain fall-out benefits that may be
realized by New York Life Investments and its affiliates due to their relationships with the Fund, including reputational and other indirect benefits. The Board recognized, for example, the benefits to MacKay from legally permitted
“soft-dollar” arrangements by which brokers provide research and other services to MacKay in exchange for commissions paid by the Fund with respect to trades in the Fund’s portfolio securities. In addition, the Board considered its
review of a money market fund advised by New York Life Investments and an affiliated subadvisor that serves as an investment option for the Fund, including the potential rationale for and costs associated with investments in this money market fund
by the Fund, if any, and considered information from New York Life Investments that the nature and type of specific investment advisory services provided to this money market fund are distinct from, or in addition to, the investment advisory
services provided to the Fund.
The Board noted that,
although it assessed the overall profitability of the Fund to New York Life Investments and its affiliates as part of the contract review process, when considering the reasonableness of the fee paid to New York Life Investments under the Management
Agreement, the Board considered the profitability of New York Life Investments’ relationship with the Fund on a pre-tax basis.
After evaluating the information deemed relevant by the
Trustees, the Board concluded that any profits realized by New York Life Investments and its affiliates, including MacKay, due to their relationships with the Fund were not excessive.
Management and Subadvisory Fees and Total Ordinary Operating
Expenses
The Board evaluated the reasonableness of the
fee paid under each of the Advisory Agreements and the Fund’s total ordinary operating expenses. The Board primarily considered the reasonableness of the management fee paid by the Fund to New York Life Investments because the subadvisory fee
paid to MacKay is paid by New York Life Investments,
| 32
|
MainStay MacKay
DefinedTerm Municipal Opportunities Fund |
not the Fund. The Board also considered the reasonableness of the subadvisory
fee paid by New York Life Investments and the amount of the management fee retained by New York Life Investments.
In assessing the reasonableness of the Fund’s fees and
expenses, the Board primarily considered comparative data provided by ISS on the fees and expenses charged by similar mutual funds managed by other investment advisers. In addition, the Board considered information provided by New York Life
Investments and MacKay on fees charged to other investment advisory clients, including institutional separate accounts and/or other funds that follow investment strategies similar to those of the Fund, if any. The Board considered the similarities
and differences in the contractual management fee schedules of the Fund and those of the similarly-managed accounts and/or funds, taking into account the rationale for any differences in fee schedules. The Board also took into account explanations
provided by New York Life Investments about the more extensive scope of services provided to registered investment companies, such as the Fund, as compared with other investment advisory clients. Additionally, the Board considered the impact of
voluntary waivers on the Fund’s net management fee and expenses. The Board noted that most closed-end funds do not have contractual breakpoints. The Board also considered that in proposing fees for the Fund, New York Life Investments considers
the competitive marketplace for mutual funds. The Board considered its discussions with representatives from New York Life Investments regarding the management fee paid by the Fund.
The Board also considered that, unlike with respect to the
open-end funds in the MainStay Group of Funds, the management fee for the Fund is based on the “managed assets” of the Fund, which include assets attributable to the Fund’s use of “effective leverage,” as defined in the
Fund’s prospectus. The Board acknowledged that New York Life Investments and MacKay have the ability to increase the amount of the Fund’s managed assets through the use of effective leverage, which may cause a conflict of interest. In
assessing the reasonableness of the management fee and the methodology for its calculation, the Board took into account, among other factors, representations from MacKay and New York Life Investments that they provide services of the same nature,
extent and quality with respect to assets of the Fund that are created through effective leverage as they would with respect to other assets of the Fund.
Based on the factors outlined above, the Board concluded that
the Fund’s management fee and total ordinary operating expenses were within a range that is competitive and support a conclusion that these fees and expenses are reasonable.
Economies of Scale
The Board considered information regarding economies of scale,
including whether the Fund’s expense structure permits economies of scale to be appropriately shared with the Fund’s shareholders. The Board also considered a report from New York Life Investments, previously prepared at the request of
the Board, that addressed economies of scale,
including with respect to the mutual fund business generally, and the various
ways in which the benefits of economies of scale may be shared with the funds in the MainStay Group of Funds. Although the Board recognized the difficulty of determining economies of scale with precision, the Board acknowledged that economies of
scale may be shared with the Fund in a number of ways, including, for example, through the imposition of fee breakpoints, initially setting management fee rates at scale or making additional investments to enhance services. The Board reviewed
information from New York Life Investments showing how the Fund’s management fee schedule compared to fee schedules of other funds and accounts managed by New York Life Investments. The Board also reviewed information from ISS showing how the
Fund’s management fee schedule compared with fees paid for similar services by peer funds at varying asset levels.
Based on this information, the Board concluded that economies
of scale are appropriately reflected for the benefit of the Fund’s shareholders through the Fund’s expense structure and other methods to share benefits from economies of scale.
Conclusion
On the basis of the information and factors summarized above,
among other information and factors deemed relevant by the Trustees, and the evaluation thereof, the Board, including the Independent Trustees voting separately, unanimously voted to approve the continuation of each of the Advisory Agreements.
Dividend
Reinvestment Plan (Unaudited)
Pursuant to the Fund’s Dividend Reinvestment Plan (the
“Plan”) shareholders whose shares are registered in their own name may “opt-in” to the Plan and elect to reinvest all or a portion of their distributions in the Common shares by providing the required enrollment notice to
Computershare Trust Company, N.A., the Plan Administrator (“Plan Administrator”). Shareholders whose shares are held in the name of a broker or other nominee may have distributions reinvested only if such a service is provided by the
broker or the nominee or if the broker or the nominee permits participation in the Plan. Shareholders whose shares are held in the name of a broker or other nominee should contact the broker or nominee for details. A shareholder may terminate
participation in the Plan at any time by notifying the Plan Administrator before the record date of the next distribution through the Internet, by telephone or in writing. All distributions to shareholders who do not participate in the Plan, or have
elected to terminate their participation in the Plan, will be paid by check mailed directly to the record holder by or under the direction of the Plan Administrator when the Fund declares a distribution.
When the Fund declares a dividend or other distribution
(together, a “Dividend”) payable in cash, non-participants in the Plan will receive cash and participants in the Plan (i.e., those holders of Common shares who (“opt-in”) will receive the equivalent in Common shares. The
Common shares will be acquired by the Plan Administrator for the participants’ accounts, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized Common shares from the Fund
(“Newly Issued Common Shares”) or (ii) by purchase of outstanding Common shares on the open market (“Open-Market Purchases”) on the NYSE or elsewhere. If, on the payment date for any Dividend, the closing market price per
Common share plus estimated per share fees, which include any brokerage commissions the Plan Administrator is required to pay, is equal to or greater than the NAV per Common share, the Plan Administrator will invest the Dividend amount in Newly
Issued Common shares on behalf of the participants. The number of Newly Issued Common Shares to be credited to each participant’s account will be determined by dividing the dollar amount of the Dividend by the NAV per Common share on the
payment date; provided that, if the NAV is less or equal to 95% of the closing market value on the payment date, the dollar amount of the Dividend will be divided by 95% of the closing market price per Common share on the payment date. If, on the
payment date for any Dividend, the NAV per Common share is greater than the closing market value plus estimated per share fees, the Plan Administrator will invest the Dividend amount in Common shares acquired on behalf of the participants in
Open-Market Purchases. In the event of a market discount on the payment date for any Dividend, the Plan Administrator will have until the last business day before the next date on which the Common shares trade on an “ex-dividend” basis
or 30 days after the payment date for such Dividend, whichever is sooner (the “Last Purchase Date”), to invest the Dividend amount in Common shares acquired in Open-Market Purchases. It is contemplated that the Fund will pay monthly
income Dividends. Therefore, the period during which Open-Market Purchases can be made will exist only from the payment date of each Dividend through the date before the next “ex-dividend” date which typically will be approximately ten
days. If, before the Plan Administrator has completed its Open-Market Purchases, the market price per Common share exceeds the NAV per Common shares, the average per Common share purchase price paid by the Plan Administrator may exceed the NAV of
the Common shares, resulting in the acquisition of fewer Common shares than if the Dividend had been paid in Newly Issued Common Shares on the Dividend payment date.
Because of the foregoing difficulty with respect to Open-Market Purchases, the
Plan provides that if the Plan Administrator is unable to invest the full Dividend amount in Open-Market Purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Administrator may
cease making Open-Market Purchases and may invest the uninvested portion of the Dividend amount in Newly Issued Common Shares at the NAV per Common share at the close of business on the Last Purchase Date provided that, if the NAV per Common share
is less than or equal to 95% of the then current market price per Common share; the dollar amount of the Dividend will be divided by 95% of the market price per Common share on the payment date.
The Plan Administrator maintains all shareholders’
accounts in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by shareholders for tax records. Common shares in the account of each Plan participant will be held by the Plan Administrator
on behalf of the Plan participant, and each shareholder proxy will include those shares purchased or received pursuant to the Plan. The Plan Administrator will forward all proxy solicitation materials to participants and vote proxies for shares held
under the Plan in accordance with the instructions of the participants.
In the case of shareholders such as banks, brokers or nominees
which hold shares for others who are the beneficial owners, the Plan Administrator will administer the Plan on the basis of the number of Common shares certified from time to time by the record shareholder’s name and held for the account of
beneficial owners who participate in the Plan.
There will
be no charges with respect to Common shares issued directly by the Fund as a result of dividends or capital gains distributions payable either in Common shares or in cash. The Plan Administrator’s fees for the handling of the reinvestment of
dividends and distributions will be paid by the Fund. However, each participant will pay a per share fee incurred in connection with Open-Market Purchases. The reinvestment of Dividends will not relieve participants of any Federal, state or local
income tax that may be payable (or required to be withheld) on such dividends. See “U.S. Federal Income Tax Matters.” Participants that request a sale of shares through the Plan Administrator are subject to a $2.50 sales fee and a $.15
per share sold fee. All per share fees include any brokerage commission the Plan Administrator is required to pay.
The Fund reserves the right to amend or terminate the Plan.
There is no direct service charge to participants with regard to purchases in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants.
All correspondence or questions concerning the Plan should be
directed to the Plan Administrator, Computershare Trust Company, N.A., by telephone (855) 456-9683, through the internet at www.computershare.com/investor or in writing to P.O. Box 505000, Louisville, Kentucky 40233.
| 34
|
MainStay MacKay
DefinedTerm Municipal Opportunities Fund |
Federal Income Tax
Information
(Unaudited)
The Fund is required under the
Internal Revenue Code to advise shareholders in a written statement as to the federal tax status of dividends paid by the Fund during such fiscal years.
For Federal individual income tax purposes, the Fund designated
96.2% of the ordinary income dividends paid during its fiscal year ended May 31, 2022 as attributable to interest income from Tax Exempt Municipal Bonds. Such dividends are currently exempt from Federal income taxes under Section 103(a) of the
Internal Revenue Code.
In February 2023, shareholders
will receive an IRS Form 1099-DIV or substitute Form 1099, which will show the federal tax status of the distributions received by shareholders in calendar year 2022. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be
the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund's fiscal year ended May 31, 2022.
Proxy Results
The Annual Meeting of Shareholders was held on September 29,
2021, to elect three Class III Trustees of the Fund by shareholders of record as on July 6, 2021. Listed below are the results of this voting.
| Trustees
|
Votes
FOR |
Votes
WITHHELD |
Abstentions
|
Total
Votes |
| David
H. Chow |
25,311,017
|
207,278
|
0
|
25,518,295
|
| Yie-Hsin
Hung |
25,305,720
|
212,575
|
0
|
25,518,295
|
| Richard S.Trutanic
|
25,057,818
|
460,477
|
0
|
25,518,295
|
Proxy Voting Policies and Procedures
and Proxy Voting Record
The Fund is required to file with
the SEC its proxy voting records for the 12-month period ending June 30 on Form N-PX. A description of the policies and procedures that are used to vote proxies relating to portfolio securities of the Fund is available free of charge upon request by
calling 800-624-6782 or visiting the SEC’s website at www.sec.gov . The most recent Form N-PX or proxy voting record is available free of charge upon request by
calling 800-624-6782; visiting newyorklifeinvestments.com; or visiting 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 60 days after its first and third fiscal quarter on Form N-PORT. The Fund's holdings report is available free of charge upon request by calling New York Life Investments at 800-624-6782.
Additional Information Regarding the Fund (Unaudited)
CHANGES OCCURRING DURING THE PRIOR FISCAL YEAR
The following information in this annual report is a summary of
certain changes during the most recent fiscal year. This information may not reflect all of the changes that have occurred since you purchased shares of the Fund.
During the applicable period, except as noted below, there have
been: (i) no material changes to the Fund’s investment objectives and policies that constitute its principal portfolio emphasis that have not been approved by shareholders; (ii) no changes to the persons primarily responsible for day-to-day
management of the Fund; and (iii) no changes to the Fund’s charter or by-laws that would delay or prevent a change of control.
Principal Risks of the Fund
Recent Events Risk
An outbreak of infectious respiratory disease caused by a novel
coronavirus known as COVID-19 (“Coronavirus”), first detected in China in December 2019, has been detected globally. The outbreak of COVID-19 and the current recovery underway has caused disruption to consumer demand, economic output and
supply chains. There are still travel restrictions, quarantines and disparate global vaccine distributions. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and
monetary policy changes. These include providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates. In some cases, these responses resulted in negative interest rates and higher
inflation. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, continue to cause higher inflation,
heighten investor uncertainty and adversely affect the value of the Fund’s investments and the performance of the Fund. The duration and extent of COVID-19 over the long term cannot be reasonably estimated at this time. The ultimate impact of
COVID-19 and the extent to which COVID-19 impacts the Fund will depend on future developments, which are highly uncertain and difficult to predict. Management continues to monitor and evaluate this situation. Epidemics and/or pandemics, such as the
Coronavirus, have and may further result in, among other things, travel restrictions, closure of international borders, certain businesses and securities markets, restrictions on securities trading activities, prolonged quarantines, supply chain
disruptions and lower consumer demand, as well as general concern and uncertainty. The impact of the Coronavirus, and other epidemics and/or pandemics that may arise in the future, are uncertain and could adversely affect the global economy,
national economies, individual issuers and capital markets in unforeseeable ways and result in a substantial and extended economic downturn. In addition, public health crises caused by the Coronavirus may exacerbate other pre-existing political,
social and economic risks in certain countries.
In late
February 2022, the Russian military invaded Ukraine, which amplified existing geopolitical tensions among Russia, Ukraine, Europe and many other countries including the U.S. and other members of the North Atlantic Treaty Organization
(“NATO”). In response, various countries, including the U.S., the United Kingdom and members of the European Union issued broad-ranging economic sanctions against Russia, Russian companies and financial institutions, Russian individuals
and others. Additional sanctions may be imposed in the future. Such
sanctions (and any future sanctions) and other actions against Russia and
Russia’s military action against Ukraine will adversely impact the economies of Russia and Ukraine. Certain sectors of each country’s economy may be particularly affected, including but not limited to, financials, energy, metals and
mining, engineering and defense and defense-related materials sectors.
Further, a number of large corporations and U.S. and foreign
governmental entities have announced plans to divest interests or otherwise curtail business dealings in Russia or with certain Russian businesses. These events have resulted in (and will continue to result in) a loss of liquidity and value of
Russian and Ukrainian securities and, in some cases, a complete inability to trade in or settle trades in transactions in certain Russian securities. Further actions are likely to be taken by the international community, including governments and
private corporations, that will adversely impact the Russian economy in particular. Such actions may include boycotts, tariffs, and purchasing and financing restrictions on Russia’s government, companies and certain individuals, or other
unforeseeable actions.
The Russian and Ukrainian
governments, economies, companies and the region will likely be further adversely impacted in unforeseeable ways. The ramifications of the hostilities and sanctions may also negatively impact other regional and global economic markets (including
Europe and the U.S.), companies in other countries (particularly those that have done business with Russia) and various sectors, industries and markets for securities and commodities globally, such as oil and natural gas and precious metals. The
extent and duration of the military action or future escalation of such hostilities, the extent and impact of existing and future sanctions, market disruptions and volatility, and the result of any diplomatic negotiations cannot be predicted. These
and any related events could have a significant impact on the Fund’s performance and the value of an investment in the Fund.
PRINCIPAL INVESTMENT OBJECTIVE
The Fund’s primary investment objective is to seek
current income exempt from regular U.S. Federal income taxes (but which may be includable in taxable income for purposes of the Federal alternative minimum tax). Total return is a secondary objective.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its investment objectives by
investing, under normal market conditions, at least 80% of its “Managed Assets” (as defined below) in municipal bonds, the interest on which is, in the opinion of bond counsel to the issuers, generally excludable from gross income for
regular U.S. Federal income tax purposes (except that the interest may be includable in taxable income for purposes of the Federal alternative minimum tax).
Municipal bonds are types of debt obligations, which may have a
variety of issuers, including governmental entities or other qualifying issuers. Issuers may be states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies and instrumentalities.
Municipal bonds include, among other instruments, general obligation bonds, revenue bonds, municipal leases, certificates of participation, private activity bonds, and moral obligation bonds, as well as short-term, tax-exempt obligations such as
municipal notes and variable rate demand obligations. Under normal market conditions, the Fund may not invest more than 25% of its Managed Assets in municipal bonds in any one industry or in any one state of origin and no more than 5% of its Managed
Assets in any one issuer.
| 36
|
MainStay MacKay
DefinedTerm Municipal Opportunities Fund |
Although the Fund may invest in municipal bonds rated in any
rating category or in unrated municipal bonds, MacKay Shields, the Fund’s Subadvisor, invests at least 75% of the Managed Assets in investment grade quality municipal bonds as rated by at least one independent rating agency (such as bonds
rated BBB- or higher by Standard & Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”) or Fitch Ratings, Inc. (“Fitch”) or Baa3 or higher by Moody’s Investor Service, Inc.
(“Moody’s”)). It is possible that the Fund could invest up to 100% of its Managed Assets in these securities. The Fund may invest up to 25% of its Managed Assets in non-investment grade municipal bonds (commonly referred to as
“junk bonds”). Investing in junk bonds is speculative and presents a high degree of risk. If the independent ratings agencies assign different ratings to the same security, the Fund will use the higher rating for purposes of determining
the security’s credit quality. The Fund may also invest up to 20% in taxable municipal securities. The Fund can invest in bonds of any maturity; however, it will generally invest in municipal bonds that have a maturity of five years or longer
at the time of purchase. The Fund may invest up to 30% of its Managed Assets in municipal bonds that pay interest that may be includable in taxable income for purposes of the Federal alternative minimum tax.
A portion of the Fund’s distributions may be (i) subject
to U.S. Federal income tax and such distributions will generally be subject to state and local taxes, and (ii) includable in taxable income for purposes of the Federal alternative minimum tax.
The Fund may invest in other registered investment companies,
including open- and closed-end funds and exchange-traded funds (“ETFs”), subject to the limitations of the Investment Company Act of 1940, as amended (the “1940 Act”). Income or gain from such investments may result in
taxable distributions by the Fund.
The Fund may use
leverage through the use of proceeds received from tender option bond transactions, issuing preferred shares, or funds borrowed from banks or other financial institutions (i.e., credit facility).
The Fund may invest in securities that, at the time of
investment, are illiquid (determined using the Securities and Exchange Commission’s (“SEC”) standard applicable to registered investment companies, i.e., securities that cannot be disposed of within seven days in the ordinary
course of business at approximately the value at which the Fund has valued the securities). However, the Fund will not invest more than 15% of its Managed Assets in securities that, at the time of investment, are illiquid.
“Managed Assets” means the total assets of the
Fund, minus the sum of its accrued liabilities (other than Fund liabilities incurred for the purpose of creating Effective Leverage (as defined below) or Fund liabilities related to the liquidation preference of any preferred shares issued). Total
assets for this purpose shall include assets attributable to the Fund’s use of Effective Leverage, such as, but not limited to, the use of proceeds received from tender option bond transactions, issuing preferred shares, or funds borrowed from
banks or other financial institutions (i.e., credit facility).
All percentage limitations described in this report are
measured at the time of investment and may be exceeded on a going-forward basis as a result of credit rating downgrades or market value fluctuations of the Fund’s portfolio securities. To the extent the Fund invests in other registered
investment companies, the Fund may count such holdings towards various guideline tests (such as the 80% policy), so long as the earnings on the underlying holdings of such investment companies are exempt from regular U.S. Federal income taxes (but
which may be
includable in taxable income for purposes of the Federal alternative minimum
tax).
The Fund’s 80% policy and certain of the
investment restrictions are considered fundamental and may not be changed without approval by holders of a majority of the outstanding voting securities of the Fund, as defined in the 1940 Act, which includes common shares and preferred shares, if
any, voting together as a single class, and the holders of the outstanding preferred shares voting as a single class. The remainder of the Fund’s investment policies, including its investment strategy, are considered non-fundamental and may be
changed by the Fund’s board of trustees (“Board of Trustees”) without shareholder approval provided that shareholders receive at least 60 days’ prior notice of any such change adopted by the Board of Trustees.
INVESTMENT PHILOSOPHY AND PROCESS
The Subadvisor believes inefficiencies exist in the tax-exempt
and tax-advantaged securities markets. In order to capitalize on these opportunities, the Subadvisor applies both a top-down and bottom-up research investment process. The Subadvisor’s top-down analysis considers the economic, interest rate,
inflation outlook and other economic variables to guide overall portfolio structure. In implementing its bottom-up analysis, the Subadvisor employs a value-oriented security selection process to invest in securities it believes to be mispriced which
offer a yield advantage. In choosing investments, the Subadvisor analyzes the credit quality of issuers and considers the yields available on municipal bonds with different maturities. In addition, the Subadvisor reviews macroeconomic events,
technical characteristics in the municipal bond market, tax policies, as well as analyzing individual municipal securities and sectors. The Subadvisor seeks to reduce volatility through its disciplined investment process and investment risk
management.
The Subadvisor may sell a security if it no
longer believes the security will contribute to meeting the investment objectives of the Fund. In considering whether to sell a security, the Subadvisor may evaluate, among other things, the condition of the economy and meaningful changes in the
issuer’s financial condition.
PORTFOLIO
COMPOSITION
The following provides additional information
about the types of securities and other instruments in which the Fund will or may ordinarily invest.
Municipal Bonds. Set forth
below is a detailed description of the municipal bonds in which the Fund invests. Obligations are included within the term “municipal bonds” if the interest paid thereon is excluded from gross income for U.S. Federal income tax purposes
in the opinion of bond counsel to the issuer.
Municipal bonds are either general obligation or revenue bonds
and typically are issued to finance public projects, such as roads or public buildings, to pay general operating expenses or to refinance outstanding debt. Municipal bonds may also be issued for private activities, such as housing, medical and
educational facility construction or for privately owned industrial development and pollution control projects. General obligation bonds are backed by the full faith and credit and taxing authority of the issuer and may be repaid from any revenue
source. Revenue bonds may be repaid only from the revenues of a specific facility or source. The Fund also may purchase Municipal bonds that represent lease obligations. These carry special risks because the issuer of the bonds may not be obligated
to appropriate money annually to make payments under the lease. See “Risks—Municipal Bond Market Risk.”
The municipal bonds in which the Fund invests pay interest or
income that, in the opinion of bond counsel to the issuer, is exempt from regular U.S. Federal income tax. The Subadvisor does not conduct its own analysis of the tax status of the interest paid by municipal bonds held by the Fund, but will rely on
the opinion of counsel to the issuer of each such instrument. The Fund may also invest in municipal bonds issued by United States Territories (such as Puerto Rico or Guam) that are exempt from regular U.S. Federal income tax. In addition to the
types of municipal bonds described in this report, the Fund may invest in other securities that pay interest or income that is, or make other distributions that are, exempt from regular U.S. Federal income tax and/or state and local taxes,
regardless of the technical structure of the issuer of the instrument. The Fund treats all of such tax-exempt securities as municipal bonds.
The yields on municipal bonds are dependent on a variety of
factors, including prevailing interest rates and the condition of the general money market and the municipal bond market, the size of a particular offering, the maturity of the obligation and the rating of the issuer. The market value of municipal
bonds will vary with changes in interest rate levels and as a result of changing evaluations of the ability of bond issuers to meet interest and principal payments.
General Obligation Bonds.
General obligation bonds are backed by the issuer’s full faith and credit and taxing authority for the payment of principal and interest. The taxing authority of any governmental entity may be limited, however,
by provisions of its state constitution or laws, and an entity’s creditworthiness will depend on many factors, including potential erosion of its tax base due to population declines, natural disasters, declines in the state’s industrial
base or inability to attract new industries, economic limits on the ability to tax without eroding the tax base, state legislative proposals or voter initiatives to limit ad valorem real property taxes and the extent to which the entity relies on
Federal or state aid, access to capital markets or other factors beyond the state’s or entity’s control. Accordingly, the capacity of the issuer of a general obligation bond as to the timely payment of interest and the repayment of
principal when due is affected by the issuer’s maintenance of its tax base.
Revenue Bonds. Revenue bonds
are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue sources such as payments from the user of the facility being
financed. Accordingly, the timely payment of interest and the repayment of principal in accordance with the terms of the revenue or special obligation bond is a function of the economic viability of such facility or such revenue source.
Private Activity Bonds.
Private activity bonds, formerly referred to as industrial development bonds, are issued by or on behalf of public authorities to obtain funds to provide privately operated housing facilities, airport, mass transit
or port facilities, sewage disposal, solid waste disposal or hazardous waste treatment or disposal facilities and certain local facilities for water supply, gas or electricity. Other types of private activity bonds, the proceeds of which are used
for the construction, equipping, repair or improvement of privately operated industrial or commercial facilities, may constitute municipal bonds, although the current U.S. Federal income tax laws place substantial limitations on the size of such
issues.
Private activity bonds are secured
primarily by revenues derived from loan repayments or lease payments due from the entity, which may or may not be guaranteed by a parent company or otherwise secured. Private activity bonds generally are not secured by a pledge of the taxing power
of the issuer of such bonds. Therefore, an investor should be aware that
repayment of such bonds generally depends on the revenues of a private entity
and be aware of the risks that such an investment may entail. Continued ability of an entity to generate sufficient revenues for the payment of principal and interest on such bonds will be affected by many factors including the size of the entity,
capital structure, demand for its products or services, competition, general economic conditions, government regulation and the entity’s dependence on revenues for the operation of the particular facility being financed. The Fund expects that,
due to investments in private activity bonds, a portion of the distributions it makes on the common shares will be includable in the Federal alternative minimum taxable income.
Moral Obligation Bonds. The
Fund also may invest in “moral obligation” bonds, which are normally issued by special purpose public authorities. If an issuer of moral obligation bonds is unable to meet its obligations, the repayment of such bonds becomes a moral
commitment but not a legal obligation of the state or municipality in question.
Municipal Lease Obligations and Certificates of Participation.
Also included within the general category of municipal bonds are participations in lease obligations or installment purchase contract obligations of municipal authorities or entities (hereinafter collectively called “Municipal Lease
Obligations”). Although a Municipal Lease Obligation does not constitute a general obligation of the municipality for which the municipality’s taxing power is pledged, a Municipal Lease Obligation is ordinarily backed by the
municipality’s covenant to budget for, appropriate and make the payments due under the Municipal Lease Obligation. However, certain Municipal Lease Obligations contain “non-appropriation” clauses which provide that the municipality
has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. In the case of a “non-appropriation” lease, a Fund’s ability to recover under the
lease in the event of non-appropriation or default will be limited solely to the repossession of the leased property, without recourse to the general credit of the lessee, and the disposition or re-leasing of the property might prove difficult. A
certificate of participation represents an undivided interest in an unmanaged pool of municipal leases, an installment purchase agreement or other instruments. The certificates are typically issued by a municipal agency, a trust or other entity that
has received an assignment of the payments to be made by the state or political subdivision under such leases or installment purchase agreements. In addition, such participations generally provide the Fund with the right to demand payment, on not
more than seven days’ notice, of all or any part of the Fund’s participation interest in the underlying leases, plus accrued interest.
Zero Coupon Bonds. The Fund
may invest in zero-coupon bonds. A zero coupon bond is a bond that does not pay interest either for the entire life of the obligation or for an initial period after the issuance of the obligation. When held to its maturity, its return comes from the
difference between the purchase price and its maturity value. A zero coupon bond is normally issued and traded at a deep discount from face value. Zero coupon bonds allow an issuer to avoid or delay the need to generate cash to meet current interest
payments and, as a result, may involve greater credit risk than bonds that pay interest currently or in cash. The market prices of zero coupon bonds are affected to a greater extent by changes in prevailing levels of interest rates and thereby tend
to be more volatile in price than securities that pay interest periodically. In addition, the Fund would be required to distribute the income on any of these instruments as it accrues, even though the Fund will not receive all of the income on a
current basis or in cash. Thus, the Fund may have to sell other
| 38
|
MainStay MacKay
DefinedTerm Municipal Opportunities Fund |
investments, including when it may not be advisable to do so, to make income
distributions to its common shareholders.
“Non-Investment Grade” or “Junk” Bonds.
The Fund may invest up to 25% of its Managed Assets in non-investment grade municipal bonds (commonly referred to as “junk bonds”). Securities rated below investment grade are judged to have speculative characteristics with respect to
their interest and principal payments. Such securities may face major ongoing uncertainties or exposure to adverse business, financial or economic conditions, which could lead to inadequate capacity to meet timely interest and principal
payments.
TENDER OPTION BONDS
The Fund may leverage its assets through the use of proceeds
received from tender option bond (“TOB”) transactions. In a TOB transaction, a tender option bond trust (a “TOB Issuer”) is typically established, which forms a special purpose trust into which the Fund, or an agent on behalf
of the Fund, transfers municipal bonds or other municipal securities (“Underlying Securities”). A TOB Issuer typically issues two classes of beneficial interests: short-term floating rate notes (“TOB Floaters”) with a fixed
principal amount representing a senior interest in the Underlying Securities, and which are sold to third party investors, and residual interest municipal tender option bonds (“TOB Residuals”) representing a subordinate interest in the
Underlying Securities, and which are generally issued to the Fund. The interest rate on the TOB Floaters resets periodically, usually weekly, to a prevailing market rate, and holders of the TOB Floaters are granted the option to tender their TOB
Floaters back to the TOB Issuer for repurchase at their principal amount plus accrued interest thereon periodically, usually daily or weekly. The Fund may invest in both TOB Floaters and TOB Residuals. The Fund may not invest more than 5% of its
Managed Assets in any single TOB Issuer. The Fund may invest in both TOB Floaters and TOB Residuals issued by the same TOB Issuer.
Typically, a fund serves as the sponsor of the TOB issuer
(“Fund-sponsored TOB”). Under this structure, a fund establishes, structures and “sponsors” the TOB Issuer in which it holds TOB Residuals. The Fund uses this or a similar structure for any TOB in which it invests. In
connection with Fund-sponsored TOBs, the fund sponsoring the Fund-sponsored TOB (“Fund Sponsor”) may contract with a third-party to perform some or all of the Fund Sponsor’s duties as sponsor. Regardless of whether the Fund Sponsor
delegates any of its sponsorship duties to a third party, the Fund’s role under the Fund-sponsored TOB structure may increase the Fund Sponsor’s operational and regulatory risk as compared to a structure where the Fund is not the
sponsor. If the third-party is unable to perform its obligations as an administrative agent, the Fund Sponsor itself would be subject to such obligations or would need to secure a replacement agent. The obligations that the Fund Sponsor may be
required to undertake could include reporting and recordkeeping obligations under the Internal Revenue Code and federal securities laws and contractual obligations with other TOB service providers.
Under the Fund-sponsored TOB structure, the TOB Issuer receives
Underlying Securities from the Fund through (or as) the Fund Sponsor and then issues TOB Floaters to third party investors and TOB Residuals to the Fund. The Fund is paid the cash (less transaction expenses, which are borne by the Fund) received by
the TOB Issuer from the sale of TOB Floaters and typically will invest the cash in additional municipal bonds or other investments permitted by its investment policies. TOB Floaters may have first priority on the cash flow from the securities held
by the TOB Issuer and are enhanced with a liquidity support arrangement from a bank or an affiliate of the sponsor (the “liquidity provider”), which allows
holders to tender their position back to the TOB Issuer at par (plus accrued
interest). The Fund, in addition to receiving cash from the sale of TOB Floaters, also receives TOB Residuals. TOB Residuals provide the Fund with the right to (1) cause the holders of TOB Floaters to tender their notes to the TOB Issuer at par
(plus accrued interest), and (2) acquire the Underlying Securities from the TOB Issuer. In addition, all voting rights and decisions to be made with respect to any other rights relating to the Underlying Securities deposited in the TOB Issuer are
passed through to the Fund, as the holder of TOB Residuals. Such a transaction, in effect, creates exposure for the Fund to the entire return of the Underlying Securities deposited in the TOB Issuer, with a net cash investment by the Fund that is
less than the value of the Underlying Securities deposited in the TOB Issuer. This multiplies the positive or negative impact of the Underlying Securities’ return within the Fund (thereby creating leverage). Income received from TOB Residuals
will vary inversely with the short-term rate paid to holders of TOB Floaters and in most circumstances, TOB Residuals represent substantially all of the Underlying Securities’ downside investment risk and also benefits disproportionately from
any potential appreciation of the Underlying Securities’ value. The amount of such increase or decrease is a function, in part, of the amount of TOB Floaters sold by the TOB Issuer of these securities relative to the amount of TOB Residuals
that it sells. The greater the amount of TOB Floaters sold relative to TOB Residuals, the more volatile the income paid on TOB Residuals will be. The price of TOB Residuals will be more volatile than that of the Underlying Securities because the
interest rate is dependent on not only the fixed coupon rate of the Underlying Securities, but also on the short-term interest rate paid on TOB Floaters. For TOB Floaters, generally, the interest rate earned will be based upon the market rates for
municipal securities with maturities or remarketing provisions that are comparable in duration to the periodic interval of the tender option, which may vary from weekly, to monthly, to extended periods of one year or multiple years. Since the option
feature has a shorter term than the final maturity or first call date of the Underlying Securities deposited in the TOB Issuer, the Fund, if it is the holder of the TOB Floaters, relies upon the terms of the agreement with the financial institution
furnishing the option as well as the credit strength of that institution. As further assurance of liquidity, the terms of the TOB Issuer provide for a liquidation of the Underlying Security deposited in the TOB Issuer and the application of the
proceeds to pay off the TOB Floaters.
The TOB Issuer may
be terminated without the consent of the Fund upon the occurrence of certain events, such as the bankruptcy or default of the issuer of the Underlying Securities deposited in the TOB Issuer, a substantial downgrade in the credit quality of the
issuer of the securities deposited in the TOB Issuer, the inability of the TOB Issuer to obtain liquidity support for the TOB Floaters, a substantial decline in the market value of the Underlying Securities deposited in the TOB Issuer, or the
inability of the sponsor to remarket any TOB Floaters tendered to it by holders of the TOB Floaters. In such an event, the TOB Floaters would be redeemed by the TOB Issuer at par (plus accrued interest) out of the proceeds from a sale of the
Underlying Securities deposited in the TOB Issuer. If this happens, the Fund would be entitled to the assets of the TOB Issuer, if any, that remain after the TOB Floaters have been redeemed at par (plus accrued interest). If there are insufficient
proceeds from the sale of these Underlying Securities to redeem all of the TOB Floaters at par (plus accrued interest), the liquidity provider or holders of the TOB Floaters would bear the losses on those securities and there would be no recourse to
the Fund’s assets (unless the Fund held a recourse TOB Residual).
To the extent that the remarketing agent and/or the liquidity
provider is a banking entity, the TOB may face heightened liquidity risks due to restrictions applicable to banking entities under the Volcker Rule. The Volcker Rule generally prohibits banking entities from engaging in proprietary trading or from
acquiring or retaining an ownership interest in, or sponsoring, a hedge fund or private equity fund (a “Covered Fund”). TOB Issuers are often structured as a Covered Fund, and therefore, a banking entity that is a remarketing agent would
not be able to repurchase tendered TOB Floaters for its own account upon a failed remarketing. In the event of a failed remarketing, a banking entity serving as liquidity provider may loan the necessary funds to the TOB Issuer to purchase the
tendered TOB Floaters. The TOB Issuer, not the Fund Sponsor or the Fund, would be the borrower and the loan from the liquidity provider will be secured by the purchased TOB Floaters now held by the TOB Issuer. However, the Fund Sponsor and the Fund
would bear the risk of loss with respect to any liquidity shortfall to the extent it entered into a reimbursement agreement with the liquidity provider. If a TOB Issuer in which the Fund invests experiences adverse events in connection with a failed
remarketing of TOB Floaters or a liquidity shortfall, the Fund would experience a loss.
Under accounting rules, securities of the Fund that are
deposited into a TOB Issuer are treated as investments of the Fund and are presented on the Fund’s Schedule of Investments and outstanding TOB Floaters issued by a TOB Issuer are presented as liabilities in the Fund’s Statement of Assets
and Liabilities. Interest income from the underlying security is recorded by the Fund on an accrual basis. Interest expense incurred on the TOB Floaters and other expense related to remarketing, administration and trustee services to a TOB Issuer
are reported as expenses of the Fund.
The Fund intends to
invest in TOB Residuals, the interest on which will, in the opinion of bond counsel, be exempt from regular U.S. Federal income tax. However, because there can be no assurance that the IRS will agree with such counsel’s opinion in any
particular case, there is a risk that the Fund will not be considered the owner of such tender option bonds and thus will not be entitled to treat such interest as exempt from such tax. Additionally, the U.S. Federal income tax treatment of certain
other aspects of these investments, including the proper tax treatment of TOB Residuals and the associated fees in relation to various regulated investment company tax provisions, is, in some cases, not certain.
OTHER INVESTMENT COMPANIES
The Fund may, subject to the limitations of the 1940 Act,
invest in securities of other open- or closed-end investment companies (including ETFs) that invest primarily in securities of the types in which the Fund may invest directly. The Fund generally expects to invest in other investment companies either
during periods when it has large amounts of uninvested cash, such as the period shortly after the Fund receives the proceeds of the offering of its common shares or any offering of preferred shares, or during periods when there is a shortage of
attractive, high-yielding municipal securities available in the market or when attractive investment opportunities arise in other investment companies. As a shareholder in an investment company, the Fund will bear its ratable share of that
investment company’s expenses, and will remain subject to payment of that investment company’s advisory and other fees and expenses with respect to assets so invested. Holders of common shares will therefore be subject to duplicative
expenses to the extent the Fund invests in other investment companies. The Subadvisor will take expenses into account when evaluating the investment merits of an investment in an investment company relative to available municipal securities
investments. In addition, the securities of other investment companies may
also be leveraged and will therefore be subject to the same leverage risks to which the Fund is subject. The NAV and market value of leveraged shares will be more volatile and the yield to shareholders will tend to fluctuate more than the yield
generated by unleveraged shares. Other investment companies may have investment policies that differ from those of the Fund. In addition, to the extent the Fund invests in other investment companies, the Fund will be dependent upon the investment
and research abilities of persons other than the Subadvisor. The Fund treats its investments in such open- or closed-end investment companies as investments in municipal securities.
INVESTMENT PRACTICES
Derivatives. Although it has
no current intention to do so, the Fund may also invest in derivative transactions. Derivatives transactions may be used to attempt to protect against possible changes in the market value of the Fund’s portfolio resulting from fluctuations in
the market for municipal bonds and changes in interest rates, to protect the Fund’s unrealized gains in the value of its portfolio securities, to facilitate the sale of such securities for investment purposes and to establish a position in the
securities markets as a temporary substitute for purchasing particular securities. Any or all of the aforementioned derivatives transactions may be used at any time. There is no particular strategy that requires use of one technique rather than
another. Use of any derivative is a function of market conditions. The ability of the Fund to use derivatives transactions successfully will depend on the Subadvisor’s ability to anticipate pertinent market movements as well as sufficient
correlation among the instruments, which cannot be assured. There is no assurance that these derivative strategies will be available at any time or that the Subadvisor will determine to use them for hedging or risk management purposes or, if used,
that the strategies will be successful. Income or gains from derivatives may result in taxable distributions by the Fund.
The principal risks relating to the use of derivatives
transactions are: (a) less than perfect correlation between the prices of the instrument and the market value of the securities in the Fund’s portfolio; (b) possible lack of a liquid secondary market for closing out a position in such
instruments; (c) losses resulting from interest rate or other market movements not anticipated by the Subadvisor; and (d) the obligation to meet additional variation margin or other payment requirements, all of which could result in the Fund being
in a worse position than if such techniques had not been used. Certain provisions of the Internal Revenue Code of 1986, as amended may also restrict or affect the ability of the Fund to engage in derivative transactions.
Portfolio Turnover. The
Fund’s annual portfolio turnover rate may vary greatly from year to year. Portfolio turnover rate is not considered a limiting factor in the execution of investment decisions for the Fund. There are no limits on the rate of portfolio turnover,
and investments may be sold without regard to length of time held when the Fund’s investment strategy so dictates. A higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that
are borne by the Fund. High portfolio turnover may result in the realization of net short-term capital gains by the Fund which, when distributed to holders of the common shares, will be taxable as ordinary income.
| 40
|
MainStay MacKay
DefinedTerm Municipal Opportunities Fund |
USE OF LEVERAGE
The Fund intends to use leverage to seek to achieve its
investment objectives. The Fund may use leverage through the use of proceeds received from tender option bond transactions, issuing preferred shares, or funds borrowed from banks or other financial institutions (i.e., credit facility). In addition,
although it has no current intention to do so, the Fund may also invest in derivative instruments that have the economic effect of leverage, such as futures, options, and swaps to seek enhanced returns or to seek to reduce the risk of loss of
(hedge) certain of its holdings. The use by the Fund of the proceeds received from tender option bond transactions, issuing preferred shares, borrowing from banks or other financial institutions and derivative transactions is referred to as
“Effective Leverage.” Based on current market conditions, it is anticipated that the Fund’s overall Effective Leverage will be approximately 33% of the Managed Assets. The Fund may choose to increase or decrease, or eliminate
entirely, its use of leverage over time and from time to time (i.e., higher or lower than the anticipated 33%). However, in no event will the Fund’s overall Effective Leverage exceed 50% of the Managed Assets. In addition, the Fund may borrow
for temporary, emergency or other purposes as permitted by the 1940 Act. Subject to market conditions, the Fund anticipates using leverage primarily through the use of proceeds received from tender option bond transactions and/or issuing Preferred
Shares.
The use of leverage is subject to numerous risks
and will cause the Fund’s NAV to be more volatile than if leverage was not used. For example, a rise in short-term interest rates, which currently are near historically low levels, will cause the Fund’s NAV to decline more than if the
Fund had not used leverage. A reduction in the Fund’s NAV may cause a reduction in the market price of its common shares.
There can be no assurance that the Fund’s leverage
strategy will be successful or that the Fund will be able to use leverage at all. Recent developments in the credit markets may adversely affect the ability of the Fund to borrow for investment purposes and may increase the costs of such borrowings,
which would reduce returns to the holders of the common shares. There can be no assurance that once the Fund has obtained proceeds through leverage transactions, the Fund will be able, at the maturity of the leverage transaction, to “roll
over”, replace, or otherwise extend such leverage. If the Fund is unable to extend such leverage, the Fund will be compelled to liquidate portfolio holdings to retire its leverage, and may do so on terms unattractive to the Fund or at a time
or subject to market conditions, which are not beneficial to the Fund’s overall performance. Such reduction in leverage may also impact negatively the Fund’s performance in the future.
Use of leverage creates an opportunity for increased income and
return for holders of the common shares but, at the same time, creates risks, including the likelihood of greater volatility in the NAV and market price of, and distributions on, the common shares. The management fees paid by the Fund will be
calculated on the basis of the Managed Assets, which includes proceeds from (and assets subject to) the Fund’s Effective Leverage minus the sum of the Fund’s accrued liabilities (other than Fund liabilities incurred for the purpose of
Effective Leverage). Therefore, the management fees payable to the Manager, and, consequently subadvisory fees payable to the Subadvisor from the Manager’s management fees, will be higher when leverage is utilized. This will create a conflict
of interest between the Manager and Subadvisor, on the one hand, and the holders of the common shares, on the other hand. To monitor this potential conflict, the Board of Trustees intends to periodically
review the Fund’s use of leverage, including its impact on the
Fund’s performance and on the fees paid to the Manager and Subadvisor.
The Fund reserves the flexibility to issue preferred shares or
debt, borrow money, issue commercial paper or enter into similar transactions to add leverage to its portfolio. Subject to market conditions, the Fund anticipates using leverage primarily through the use of proceeds received from tender option bond
transactions and issuing preferred shares. Any use of leverage by the Fund will be consistent with the provisions of the 1940 Act. The leverage would have complete priority upon distribution of assets over common shares. Although the timing of any
leverage and the terms of the leverage (other than any short positions and derivative Transactions) would be determined by the Board of Trustees, the Fund expects to invest the proceeds derived from any leverage offering in securities consistent
with the Fund’s investment objectives and policies. If preferred shares are issued, they may pay adjustable rate dividends based on shorter-term interest rates. The adjustment period for preferred shares dividends could be as short as one day
or as long as a year or more. So long as the Fund’s portfolio is invested in securities that provide a higher rate of return than the dividend rate or interest rate of the leverage, after taking expenses into consideration, the leverage will
cause the holders of the common shares to receive a higher rate of return than if the Fund were not leveraged. The Fund will pay (and holders of common shares will bear) any costs and expenses relating to the issuance and ongoing maintenance of
preferred shares.
The Declaration of Trust authorizes the
Fund, without prior approval of the holders of the common shares, to borrow money. In this connection, the Fund may issue notes or other evidence of indebtedness (including borrowing from banks or other financial institutions (i.e., credit facility)
or commercial paper) and may secure any such borrowings by mortgaging, pledging or otherwise subjecting as security the Fund’s assets. In connection with such borrowing, the Fund may be required to maintain minimum average balances with the
lender or to pay a commitment or other fee to maintain a line of credit. Any such requirements will increase the cost of borrowing over the stated interest rate. Under the requirements of the 1940 Act, the Fund, immediately after any such
borrowings, must have an “asset coverage” of at least 300% (33 – 1/3% of Managed Assets). With respect to such borrowing, asset coverage means the ratio which the value of the total assets of the Fund, less all liabilities and
indebtedness not represented by senior securities (as defined in the 1940 Act), bears to the aggregate amount of such borrowing represented by senior securities issued by the Fund. The Fund intends to manage its short positions in securities and
certain of its derivative positions by maintaining an amount of cash or liquid securities in a segregated account equal to the notional value of those positions. The Fund may also offset derivative positions against one another or against other
assets to manage the effective market exposure resulting from derivatives in its portfolio. To the extent that the Fund does not segregate liquid assets or otherwise cover its obligations under such transactions, such transactions will be treated as
senior securities representing indebtedness (“borrowings”) for purposes of the requirement under the 1940 Act that the Fund not enter into any such transactions if the Fund’s borrowings would thereby exceed 33 – 1/3% of its
Managed Assets.
The rights of lenders to the Fund to
receive interest on and repayment of principal of any such borrowings will be senior to those of the holders of common shares, and the terms of any such borrowings may contain provisions which limit certain activities of the Fund, including the
payment of dividends to holders of the common shares in certain circumstances. Further, the 1940 Act does (in certain circumstances) grant to the lenders
to the Fund certain voting rights in the event of default in the payment of
interest on or repayment of principal. In the event that such provisions would impair the Fund’s status as a regulated investment company under the Code, the Fund intends to repay the borrowings. Any borrowing will likely be ranked senior or
equal to all other existing and future borrowings of the Fund.
Certain types of borrowings may result in the Fund being
subject to covenants in credit agreements relating to asset coverage and portfolio composition requirements. Generally, covenants to which the Fund may be subject include affirmative covenants, negative covenants, financial covenants, and investment
covenants. An example of an affirmative covenant would be one that requires the Fund to send its annual audited financial report to the lender. An example of a negative covenant would be one that prohibits the Fund from making any amendments to its
fundamental policies. An example of a financial covenant is one that would require the Fund to maintain a 3:1 asset coverage ratio. An example of an investment covenant is one that would require the Fund to limit its investment in a particular asset
class. The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more rating agencies, which may issue ratings for any short-term corporate debt securities or preferred shares issued by the Fund. These guidelines
may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act. It is not anticipated that these covenants or guidelines will impede the Subadvisor from managing the Fund’s portfolio
in accordance with the Fund’s investment objectives and policies.
Under the 1940 Act, the Fund is not permitted to issue
preferred shares unless immediately after such issuance the value of the Managed Assets is at least 200% of the liquidation value of the outstanding preferred shares (i.e., the liquidation value may not exceed 50% of the Managed Assets). In
addition, the Fund is not permitted to declare any cash dividend or other distribution on its common shares unless, at the time of such declaration, the value of the Managed Assets is at least 200% of such liquidation value after deducting the
amount of such dividend or distribution. If preferred shares are issued, the Fund intends, to the extent possible, to purchase or redeem preferred shares from time to time to the extent necessary in order to maintain coverage of any preferred shares
of at least 200%. In addition, as a condition to obtaining ratings on the preferred shares, the terms of any preferred shares issued are expected to include more stringent asset coverage maintenance provisions, which will require the redemption of
the preferred shares in the event of non-compliance by the Fund and may also prohibit dividends and other distributions on the common shares in such circumstances. In order to meet redemption requirements, the Fund may have to liquidate portfolio
securities. Such liquidations and redemptions would cause the Fund to incur related transaction costs and could result in capital losses to the Fund. Prohibitions on dividends and other distributions on the Common Shares could impair the
Fund’s ability to qualify as a regulated investment company under the Code. If the Fund has preferred shares outstanding, two of the Fund’s Trustees will be elected by the holders of preferred shares as a class.
The remaining Trustees of the Fund will be elected by holders
of common shares and preferred shares, if any, voting together as a single class. In the event the Fund failed to pay dividends on preferred shares for two years, holders of preferred shares would be entitled to elect a majority of the Trustees of
the Fund.
The Fund may also borrow money as a temporary measure for
extraordinary or emergency purposes, including the payment of dividends and the settlement of securities transactions which otherwise might require untimely dispositions of Fund securities.
PRINCIPAL RISKS OF THE FUND
Risk is inherent in
all investing. The following discussion summarizes the principal risks that you should consider before deciding whether to invest in the Fund. Investors should be aware that in light of the current uncertainty, volatility and distress in
economies, financial markets, and labor and health conditions around the world, the risks below are heightened significantly compared to normal conditions and therefore may subject the Fund’s investments and a shareholder’s investment in
the Fund to reduced yield and/or income and sudden and substantial losses. The fact that a particular risk below is not specifically identified as being heightened under current conditions does not mean that the risk is not greater than under normal
conditions.
Investment
Risk. An investment in the common shares is subject to investment risk, including the possible loss of the entire principal amount that you invest. As with any stock, the price of the common shares will fluctuate with market conditions and
other factors. The Fund uses leverage, which magnifies the Fund’s investment, market and certain other risks.
Market Risk.
The value of the Fund's investments may fluctuate and/or decline because of changes in the markets in which the Fund invests, which could cause the Fund to underperform other funds with similar investment objectives and strategies. Security markets
are volatile and may decline significantly in response to adverse issuer, regulatory, political, or economic developments. Different sectors of the market and different security types may react differently to such developments. Changes in these
markets may be rapid and unpredictable. Fluctuations in the markets generally or in a specific industry or sector may impact the securities in which the Fund invests. From time to time, markets may experience periods of stress for potentially
prolonged periods that may result in: (i) increased market volatility and (ii) reduced market liquidity. Such conditions may add significantly to the risk of volatility in the net asset value of a Fund’s shares. Market changes may impact
equity and fixed income securities in different and, at times, conflicting manners. The Fund potentially will be prevented from executing investment decisions at an advantageous time or price as a result of any domestic or global market disruptions,
particularly disruptions causing heightened market volatility and reduced market liquidity, as well as increased or changing regulations. Thus, investments that the Manager or a Subadvisor believes represent an attractive opportunity or in which the
Fund seeks to obtain exposure may be unavailable entirely or in the specific quantities sought by the Manager or the Subadvisor and the Fund may need to obtain the exposure through less advantageous or indirect investments or forgo the investment at
the time.
Political and diplomatic events within the
United States and abroad, such as the U.S. budget and deficit reduction plan and trade tensions, has in the past resulted, and may in the future result, in developments that present additional risks to the Fund's investments and operations.
Geopolitical and other events, such as war, acts of terrorism, natural disasters, the spread of infectious illnesses, epidemics and pandemics, environmental and other public health issues, recessions or other events, and governments’ reactions
to such events, may lead to increased market volatility and instability in world economies and markets generally and may have adverse effects on the performance of the Fund and its investments. Stocks of large capitalization issuers that are
included as
| 42
|
MainStay MacKay
DefinedTerm Municipal Opportunities Fund |
components of indices replicated by passively-managed funds may be
particularly susceptible to declines in value, including declines in value that are not believed to be representative of the issuer’s fundamentals, due to market and investor reactions to such events. Additional and/or prolonged geopolitical
or other events may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. Any such market, economic and other disruptions could also prevent the Fund
from executing its investment strategies and processes in a timely manner.
Interest Rate
Risk. A variety of factors can cause interest rates to change, including central bank monetary policies, inflation rates and general economic conditions. The value of a debt security usually changes when interest rates change. Generally, when
interest rates go up, the value of a debt security goes down and when interest rates go down, the value of a debt security goes up. During periods of very low or negative interest rates, a Fund's susceptibility to interest rate risk may be
magnified, its yield may be diminished and its performance may be adversely affected. As of the date of this report, interest rates in the United States and many parts of the world, including certain European countries, continue to be near recent
historically low levels. These levels of interest rates (or negative interest rates) may magnify the risks associated with rising interest rates. The Fund may face a heightened level of interest rate risk due to certain changes or uncertainty in
monetary policy, such as an interest rate increase by the Federal Reserve in response to inflationary pressure, among other reasons. Any such change in interest rates may be sudden and significant, with unpredictable effects on the financial markets
and the Fund's investments. Should interest rates decrease, the Fund's investments in certain variable-rate and fixed-rate debt securities may be adversely affected. The Fund may utilize certain strategies, including taking positions in futures and
options for the purpose of reducing the interest rate sensitivity of the Fund’s debt securities and decreasing the Fund’s exposure to interest rate risk. The Fund is not required to hedge its exposure to interest rate risk and may choose
not to do so. In addition, there is no assurance that any attempts by the Fund to reduce interest rate risk will be successful.
Credit Risk.
Credit risk is the risk that an issuer, guarantor, or liquidity provider of a debt security may be unable or unwilling, or may be perceived (whether by market participants, ratings agencies, pricing services or otherwise) as unable or unwilling, to
make timely principal and/or interest payments, or to otherwise honor its obligations. By purchasing a debt security, in certain circumstances, a buyer is effectively lending money to the issuer of that security. If the issuer does not pay back the
loan, the holder of the security may experience a loss on its investment. Changes in an issuer's credit rating or the market's perception of an issuer's creditworthiness may also affect the value of the Fund’s investment. Actual or perceived
changes in economic, social, health, financial or political conditions in general or that affect a particular type of instrument, issuer, guarantor or counterparty can reduce the ability of the party to meet its obligations, which can affect the
credit quality, liquidity and/or value of an instrument. The value of an instrument also may decline for reasons that relate directly to the issuer, guarantor or counterparty, such as management performance, financial leverage and reduced demand for
goods and services. Although credit quality ratings may not accurately reflect the true credit risk or liquidity of an instrument, a change in the credit quality rating of an instrument or an issuer can have a rapid, adverse effect on the
instrument’s liquidity and make it more difficult to sell the instrument at an advantageous price or time. Credit ratings assigned by rating agencies are based on a number of factors and subjective judgments and, therefore, do not
necessarily
represent an issuer's actual financial condition or the volatility or
liquidity of the security. Because the Fund may invest up to 25% of its Managed Assets in non-investment grade municipal bonds, the Fund may be subject to increased credit risk as compared to a fund that invests primarily in investment grade
municipal bonds.
Municipal Bond
Risk. Municipal bond risks include the inability of the issuer to repay the obligation, the relative lack of information about certain issuers, and the possibility of future tax and legislative changes, which could affect the market for and
value of municipal securities. The Fund’s economic exposure to municipal bonds includes municipal bonds in the Fund’s portfolio and municipal bonds to which the Fund is exposed through the ownership of TOB Residuals.
Additional risks include:
| •
|
General Obligation Bonds Risk —timely payments depend on the issuer's credit quality, ability to raise tax revenues and ability to maintain an adequate tax base;
|
| •
|
Revenue Bonds (including Industrial Development Bonds) Risk —timely payments depend on the money earned by the particular facility or class of facilities, or the amount
of revenues derived from another source, and may be negatively impacted by the general credit of the user of the facility; |
| •
|
Private Activity Bonds Risk —municipalities and other public authorities issue private activity bonds to finance development of industrial facilities for use by a
private enterprise, which is solely responsible for paying the principal and interest on the bond, and payment under these bonds depends on the private enterprise’s ability to do so; |
| •
|
Moral Obligation Bonds Risk —moral obligation bonds are generally issued by special purpose public authorities of a state or municipality. If the issuer is unable to
meet its obligations, repayment of these bonds becomes a moral commitment, but not a legal obligation, of the state or municipality; |
| •
|
Municipal Notes Risk —municipal notes are shorter-term municipal debt obligations that pay interest that is, in the opinion of bond counsel, generally excludable from
gross income for federal income tax purposes (except that the interest may be includable in taxable income for purposes of the federal alternative minimum tax) and that have a maturity that is generally one year or less. If there is a shortfall in
the anticipated proceeds, the notes may not be fully repaid and the Fund may lose money; and |
| •
|
Municipal Lease Obligations Risk —in a municipal lease obligation, the issuer agrees to make payments when due on the lease obligation. Although the issuer does not
pledge its unlimited taxing power for payment of the lease obligation, the lease obligation is secured by the leased property. Municipal leases may pose additional risks because many leases and contracts contain “non-appropriation”
clauses that provide that the governmental issuer has no obligation to make future payments under the lease or contract unless money is appropriated for this purpose by the appropriate legislative body. |
| •
|
Participation Interest Risk —certificates of participation, which represent interests in unmanaged pools of municipal leases or installment contracts, involve the same
risks as the underlying municipal leases. In addition, the Fund may be dependent upon the municipal authority issuing the certificate of participation to exercise remedies with respect to the underlying securities. Certificates of participation also
entail a risk of |
default or bankruptcy, both of the issuer of the municipal lease and also the
municipal agency issuing the certificate of participation.
| •
|
Tax Risk —to be tax-exempt, municipal bonds must meet certain regulatory requirements. If a municipal bond fails to meet such requirements, the interest received by the
Fund from its investment in such bonds and distributed to shareholders may be taxable. It is possible that interest on a municipal bond may be declared taxable after the issuance of the bond, and this determination may apply retroactively to the
date of the issuance of the bond, which could cause a portion of prior distributions made by the Fund to be taxable to shareholders in the year of receipt. |
Municipalities continue to experience political, economic and
financial difficulties in the current economic environment. The ability of a municipal issuer to make payments and the value of municipal bonds can be affected by uncertainties in the municipal securities market. Such uncertainties could cause
increased volatility in the municipal securities market and could negatively impact the Fund's net asset value and/or the distributions paid by the Fund.
Certain of the issuers in which the Fund may invest have
recently experienced, or may experience, significant financial difficulties and repeated credit rating downgrades. For example, in recent years, Puerto Rico has experienced difficult financial, economic and other conditions, which may negatively
affect the value of the Fund’s holdings in Puerto Rico municipal securities.
High Yield Municipal
Bond Risk. The Fund may invest in high-yield municipal bonds. High-yield or non-investment grade municipal bonds (commonly referred to as "junk bonds") may be subject to increased liquidity and valuation risks as compared to other municipal
bonds and to high-yield debt securities generally. High-yield municipal bonds are rated below investment grade by one or more of the rating agencies or, if not rated, are determined to be of comparable quality by the Subadvisor and are generally
considered to be speculative. Analysis of the creditworthiness of issuers of high-yield municipal bonds may be more complex than for issuers of higher quality debt securities, and, as a result, the ability of the Fund to achieve its investment
objective may be more dependent upon such creditworthiness analysis than would be the case if the Fund was investing in higher quality bonds.
There may be little or no active trading market for certain
high-yield municipal bonds, which may make it difficult for the Fund to sell such bonds at or near their perceived value. In such cases, the value of a high-yield municipal bond may decline dramatically, even during periods of declining interest
rates, which could adversely affect and cause large fluctuations in the Fund's daily NAV. High-yield municipal bonds may be more likely than other municipal bonds to be considered illiquid and therefore to be subject to the Fund's limitation on
investments in illiquid investments. It may be difficult for the Fund to obtain an accurate or recent market quotation for a high-yield municipal bond, which may cause the security to be "fair valued" in accordance with the Fund's valuation
policies. Credit spreads (i.e., the difference in yield between municipal bonds that is due to differences in their credit quality) may increase when the market believes that municipal bonds generally have a greater risk of default. Increasing
credit spreads may reduce the market values of the Fund’s municipal bonds. Credit spreads often increase more for lower rated and unrated securities than for investment grade securities and corresponding reductions in market value will
generally be greater for longer-maturity securities.
High-yield municipal bonds are generally subject to greater
risks with respect to the non-payment of interest and principal and greater market fluctuations than higher quality bonds. If the issuer of a high-yield municipal bond defaults, a Fund may incur additional expenses in seeking recovery. The
high-yield municipal bonds in which the Fund may invest may be more likely to pay interest that is includable in taxable income for purposes of the federal alternative minimum tax than other municipal bonds, which may adversely affect the value of
these investments.
Insurance Risk. The Fund may purchase municipal securities that are secured by insurance, bank credit agreements or escrow accounts. The
credit quality of the companies that provide such credit enhancements will generally affect the value of those securities. Certain significant providers of insurance for municipal securities have recently incurred significant losses as a result of
exposure to sub-prime mortgages and other lower credit quality investments that have experienced defaults or otherwise suffered credit deterioration. Such losses have reduced the insurers’ capital and may have called into question their
continued ability to perform their obligations under such insurance if called upon in the future. While an insured municipal security will typically be deemed to have the rating of its insurer, if the insurer of a municipal security suffers a
downgrade in its credit rating or the market discounts the value of the insurance provided, the rating of the underlying municipal security will generally be more relevant and the value of the municipal security would more closely, if not entirely,
reflect such rating. In such a case, the value of insurance associated with a municipal security would decline and may not add any value. The insurance feature of a municipal security does not guarantee the full payment of principal and interest
through the life of an insured obligation, the market value of the insured obligation or the NAV of the common shares represented by such insured obligation.
Limited Term
Risk. Unless action is otherwise taken by the Board of Trustees in accordance with the Declaration of Trust, the Fund will commence the process of liquidation and dissolution at the close of business on the Termination Date. The Fund will not
seek to return an initial investment in common shares by an investor on the Termination Date. Instead, the Fund will distribute an amount equal to the Fund’s NAV at that time, which may be greater or less than an investor’s initial
investment The Fund’s limited term may cause it to sell securities when it otherwise would not, which could cause the Fund’s returns to decrease and the market price of the common shares to fall. Rather than reinvesting the proceeds of
its matured, called or sold securities, the Fund may distribute the proceeds in one or more liquidating distributions prior to the final termination, which may cause the Fund’s fixed expenses to increase when expressed as a percentage of
assets under management. Alternatively, the Fund may invest the proceeds in lower yielding securities or hold the proceeds in cash or cash equivalents, which may adversely affect the performance of the Fund.
General Leverage
Risk. The use of leverage creates an opportunity for increased Common Share net investment income dividends, but also creates risks for the holders of common shares. Leverage is a speculative technique that exposes the Fund to greater risk
and increased costs than if it were not implemented. Increases and decreases in the value of the Fund’s portfolio will be magnified when the Fund uses leverage. As a result, leverage may cause greater changes in the Fund’s NAV. The Fund
will also have to pay interest or dividends on its leverage, which may reduce the return on the common shares. This interest expense may be greater than the Fund’s return on the underlying investment. The Fund’s leveraging strategy may
not be successful.
| 44
|
MainStay MacKay
DefinedTerm Municipal Opportunities Fund |
Subject to market conditions, the Fund may issue preferred
shares as a form of financial leverage. Any such preferred shares of the Fund would be senior to the common shares, such that holders of preferred shares would have priority over the distribution of the Fund’s assets, including dividends and
liquidating distributions. If preferred shares are issued and outstanding, holders of the preferred shares would elect two trustees of the Fund, voting separately as a class.
If the Fund borrows funds from banks or other financial
institutions (i.e., credit facility), the Fund may be required to prepay outstanding amounts or incur a penalty rate of interest upon the occurrence of certain events of default. The Fund would also likely have to indemnify the lenders under a
credit facility against liabilities they may incur in connection therewith. In addition, the Fund expects that any credit facility would contain covenants that, among other things, likely would limit the Fund’s ability to pay distributions in
certain circumstances, incur additional debt, change certain of its investment policies and engage in certain transactions, including mergers and consolidations, and require asset coverage ratios in addition to those required by the 1940 Act. The
Fund may be required to pledge its assets and to maintain a portion of its assets in cash or high-grade securities as a reserve against interest or principal payments and expenses.
Reverse repurchase agreements involve the risks that the
interest income earned on the investment of the proceeds will be less than the interest expense and Fund expenses, that the market value of the securities sold by the Fund may decline below the price of the securities the Fund is obligated to
repurchase and that the securities may not be returned to the Fund. There is no assurance that reverse repurchase agreements can be successfully employed.
The Fund may also use leverage through its investments in TOB
Residual and Derivative Transactions. See “Tender Option Bonds Risk” and “Derivatives Risks.”
The Fund anticipates that leverage for investment purposes will
pay interest or dividends based on shorter-term interest rates that would be periodically reset. So long as the Fund’s portfolio provides a higher rate of return, net of expenses, than the rate paid on leverage as reset periodically, the
leverage may cause the holders of common shares to receive a higher current rate of return than if the Fund were not leveraged. If, however, long-term and/or short-term rates rise, the rate paid on leverage could exceed the rate of return on
securities held by the Fund, reducing return to the holders of common shares. Recent developments in the credit markets may adversely affect the ability of the Fund to borrow for investment purposes and may increase the costs of such borrowings,
which would reduce returns to the holders of common shares.
There is no assurance that a leveraging strategy will be
successful. Leverage involves risks and special considerations for holders of common shares, including:
| •
|
the likelihood of greater
volatility of NAV, market price and dividend rate of the common shares than a comparable portfolio without leverage; |
| •
|
the risk that fluctuations in
the interest or dividend rates that the Fund must pay on any leverage will reduce the return to the holders of the common shares; |
| •
|
the effect of leverage in a
declining market, which is likely to cause a greater decline in the NAV of the common shares than if the Fund were not leveraged, which may result in a greater decline in the market price of the common shares; |
| •
|
when the Fund uses financial
leverage, the management fees payable to the Manager and the Subadvisor will be higher than if the Fund did not use leverage; and |
| •
|
leverage may increase
operating costs, which may reduce total return. |
The use of the proceeds received from tender option bond
transactions will require the Fund to earmark or segregate liquid assets to cover its obligations (or, if the Fund invests in reverse repurchase agreements, borrows money or issues preferred shares, to maintain asset coverage in conformity with the
requirements of the 1940 Act). While the segregated assets may be invested in liquid securities, they may not be used for other operational purposes. Consequently, the use of leverage may limit the Fund’s flexibility and may require that the
Fund sell other portfolio investments to pay Fund expenses, maintain assets in an amount sufficient to cover the Fund’s leveraged exposure or meet other obligations at a time when it may be disadvantageous to sell such assets.
Certain types of borrowings by the Fund may result in the Fund
being subject to covenants in credit agreements relating to asset coverage and portfolio composition requirements. The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more rating agencies, which may issue
ratings for the short-term corporate debt securities or preferred shares issued by the Fund. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act. If the Fund is
unable to extend such leverage, the Fund will be compelled to liquidate portfolio holdings to retire its leverage and may do so on terms unattractive to the Fund or at a time or subject to market conditions, which are not beneficial to the
Fund’s overall performance. Such reduction in leverage may also impact negatively the Fund’s performance in the future.
The Fund may invest in the securities of other investment
companies. Such securities may also be leveraged and will therefore be subject to the leverage risks described above. This additional leverage may in certain market conditions reduce the NAV of the common shares and the returns to the holders of
common shares.
Tender Option Bonds
Risk. TOB Residuals are derivative municipal securities that have embedded in them the risk of economic leverage. There is no assurance that the Fund’s strategy of using the proceeds received from tender option bond transactions to
leverage its assets will be successful.
Distributions on
TOB Residuals will bear an inverse relationship to short-term municipal bond interest rates. Distributions on the TOB Residuals paid to the Fund will be reduced or, in the extreme, eliminated as short-term municipal interest rates rise and will
increase when short-term municipal interest rates fall. The amount of such reduction or increase is a function, in part, of the amount of TOB Floaters sold by the issuer of these securities relative to the amount of the TOB Residuals that it sells.
The greater the amount of TOB Floaters sold relative to the TOB Residuals, the more volatile the distributions on the TOB Residuals will be. Short-term interest rates are at historic lows and may be more likely to rise in the current market
environment.
The Fund’s use of proceeds received
from tender option bond transactions will create economic leverage. Any economic leverage achieved through the Fund’s investment in TOB Residuals will create an opportunity for increased Common Share net income and returns but will also create
the possibility that Common Share long-term returns will be diminished if the cost of the TOB Floaters exceeds the return on the securities deposited in the TOB Issuer. If the income and gains earned on municipal securities deposited in a TOB Issuer
that issues TOB Residuals
to the Fund are greater than the payments due on the TOB Floaters, the
Fund’s returns will be greater than if it had not invested in the TOB Residuals.
The Fund has no current intention of investing in recourse TOB
Residuals. However, circumstances may change, and it is possible that in the future the Fund may elect to invest in recourse TOB Residuals to leverage its portfolio. If the Fund uses recourse TOB Residuals, the liquidity provider may seek recourse
against assets of the Fund, and the Fund may have to pay the liquidity provider the difference between the purchase price of any TOB Floaters put to the liquidity provider by third party investors and the proceeds realized by the liquidity provider
from the remarketing of those TOB Floaters or the sale of the assets in the TOB Issuer, which could cause the Fund to lose money in excess of its investment in a TOB Issuer.
Although the Fund generally would unwind a tender option bond
transaction rather than try to sell a TOB Residual, if it did try to sell a TOB Residual, its ability to do so would depend on the liquidity of the TOB Residual. TOB Residuals have varying degrees of liquidity based, among other things, upon the
liquidity of the underlying securities deposited in the TOB Issuer. The market price of TOB Residuals is more volatile than the underlying securities due to leverage. The leverage attributable to TOB Residuals may be “called away” on
relatively short notice and therefore may be less permanent than more traditional forms of leverage. In certain circumstances, the likelihood of an increase in the volatility of NAV and market price of the common shares may be greater for a fund
that relies primarily on tender option bond transactions to achieve a desired effective leverage ratio. The Fund may be required to sell its TOB Residuals at less than favorable prices, or liquidate other Fund portfolio holdings in certain
circumstances, including, but not limited to, the following:
| •
|
If the Fund has a need for
cash and the securities deposited in the TOB Issuer are not actively trading due to adverse market conditions; |
| •
|
If the sponsors of TOB
Issuers (as a collective group or individually) experience financial hardship and consequently seek to terminate their sponsorship of TOB Issuers; and |
| •
|
If the
value of an underlying security deposited in the TOB Issuer declines significantly (to a level below the notional value of the TOB Floaters issued by the TOB Issuer) and if additional collateral has not been posted by the Fund. |
The Fund may invest in taxable TOB Residuals, issued by
TOB Issuers formed with taxable municipal securities. The market for such taxable TOB Residuals is relatively new and undeveloped. Initially, there may be a limited number of counterparties, which may increase the credit risks, counterparty risks,
liquidity risks and other risks of investing in taxable TOB Residuals. The Fund may not invest more than 20% of its Managed Assets in any single third-party sponsor that establishes a TOB Issuer.
Tax Risk. It is
expected that the Fund’s distributions will generally be treated as tax-exempt income for purposes of the regular U.S. Federal income tax. A portion of the Fund’s distributions may be (i) subject to U.S. Federal income tax and such
distributions will generally be subject to state and local taxes, and (ii) includable in taxable income for purposes of the Federal alternative minimum tax.
The value of the Fund’s investments and its NAV may be
adversely affected by changes in tax rates and policies. Because interest income from municipal securities is normally not subject to regular U.S. Federal income taxation, the attractiveness of municipal securities in relation to other investment
alternatives is affected by changes in U.S. Federal
income tax rates or changes in the tax-exempt status of interest income from
municipal securities. For example, several recent proposals to reduce the Federal budget deficit have included consideration of elimination of the tax-exempt status of municipal securities.
The Fund is generally not a suitable investment for individual
retirement accounts, for other tax-exempt or tax-deferred accounts or for investors who are not sensitive to the U.S. Federal income tax consequences of their investments.
The Fund will invest in municipal bonds, generally in reliance
at the time of purchase on an opinion of bond counsel to the issuer that the interest paid on those bonds will be excludable from gross income for U.S. Federal income tax purposes. Subsequent to the Fund’s acquisition of such a municipal bond,
however, the bond may be determined to pay, or to have paid, taxable income. As a result, the treatment of distributions previously paid or to be paid by the Fund as exempt-interest dividends could be adversely affected, subjecting the Fund’s
shareholders to increased U.S. Federal income tax liabilities.
The IRS may determine that a municipal bond issued as
tax-exempt should in fact be taxable. If the Fund held such a bond, it might have to distribute taxable ordinary income dividends or reclassify as taxable income previously distributed as exempt-interest dividends.
Municipal
Securities. Municipal securities include securities issued by, or on behalf of, the District of Columbia, the states, the territories (including Puerto Rico, Guam and the U.S. Virgin Islands), commonwealths and possessions of the United
States and their political subdivisions, and agencies, authorities and instrumentalities. Adverse tax, legislative, regulatory, demographic or political changes as well as changes (or perceived changes) in a particular issuer’s financial,
economic or other condition, prospects, or ability or willingness to pay interest or repay principal on time, may negatively affect the value of a Fund's holdings in such securities. A credit rating downgrade relating to, default by, or insolvency
or bankruptcy of, an issuer of municipal securities in which the Fund invests could adversely affect the market values and marketability of municipal securities issued by such state, territory, commonwealth or possession (and its political
subdivisions, and agencies, authorities and instrumentalities). Certain of the issuers in which the Fund may invest have recently experienced, or may experience, significant financial difficulties and repeated credit rating downgrades. For example,
the current COVID-19 pandemic has significantly stressed the financial resources of many municipalities and other issuers of municipal securities, which may impair their ability to meet their financial obligations and may harm the value or liquidity
of the Fund's investments in municipal securities. In particular, responses by municipalities to the COVID-19 pandemic have caused disruptions in business activities. These and other effects of the COVID-19 pandemic, such as increased unemployment
levels, have impacted tax and other revenues of municipalities and other issuers of municipal securities and the financial conditions of such issuers. As a result, there is an increased budgetary and financial pressure on municipalities and
heightened risk of default or other adverse credit or similar events for issuers of municipal securities, which would adversely impact the Fund's investments.
Additionally, in recent years, Puerto Rico has experienced
difficult financial and economic conditions, which may negatively affect the value of a Fund's holdings in Puerto Rico municipal securities. Puerto Rico has also recently experienced other events that have adversely affected its economy,
infrastructure, and financial condition, which may prolong any debt restructuring and economic recovery efforts and processes. The Fund's vulnerability to potential losses associated with such
| 46
|
MainStay MacKay
DefinedTerm Municipal Opportunities Fund |
developments may be reduced through investing in municipal securities that
feature credit enhancements (such as bond insurance).
The
Fund may invest more heavily in bonds from certain cities, states or regions than others, which may increase a Fund's exposure to losses resulting from economic, political or regulatory occurrences impacting these particular cities, states or
regions.
To be U.S. federally tax-exempt, municipal bonds
must meet certain regulatory requirements. If a municipal bond fails to meet such requirements, the interest earned by the Fund from its investment in such bonds may be taxable, thereby potentially resulting in a decline in the value of the affected
security. In addition, there could be changes in the applicable tax laws or tax treatment that could reduce or eliminate the current federal income tax exemption accorded to municipal securities, or otherwise adversely affect the current federal or
state tax-exempt status of municipal securities.
Potential Conflicts of Interest Risk—Allocation of Investment Opportunities. The Manager, the Subadvisor and their affiliates are involved with a broad spectrum of financial services and asset
management activities and may engage in the ordinary course of business in activities in which their interests or the interests of their clients may conflict with those of the Fund. The Manager, the Subadvisor and their affiliates may provide
investment management services to other funds and discretionary managed accounts that follow an investment program similar to that of the Fund. Potential conflicts of interest situations could occur where the Manager or Subadvisor is subject to
competing interests that have the potential to influence its investment decisions for the Fund and which decisions could adversely impact the Fund. For example, the Subadvisor may be subject to potential conflicts of interest in selecting or
allocating assets among the mutual funds and exchange-traded funds managed by Subadvisor or its affiliates because, for example, the fees paid to it and its affiliates by some mutual funds and exchange-traded funds managed by Subadvisor or its
affiliates are higher than the fees paid by other mutual funds and exchange-traded funds managed by Subadvisor or its affiliates. In addition, the portfolio managers may have an incentive to select certain affiliates funds due to compensation
considerations or to support new investment strategies or the cash flow needs of certain affiliates funds. For example, the Subadvisor may be influenced by its view of the best interests of affiliated funds, such as a view that an affiliated fund
may benefit from additional assets or could be harmed by redemptions. The Subadvisor and the portfolio managers have a fiduciary duty to the Fund to act in the Fund's best interests when allocating investments. Under the oversight of the Board and
pursuant to applicable policies and procedures, the Subadvisor will carefully analyze any such situation and take all steps it believes to be necessary to minimize and, where possible, eliminate potential conflicts. The Fund’s activities may
be limited or restricted because of laws and regulations applicable to the Manager, the Subadvisor or the Fund or applicable policies and procedures of the Manager or Subadvisor or the affiliated funds. For example, if a portfolio manager comes into
possession of material, non-public information about an affiliated fund the portfolio manager could potentially be restricted from transacting in the affiliated fund’s shares, which may adversely affect the Fund.
Management
Risk. The Fund is subject to management risk because it is an actively managed portfolio. The Manager and the Subadvisor will apply investment techniques and risk analyses in making investment decisions for the Fund, but there can be no
guarantee that these will produce the desired results. In addition, the Fund may not achieve its investment objective, including during periods in which the Subadvisor takes
temporary positions in response to unusual or adverse market, economic or
political conditions, or other unusual or abnormal circumstances. The Subadvisor may be incorrect in its assessment of a particular security or market trend, which could result in a loss to the Fund. The Fund’s judgment about whether
securities acquired by the Fund will increase or decrease in value may prove to be incorrect, and the value of these securities could change unexpectedly.
Liquidity and
Valuation Risk. The Fund is subject to liquidity and valuation risk. Liquidity risk exists when particular investments are difficult to sell, possibly preventing the Fund from selling the investments at an advantageous time or price.
Liquidity risk may also exist because of unusual market conditions, government intervention, political, social, health, economic or market developments, or other reasons. The liquidity of any Fund investment may change significantly over time as a
result of market, economic, trading, issuer-specific and other factors.
Markets for debt and other fixed-income securities have
consistently grown over the past three decades. However, the growth of capacity for traditional dealer counterparties to engage in trading these securities has not kept pace with the broader market and, in some cases, has decreased over this period.
As a result, dealer inventories of certain types of debt securities and similar instruments, which provide a primary indication of the ability of financial intermediaries to “make markets,” are at or near historic lows in relation to the
size of the market for these instruments. The significant reduction in dealer inventories could potentially lead to decreased liquidity and increased volatility in the debt and fixed-income markets because market makers provide stability to the
market through their intermediary services. The potential liquidity and volatility challenges in these markets could be particularly significant during certain economic and financial conditions, such as periods of economic uncertainty. The Fund's
ability to sell an instrument under favorable conditions also may be negatively impacted by, among other things, other market participants selling the same or similar instruments at the same time.
Valuation risk refers to the potential that the sales price the
Fund could receive for any particular investment may differ from the Fund’s valuation of the investment. Valuation of the Fund’s investments may be difficult, particularly for securities that trade in thin or volatile markets or that are
valued using a fair value methodology that produces an estimate of the fair value of the security/instrument, which are based on good faith, subjective judgments, and available information. Such valuations may prove to be inaccurate. Where no clear
or reliable indication of the value of a particular investment is available, the investment will be valued at its fair value according to valuation procedures approved by the Board. These cases include, among others, situations where the secondary
markets on which a security has previously been traded are no longer viable for lack of liquidity. The value of illiquid investments may reflect a discount, which may be significant, from the market price of comparable securities for which a liquid
market exists, and thus negatively affect the Fund's NAV. In addition, the value of illiquid investments that subsequently become liquid may increase, positively affecting the Fund's NAV. The Fund (or the Manager or Subadvisor) may rely on various
sources of information to value investments and calculate NAVs. The Fund may obtain pricing information from third parties that are believed to be reliable. In certain cases, this information may be unavailable or this information may be inaccurate
because of errors by the third parties, technological issues, an absence of current market data, or otherwise. These cases increase the risks associated with fair valuation.
Performance attributable to variations in liquidity are not
necessarily an indication of future performance.
Inflation/Deflation Risk. The Fund’s investments may be subject to inflation risk, which is the risk that the real value (i.e., nominal price of the asset adjusted for inflation) of assets or income
from investments will be less in the future as inflation decreases the purchasing power and value of money (i.e., as inflation increases, the real value of the Fund's assets can decline). Inflation rates may change frequently and significantly as a
result of various factors, including unexpected shifts in the domestic or global economy and changes in monetary or economic policies (or expectations that these policies may change), and the Fund's investments may not keep pace with inflation,
which would generally adversely affect the real value of Fund shareholders’ investment in the Fund. This risk is greater for fixed-income instruments with longer maturities. In addition, this risk may be significantly elevated compared to
normal conditions because of recent monetary policy measures and the current interest rate environment. Inflation has recently increased and it cannot be predicted whether it may decline.
Deflation risk is the risk that prices throughout the economy
decline over time—the opposite of inflation. Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer defaults more likely, which may result in a decline in the value of the Fund’s portfolio.
Market Discount from
Net Asset Value Risk. Shares of closed-end investment companies frequently trade at a discount from their NAV. This characteristic is a risk separate and distinct from the risk that the Fund’s NAV per Common Share could decrease as a
result of its investment activities and may be greater for investors expecting to sell their common shares in a relatively short period of time following completion of this offering. The NAV of the common shares will be reduced immediately following
this offering as a result of the payment of certain offering costs estimated to be $.04 per Common Share. Although the value of the Fund’s net assets is generally considered by market participants in determining whether to purchase or sell
common shares, whether investors will realize gains or losses upon the sale of the common shares will depend entirely upon whether the market price of the common shares at the time of sale is above or below the investor’s purchase price for
the common shares. Because the market price of the common shares will be determined by factors such as NAV, dividend and distribution levels and their stability (which will in turn be affected by levels of dividend and interest payments by the
Fund’s portfolio holdings, the timing and success of the Fund’s investment strategies, regulations affecting the timing and character of Fund distributions, Fund expenses and other factors), supply of and demand for the common shares,
trading volume of the common shares, general market, interest rate and economic conditions and other factors beyond the control of the Fund, the Fund cannot predict whether the common shares will trade at, below or above NAV or at, below or above
the initial public offering price. The Fund will pay (and holders of common shares will bear) any costs and expenses relating to the issuance and ongoing maintenance of preferred shares.
Derivatives
Risk. Derivative transactions, or “derivatives,” may include options, forwards, futures, options on futures and swap agreements. The value of derivatives is based on certain underlying equity or fixed-income securities, interest
rates, currencies, commodities or indices. The use of these transactions is a highly specialized activity that involves investment techniques, tax planning and risks that are different from those of ordinary securities transactions. Derivatives may
be difficult to sell at an advantageous price or time and typically are very sensitive to changes in the underlying security, interest rate, currency, commodity or index.
As a result, derivatives can be highly volatile. If the Manager
or the Subadvisor is incorrect about its expectations of changes to the underlying securities, interest rates, currencies, commodities, indices or market conditions, the use of derivatives could result in a loss, which in some cases may be
unlimited. When using over-the-counter (“OTC”) or bilateral derivatives, there is a risk that the Fund will lose money if the contract counterparty does not make the required payments or otherwise fails to comply with the terms of the
contract. OTC derivatives are complex and often valued subjectively, which exposes the Fund to heightened liquidity risk, mispricing and valuation risk.
In the event of the bankruptcy or insolvency of a counterparty,
the Fund could experience the loss of some or all of its investment in a derivative or experience delays in liquidating its positions, including declines in the value of its investment during the period in which the Fund seeks to enforce its rights,
and an inability to realize any gains on its investment during such period. The Fund may also incur fees and expenses in enforcing its rights. Certain derivatives are subject to mandatory clearing and exchange-trading. Central clearing, which
interposes a central clearinghouse to each participant’s derivatives position, is intended to reduce counterparty credit risk and exchange-trading is intended to increase liquidity, but neither make derivatives transactions risk-free.
In addition, certain derivative transactions can result in
leverage. Leverage involves investment exposure in an amount exceeding the initial investment. Leverage can cause increased volatility by magnifying gains or losses. Investments in derivatives may increase or accelerate the amount of taxable income
of the Fund or result in the deferral of losses that would otherwise be recognized by the Fund in determining the amount of dividends distributable to shareholders. Under current regulatory requirements, as a series of an investment company
registered with the SEC, the Fund must maintain reserves of liquid assets or otherwise "cover" obligations with respect to certain kinds of derivative instruments in accordance with applicable the SEC guidance or staff interpretations. In addition,
the Fund’s use of derivatives (including covered call options and covered put options) may (i) cause the Fund to realize higher amounts of short- term capital gains (generally taxed at ordinary income tax rates) and (ii) preclude the Fund from
designating a portion of its distributions as qualified dividend income (generally taxed at long-term capital gains rates with respect to non-corporate shareholders) or as eligible for the corporate dividends received deduction that would otherwise
be eligible for such designations if the Fund had not used such instruments.
Future regulatory developments may impact the Fund's ability to
invest or remain invested in certain derivatives. Legislation or regulation may also change the way in which the Fund itself is regulated. These or other legislative or regulatory changes may negatively impact the Fund and/or result in a change in
its investment strategy. For example, in October 2020, the SEC adopted a final rule related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. In connection with
the final rule, the SEC and its staff will rescind and withdraw applicable guidance and relief regarding asset segregation and coverage transactions reflected in the Fund's asset segregation and cover practices. After an eighteen-month transition
period, the final rule requires a fund to trade derivatives and other transactions that create future payment or delivery obligations (except reverse repurchase agreements and similar financing transactions) subject to a limit on notional
derivatives exposure as a limited derivatives user or subject to a value-at-risk leverage limit and certain derivatives risk management program and reporting requirements. These requirements may limit the ability of the Fund to invest in
| 48
|
MainStay MacKay
DefinedTerm Municipal Opportunities Fund |
derivatives, short sales and similar financing transactions, limit the Fund's
ability to employ certain strategies that use these instruments and/or adversely affect the Fund's performance, efficiency in implementing its strategy, liquidity and/or ability to pursue its investment objectives and may increase the cost of the
Fund's investments and cost of doing business, which could adversely affect investors.
U.S. Government
Securities Risk. There are different types of U.S. government securities with different levels of credit risk, including the risk of default, depending on the nature of the particular government support for that security. For example, a U.S.
government-sponsored entity, such as Federal National Mortgage Association ("Fannie Mae") or Federal Home Loan Mortgage Corporation ("Freddie Mac"), although chartered or sponsored by an Act of Congress, may issue securities that are neither insured
nor guaranteed by the U.S. Treasury and are therefore riskier than those that are.
Regulatory
Risk. Government regulation and/or intervention may change the way the Fund is regulated, affect the expenses incurred directly by the Fund, affect the value of its investments, and limit the Fund’s ability to achieve its investment
objective. Government regulation may change frequently and may have significant adverse consequences. Moreover, government regulation may have unpredictable and unintended effects. In addition to exposing the Fund to potential new costs and
expenses, additional regulation or changes to existing
regulation may also require changes to the Fund’s
investment practices. Certain regulatory authorities may also prohibit or restrict the ability of the Fund to engage in certain derivative transactions or short-selling of certain securities. Although there continues to be uncertainty about the full
impact of these and other regulatory changes, the Fund may be subject to a more complex regulatory framework and incur additional costs to comply with new requirements as well as to monitor for compliance with any new requirements going
forward.
At any time after the date of this Annual
Report, legislation may be enacted that could negatively affect the assets of the Fund. Legislation or regulation may change the way in which the Fund is regulated. Neither the Manager nor the Subadvisor can predict the effects of any new
governmental regulation that may be implemented, and there can be no assurance that any new governmental regulation will not adversely affect the Fund’s ability to achieve its respective investment objective. The Fund’s activities may be
limited or restricted because of laws and regulations applicable to the Manager, the Subadvisor or the Fund.
Recent Events
Risk. See “Additional Information Regarding the Fund — Changes Occurring During the Reporting Period” for a description of this principal risk.
Portfolio Turnover
Risk. Portfolio turnover measures the amount of trading a Fund does during the year. Due to its trading strategies, the Fund may experience a portfolio turnover rate of over 100%. The portfolio turnover rate for the Fund is found in the
Financial Highlights. The use of certain investment strategies may generate increased portfolio turnover. A high turnover rate (at or over 100%) often will have higher transaction costs (which are paid by the Fund) and may generate short-term
capital gains (on which Fund shareholders will pay taxes, even if such shareholders do not sell any shares by year-end).
State Specific and
Industry Risk. Under normal market conditions, the Fund may not invest more than 25% of its Managed Assets in municipal bonds in any one industry or in any one state of origin. If the Fund invests 25% or more of its Managed Assets in any one
industry or in any one state of origin, the Fund may be more susceptible to adverse economic, political or regulatory occurrences affecting a particular state or industry.
Illiquid Investments
and Restricted Securities Risk. The Fund’s investments may include illiquid investments or restricted securities. A principal risk of illiquid investments or investing in restricted securities is that they may be difficult to
sell.
Securities and other investments purchased by the
Fund may be illiquid at the time of purchase, or liquid at the time of purchase and may subsequently become illiquid due to events relating to the issuer of the securities, market events, economic conditions or investor perceptions. Securities may
also be less liquid (i.e., more difficult to sell) because of trading preferences, such as a buyer disfavoring purchases of odd lots or smaller blocks of securities. Domestic and foreign markets are becoming more and more complex and interrelated,
so that events in one sector of the market or the economy or in one geographical region, can reverberate and have negative consequences for other market, economic or regional sectors in a manner that may not be reasonably foreseen. With respect to
securities traded over-the-counter, the continued viability of any over-the-counter secondary market depends on the continued willingness of dealers and other participants to purchase and sell such securities.
If one or more instruments in the Fund’s portfolio become
illiquid, the Fund may exceed its limit on illiquid investments. In the event that this occurs, the Fund must take steps to bring the aggregate amount of illiquid investments back within the prescribed limitations as soon as reasonably practicable.
This requirement would not force the Fund to liquidate any portfolio instrument that would result in a loss on the sale of that investment.
Privately issued securities and other restricted securities are
not publicly traded and generally are subject to strict restrictions on resale. Accordingly, there may be no market or a limited market for the resale of such securities. Therefore, the Fund may be unable to dispose of such securities when it
desires to do so or at the most favorable price, which may result in a loss to the Fund. This potential lack of liquidity also may make it more difficult to accurately value these securities. There may be less information publicly available
regarding such securities as compared to publicly issued securities. Privately issued securities that are determined to be "illiquid" would be subject to a Fund's policy of not investing more than 15% of its net assets in illiquid investments.
Restricted securities are securities that are sold only through
negotiated private transactions and not to the general public, due to certain restrictions imposed by federal securities laws. The risks associated with illiquid and restricted securities may be particularly acute in situations in which the
Fund’s operations require cash and could result in the Fund borrowing to meet its short-term needs or incurring losses on the sale of illiquid or restricted securities. In order to dispose of an unregistered security, the Fund, where it has
contractual rights to do so, may have to cause such security to be registered. A considerable period may elapse between the time the decision is made to sell the security and the time the security is registered, therefore enabling the Fund to sell
it. Contractual restrictions on the resale of securities vary in length and scope and are generally the result of a negotiation between the issuer and acquiror of the securities. In either case, the Fund would bear market risks during that
period.
Certain
Affiliations. Certain broker-dealers may be considered to be affiliated persons of the Fund and/or the Manager due to their possible affiliations with the Manager. Absent an exemption from the SEC or other regulatory relief, the Fund is
generally precluded from effecting certain principal transactions with affiliated brokers, and its ability to purchase securities being underwritten by an affiliated broker or a syndicate including an affiliated broker, or to utilize affiliated
brokers for agency transactions, is subject to restrictions. This could limit the Fund’s ability to engage in securities transactions and take advantage of market opportunities.
Anti-Takeover
Provisions. The Declaration of Trust and By-Laws include provisions that could limit the ability of other entities or persons to acquire control of the Fund or convert the Fund to an open-end fund. These provisions could have the effect of
depriving the holders of the common shares of opportunities to sell their common shares at a premium over the then-current market price of the common shares.
Secondary Market for
the Common Shares. The issuance of common shares through the Fund’s dividend reinvestment plan may have an adverse effect on the secondary market for the common shares. The increase in the number of outstanding common shares resulting
from issuances pursuant to the Fund’s dividend reinvestment plan and the discount to the market price at which such common shares may be issued may put downward pressure on the market price for the common shares. When the common shares are
trading at a premium, the Fund may also issue common shares that may be sold through private transactions effected on the NYSE or through broker-dealers. The increase in the number of outstanding common shares resulting from these offerings may put
downward pressure on the market price for common shares.
Other Investment Companies Risk. The Fund may invest in other investment companies, including mutual funds, closed-end funds, and ETFs.
The Fund may purchase the securities of another investment
company to temporarily gain exposure to a portion of the market while awaiting purchase of securities or as an efficient means of gaining exposure to a particular asset class. The Fund might also purchase shares of another investment company to gain
exposure to the securities in the investment company’s portfolio at times when the Fund may not be able to buy those securities directly. Any investment in another investment company would be consistent with the Fund’s objective and
investment program. The Fund generally will directly bear its proportionate share of the management fees and other expenses that are charged by other investment companies, which also may be advised by the Manager or its affiliates, in addition to
the management fees and other expenses paid by the Fund.
The risks of owning another investment company are generally
similar to the risks of investment directly in the securities in which that investment company invests. However, an investment company may not achieve its investment objective or execute its investment strategy effectively, which may adversely
affect the Fund’s performance. In addition, because listed closed-end funds and ETFs trade on a secondary market, their shares may trade at a premium or discount to the actual listed NAV of their portfolio securities and their shares may have
greater volatility because of the potential lack of liquidity.
Exchange-Traded Funds
Risk. To the extent the Fund invests in securities of other investment companies, the Fund may invest in shares of ETFs, including ETFs advised by affiliates of New York Life Investments. ETFs are investment companies that trade like stocks.
The price of an ETF is derived from and based upon the securities held by the ETF. However, like stocks, shares of ETFs are not traded at NAV, but may trade at prices above or below the value of their underlying portfolios. The level of risk
involved in the purchase or sale of an ETF is similar to the risk involved in the purchase or sale of a traditional common stock, except that the pricing mechanism for an ETF is based on a basket of securities. Thus, the risks of owning an ETF
generally reflect the risks of owning the underlying securities that the ETF is designed to track, although lack of liquidity in an ETF’s shares could result in the market price of the ETF's shares being more volatile than the underlying
portfolio of securities. Disruptions in the markets for the securities underlying ETFs purchased or sold by the Fund could result in losses on the Fund’s investment in ETFs. In addition, an actual trading market may not develop for an
ETF’s shares and the listing exchange may halt trading of an ETF’s shares. ETFs are subject to management fees and other fees that may increase their costs versus the costs of owning the underlying securities directly. The Fund will
indirectly bear its proportionate share of management fees and other expenses that are charged by an ETF in addition to the management fees and other expenses paid by the Fund. The Fund will pay brokerage commissions in connection with the purchase
and sale of shares of ETFs. The Fund may from time to time invest in ETFs, primarily as a means of gaining exposure for its portfolio to the market without investing in individual securities, particularly in the context of managing cash flows into
the Fund or where access to a local market is restricted or not cost effective. In addition, an index-based ETF may not exactly replicate the performance of the index it seeks to track for a number of reasons, such as operating expenses, transaction
costs and imperfect correlation between the performance of the ETF’s holdings and that of the index.
The Fund may invest in ETFs, among other reasons, to gain broad
market, sector or asset class exposure, including during periods when it has large amounts of uninvested cash or when the Manager or Subadvisor believes share prices of ETFs offer attractive values, subject to any applicable investment restrictions
in the Prospectus and the SAI.
EFFECTS OF LEVERAGE
The following table is furnished in response to requirements of
the SEC. It is designed to illustrate the effect of leverage on common shares total return during the Fund’s first full year of operations, assuming investment portfolio total returns (comprised of income and changes in the value of securities
held in the Fund’s portfolio) of -10%, -5%, 0%, 5% and 10%. Specifically, the table is intended to illustrate the amplified effect leverage may have on common shares total returns based on the performance of the Fund’s underlying assets,
i.e., gains or losses will be greater than they otherwise would be without the use of leverage. These assumed investment portfolio returns are hypothetical figures and are not necessarily indicative of the investment portfolio returns experienced or
expected to be experienced by the Fund.
| 50
|
MainStay MacKay
DefinedTerm Municipal Opportunities Fund |
The table further reflects the issuance of leverage
representing 33% of the Managed Assets, net of expenses, the Fund’s currently projected annual dividend and interest on its leverage of 1.39%. The common shares must experience an annual return of 0.70%. in order to cover the rate of annual
dividend and interest payments on preferred shares and/or notes or other forms of indebtedness, if any.
| |
MMD
|
Common
Share Total Return for (10.00)%
Assumed Portfolio Total Return |
-15.70%
|
Common
Share Total Return for (5.00)%
Assumed Portfolio Total Return |
-8.20%
|
Common
Share Total Return for 0.00%
Assumed Portfolio Total Return |
-0.70%
|
Common
Share Total Return for 5.00%
Assumed Portfolio Total Return |
6.81%
|
Common
Share Total Return for 10.00%
Assumed Portfolio Total Return |
14.31%
|
Common shares Total Return is
composed of two elements: the common shares dividends paid by the Fund (the amount of which is largely determined by the net investment income of the Fund after paying dividends or interest on its leverage) and gains or losses on the value of the
securities the Fund owns. As required by SEC rules, the table above assumes that the Fund is more likely to suffer capital losses than to enjoy capital appreciation. For example, to assume a total return of 0% the Fund must assume that the interest
it receives on its debt security investments is entirely offset by losses in the value of those investments.
If the Fund uses leverage, the amount of fees paid to the
Manager for management services will be higher than if the Fund does not use leverage because the fees paid are calculated on the Managed Assets, which include assets purchased with leverage. Therefore, the Manager and the Subadvisor have a
financial incentive to use leverage, which creates a conflict of interest between the Manager and the Subadvisor and the holders of common shares as only the holders of common shares would bear the fees and expenses incurred through the Fund’s
use of leverage.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Fund’s investment objectives and certain investment
policies of the Fund are described in the Prospectus. The Fund, as a fundamental policy, may not:
1. With respect to 75% of its total assets, purchase any
securities if, as a result (i) more than 5% of the Fund’s total assets would then be invested in securities of any single issuer, or (ii) the Fund would hold more than 10% of the outstanding voting securities of any single issuer; provided,
that Government securities (as defined in the 1940 Act), securities issued by other investment companies and cash items (including receivables) shall not be counted for purposes of this limitation.
2. Purchase or sell real estate or commodities except as
permitted by (i) the 1940 Act and the rules and regulations thereunder, or other successor law governing the regulation of registered investment companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority of
competent jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority of competent jurisdiction.
3. Borrow money except as permitted by (i) the 1940 Act and the
rules and regulations thereunder, or other successor law governing the regulation of registered investment companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority of competent jurisdiction, or (ii) exemptive
or other relief or permission from the SEC, SEC staff or other authority of competent jurisdiction.
4. Issue senior securities except as permitted by (i) the 1940
Act and the rules and regulations thereunder, or other successor law governing the regulation of registered investment companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority of competent jurisdiction, or (ii)
exemptive or other relief or permission from the SEC, SEC staff or other authority of competent jurisdiction.
5. Underwrite the securities of other issuers except (a) to the
extent that the Fund may be deemed to be an underwriter within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), in connection with the purchase and sale of portfolio securities; and (b) as permitted by (i)
the 1940 Act and the rules and regulations thereunder, or other successor law governing the regulation of registered investment companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority of competent
jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority of competent jurisdiction.
6. Make loans except as permitted by (i) the 1940 Act and the
rules and regulations thereunder, or other successor law governing the regulation of registered investment companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority of competent jurisdiction, or (ii) exemptive
or other relief or permission from the SEC, SEC staff or other authority of competent jurisdiction.
7. Purchase the securities of any issuer if, as a result of
such purchase, the Fund’s investments would be concentrated in any particular industry except as permitted by (i) the 1940 Act and the rules and regulations thereunder, or other successor law governing the regulation of registered investment
companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority of competent jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority of competent jurisdiction.
Except as noted above, the foregoing fundamental investment
policies, together with the 80% policy of the Fund, cannot be changed without approval by holders of a majority of the outstanding voting securities of the Fund, as defined in the 1940 Act, which includes common shares and preferred shares, if any,
voting together as a single class, and of the holders of the outstanding preferred shares voting as a single class. Under the 1940 Act a “majority of the outstanding voting securities” means the vote of: (i) 67% or more of the
Fund’s shares present at a meeting, if the holders of more than 50% of the Fund’s shares are present or represented by proxy, or (ii) more than 50% of the Fund’s shares, whichever is less.
The foregoing restrictions and limitations will apply only at
the time of purchase of securities, and the percentage limitations will not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of an acquisition of securities, unless otherwise indicated.
Additional
Information Regarding Fundamental Investment Restrictions
Below is additional information regarding the Fund’s
fundamental investment restrictions and the current meaning of phrases similar to “to the extent permitted under the 1940 Act” as set forth in the restrictions, if applicable. This phrase may be informed by, among other things, guidance
interpretations of the SEC or its staff or exemptive relief from the SEC and, as such, may change from time to time. This information is in addition to, rather than part of, the fundamental investment restrictions themselves.
| •
|
Borrowing. In the event that a Fund's “asset coverage” (as defined in the 1940 Act) at any time falls below 300%, the Fund, within three days thereafter (not
including Sundays and holidays) or such longer period as the SEC may prescribe by rules and regulations, will reduce the amount of its borrowings to the extent required so that the asset coverage of such borrowings will be at least 300%. |
| •
|
Concentration. Although the 1940 Act does not define what constitutes “concentration” in an industry or group of industries, the SEC and its staff take the
position that any fund that invests more than 25% of the value of its assets in a particular industry or group of industries (other than securities issued or guaranteed by the U.S. government, its agencies or instrumentalities) is deemed to be
“concentrated” in that industry or group of industries. |
For the purposes of the Fund’s fundamental investment
restriction relating to concentration, the Fund may use the industry classifications provided by Bloomberg, L.P., the MSCI/Standard & Poor's Global Industry Classification Standard ("GICS") or any other reasonable industry classification system.
Wholly-owned finance companies will be considered to be in the industries of their parents (or affiliated entity) if their activities are primarily related to financing the activities of the parents (or affiliated entity). Due to their varied
economic characteristics, issuers within the financial services industry will be classified at the sub-group level. Utilities will be divided according to their services, for example, gas, gas transmission, electric and gas, electric and telephone
will each be considered a separate industry. Securities issued by foreign governmental entities (including foreign agencies, foreign municipalities, and foreign instrumentalities) will be classified by country. For purposes of classifying such
securities, each foreign country will be deemed a separate industry. Also, for purposes of industry concentration, tax-exempt securities issued by states, municipalities and their political subdivisions are not considered to be part of any industry,
unless their payments of interest and/or principal are dependent upon revenues derived from projects, rather than the general obligations of the municipal issuer (such as private activity and revenue bonds or municipal securities backed principally
from the assets or revenues of non-governmental users).
| 52
|
MainStay MacKay
DefinedTerm Municipal Opportunities Fund |
Board of
Trustees and Officers (Unaudited)
The Trustees and officers of the Fund are listed below. The Board oversees the
MainStay Group of Funds (which consists of MainStay Funds and MainStay Funds Trust), MainStay VP Funds Trust, MainStay MacKay DefinedTerm Municipal Opportunities Fund, MainStay CBRE Global Infrastructure Megatrends Fund, the Manager and the
Subadvisors, and elects the officers of the Fund who are responsible for the day-to-day operations of the Fund. Information pertaining to the Trustees and officers is set forth below. Each Trustee serves until his or her successor is elected and
qualified or until his or her resignation, death or removal. Under the Board’s retirement policy, unless an exception is made, a
Trustee must tender his or her resignation by the end of the calendar year
during which he or she reaches the age of 75. Mr. Nolan reached the age of 75 during the calendar year 2021. Accordingly, Mr. Nolan retired at the end of calendar year 2021, at which time, Ms. Hammond became a Trustee of the Funds. Officers are
elected annually by the Board. The business address of each Trustee and officer listed below is 51 Madison Avenue, New York, New York 10010. A majority of the Trustees are not “interested persons” (as defined by the 1940 Act and rules
adopted by the SEC thereunder) of the Fund (“Independent Trustees”).
| |
Name
and
Year of Birth |
Term
of Office,
Position(s) Held and
Length of Service |
Principal
Occupation(s)
During Past Five Years |
Number
of
Portfolios in
Fund Complex
Overseen by
Trustee |
Other
Directorships
Held by Trustee |
| |
|
|
|
|
|
| |
Yie-Hsin
Hung*
1962 |
MainStay
MacKay DefinedTerm Municipal Opportunities Fund:
Trustee since 2017 |
Senior
Vice President of New York Life since joining in 2010, Member of the Executive Management Committee since 2017, Chief Executive Officer, New York Life Investment Management Holdings LLC & New York Life Investment Management LLC since 2015.
Senior Managing Director and Co-President of New York Life Investment Management LLC from January 2014 to May 2015. Previously held positions of increasing responsibility, including head of NYLIM International, Alternative Growth Businesses, and
Institutional investments since joining New York Life in 2010 |
78
|
MainStay
VP Funds Trust: Trustee since 2017 (31 portfolios);
MainStay Funds: Trustee since 2017
(12 funds);
MainStay Funds Trust:
Trustee since 2017 (33 funds);
MainStay CBRE Global Infrastructure Megatrends Fund: Trustee since March 2021; and
Turtle Beach Corporation: Director since April
2021 |
| *
|
This Trustee is considered to
be an “interested person” of the MainStay Group of Funds, MainStay VP Funds Trust, MainStay CBRE Global Infrastructure Megatrends Fund and MainStay MacKay DefinedTerm Municipal Opportunities Fund, within the meaning of the 1940 Act
because of her affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Candriam Belgium S.A., Candriam Luxembourg S.C.A., IndexIQ Advisors LLC, MacKay Shields LLC, NYL Investors LLC, NYLIFE Securities LLC and/or
NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During Past Five Years.” |
| |
|
Board of
Trustees and Officers (Unaudited) (continued)
| |
Name
and
Year of Birth |
Term
of Office,
Position(s) Held and
Length of Service |
Principal
Occupation(s)
During Past Five Years |
Number
of
Portfolios in
Fund Complex
Overseen by
Trustee |
Other
Directorships
Held by Trustee |
| |
|
|
|
|
|
| |
David
H. Chow
1957 |
MainStay
MacKay DefinedTerm Municipal Opportunities Fund: Trustee since 2016 and Audit Committee Financial Expert, Advisory Board Member (June 2015 to December 2015) |
Founder
and CEO, DanCourt Management, LLC since 1999 |
78
|
MainStay
VP Funds Trust: Trustee since 2016, Advisory Board Member
(June 2015 to December 2015)
(31 portfolios);
MainStay Funds: Trustee since 2016, Advisory Board Member
(June 2015 to December 2015) (12 funds);
MainStay Funds Trust: Trustee since 2016, Advisory Board Member
(June 2015 to December 2015)
(33 funds);
MainStay CBRE Global Infrastructure
Megatrends Fund: Trustee since June 2021;
VanEck Vectors Group of Exchange- Traded Funds: Independent Chairman of the Board of Trustees since 2008 and Trustee since 2006
(56 portfolios); and
Berea College of Kentucky: Trustee since 2009, Chair of Investment Committee since 2018 |
| |
Susan
B. Kerley
1951 |
MainStay
MacKay DefinedTerm Municipal Opportunities Fund: Chairman since 2017, Trustee since 2011 and Audit Committee Financial Expert |
President,
Strategic Management Advisors LLC since 1990 |
78
|
MainStay
VP Funds Trust: Chairman since 2017 and Trustee since 2007
(31 portfolios)***;
MainStay Funds: Chairman since 2017 and Trustee since 2007 (12 funds); MainStay
Funds Trust: Chairman since 2017 and Trustee since 1990
(33 funds)**;
MainStay CBRE Global Infrastructure Megatrends Fund: Trustee since June 2021; and
Legg
Mason Partners Funds: Trustee since 1991 (45 portfolios) |
| |
Alan
R. Latshaw
1951 |
MainStay
MacKay DefinedTerm Municipal Opportunities Fund: Trustee since 2011 and Audit Committee Financial Expert |
Retired;
Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) |
78
|
MainStay
VP Funds Trust: Trustee since 2007 (31 portfolios)***;
MainStay Funds: Trustee since 2006
(12 funds);
MainStay Funds Trust:
Trustee since 2007 (33 funds)**; and
MainStay CBRE Global Infrastructure Megatrends Fund: Trustee since June 2021 |
| |
Richard
H. Nolan, Jr.
1946**** |
MainStay
MacKay DefinedTerm Municipal Opportunities Fund: Trustee since 2011 |
Managing
Director, ICC Capital Management since 2004; President—Shields/Alliance, Alliance Capital Management (1994 to 2004) |
78
|
MainStay
VP Funds Trust: Trustee since 2006 (31 portfolios)***;
MainStay Funds: Trustee since 2007
(12 funds);
MainStay Funds Trust:
Trustee since 2007 (33 funds)**; and
MainStay CBRE Global Infrastructure Megatrends Fund: Trustee since June 2021 |
| 54
|
MainStay MacKay DefinedTerm
Municipal Opportunities Fund |
| |
Name
and
Year of Birth |
Term
of Office,
Position(s) Held and
Length of Service |
Principal
Occupation(s)
During Past Five Years |
Number
of
Portfolios in
Fund Complex
Overseen by
Trustee |
Other
Directorships
Held by Trustee |
| |
|
|
|
|
|
| |
Karen
Hammond
1956 |
MainStay
MacKay DefinedTerm Municipal Opportunities Fund: Trustee since December 2021 and Audit Committee Financial Expert, Advisory Board Member (June 2021 to December 2021) |
Retired;
Managing Director, Devonshire Investors (2007 to 2013); Senior Vice President, Fidelity Management & Research Co. (2005 to 2007); Senior Vice President and Corporate Treasurer, FMR Corp. (2003 to 2005); Chief Operating Officer, Fidelity
Investments Japan (2001 to 2003) |
78
|
MainStay
VP Funds Trust: Trustee since December 2021, Advisory Board Member (June 2021 to December 2021)
(31 portfolios);
MainStay Funds: Trustee since December 2021, Advisory
Board Member (June 2021 to December 2021) (12 Funds);
MainStay Funds Trust: Trustee since December 2021, Advisory Board Member(June 2021 to December 2021) (33 Funds);
MainStay CBRE Global
Infrastructure Megatrends Fund: Trustee since December 2021, Advisory Board Member (June 2021 to December 2021);
Two Harbors Investment Corp.: Trustee since 2018, Chair of
the Special Committee since 2019;
Rhode Island School of Design: Director and Chair of the Finance Committee since 2015; and
Blue Cross Blue Shield of Rhode Island: Director since 2019 |
| |
Jacques
P. Perold
1958 |
MainStay
MacKay DefinedTerm Municipal Opportunities Fund: Trustee since 2016, Advisory Board Member (June 2015 to December 2015) |
Founder
and Chief Executive Officer, CapShift Advisors LLC since 2018; President, Fidelity Management & Research Company (2009 to 2014); President and Chief Investment Officer, Geode Capital Management, LLC (2001 to 2009) |
78
|
MainStay
VP Funds Trust: Trustee since 2016, Advisory Board Member
(June 2015 to December 2015)
(31 portfolios);
MainStay Funds: Trustee since 2016, Advisory Board Member
(June 2015 to December 2015) (12 funds);
MainStay Funds Trust: Trustee since 2016, Advisory Board Member (June 2015 to December 2015) (33 funds);
MainStay CBRE Global Infrastructure Megatrends
Fund: Trustee since June 2021;
Allstate Corporation: Director since 2015;
Partners in Health: Trustee since 2019; and
MSCI Inc.: Director since 2017 |
| |
Richard
S. Trutanic
1952 |
MainStay
MacKay DefinedTerm Municipal Opportunities Fund: Trustee since 2011 |
Chairman
and Chief Executive Officer, Somerset & Company (financial advisory firm) since 2004; Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A.
(private investment firm) (1999 to 2002)
|
78
|
MainStay
VP Funds Trust: Trustee since 2007 (31 portfolios)***;
MainStay Funds: Trustee since 1994
(12 funds);
MainStay Funds Trust: Trustee since 2007
(33 funds)**; and
MainStay CBRE Global Infrastructure Megatrends Fund: Trustee since June 2021 |
| **
|
Includes prior service as a
Director/Trustee of certain predecessor entities to MainStay Funds Trust. |
| ***
|
Includes prior service as a
Director of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
| ****
|
Pursuant
to the Board's retirement policy, Mr. Nolan retired from the Board effective December 31, 2021. |
Board of
Trustees and Officers (Unaudited) (continued)
| |
Name
and
Year of Birth |
Position(s)
Held and
Length of Service |
Principal
Occupation(s)
During Past Five Years |
|
| |
|
|
|
|
| |
Kirk
C. Lehneis
1974 |
President,
MainStay MacKay DefinedTerm Municipal Opportunities Fund
since 2017 |
Chief
Operating Officer and Senior Managing Director since 2016, New York Life Investment Management LLC and New York Life Investment Management Holdings LLC; Member of the Board of Managers since 2017 and Senior Managing Director since 2018, NYLIFE
Distributors LLC; Chairman of the Board and Senior Managing Director, NYLIM Service Company LLC since 2017; Trustee, President and Principal Executive Officer of IndexIQ Trust, IndexIQ ETF Trust and IndexIQ Active ETF Trust since 2018; President,
MainStay Funds, MainStay Funds Trust, MainStay VP Funds Trust since January 2017**, and MainStay CBRE Global Infrastructure Megatrends Fund since 2021; Senior Managing Director, Global Product Development (2015 to 2016); Managing Director, Product
Development (2010 to 2015), New York Life Investment Management LLC |
|
| |
Jack
R. Benintende
1964 |
Treasurer
and Principal Financial and Accounting Officer, MainStay MacKay DefinedTerm Municipal Opportunities Fund since 2011 |
Managing
Director, New York Life Investment Management LLC since 2007; Treasurer and Principal Financial and Accounting Officer, MainStay Funds since 2007, MainStay Funds Trust since 2009, MainStay VP Funds Trust since 2007**, MainStay CBRE Global
Infrastructure Megatrends Fund since 2021; and Assistant Treasurer, New York Life Investment Management Holdings LLC (2008 to 2012) |
|
| |
Kevin
M. Bopp
1969 |
Vice
President and Chief Compliance Officer, MainStay MacKay DefinedTerm Municipal Opportunities Fund since June 2021 and 2014 to 2020 |
Vice
President and Chief Compliance Officer, New York Life Investments Alternatives LLC and New York Life Investment Management Holdings LLC (since 2020); Vice President (since 2018) and Chief Compliance Officer (since 2016), New York Life Investment
Management LLC; Vice President and Chief Compliance Officer, IndexIQ Advisors LLC, IndexIQ Holdings Inc., IndexIQ LLC and IndexIQ Trust (since 2017); Director and Associate General Counsel (2011 to 2014) and Vice President and Assistant General
Counsel (2010 to 2011), New York Life Investment Management LLC; Vice President and Chief Compliance Officer, MainStay CBRE Global Infrastructure Megatrends Fund (since 2021); Assistant Secretary, MainStay Funds, MainStay Funds Trust and MainStay VP
Funds Trust (2010 to 2014)**, MainStay MacKay DefinedTerm Municipal Opportunities Fund (2011 to 2014) |
|
| |
J.
Kevin Gao
1967 |
Secretary
and Chief Legal Officer, MainStay MacKay DefinedTerm Municipal Opportunities Fund since 2011 |
Managing
Director and Associate General Counsel, New York Life Investment Management LLC since 2010; Secretary and Chief Legal Officer, MainStay Funds, MainStay Funds Trust, MainStay VP Funds Trust since 2010**, and MainStay CBRE Global Infrastructure
Megatrends Fund since 2021 |
|
| |
Scott
T. Harrington
1959 |
Vice
President— Administration, MainStay MacKay DefinedTerm Municipal Opportunities Fund since 2011 |
Managing
Director, New York Life Investment Management LLC (including predecessor advisory organizations) since 2000; Member of the Board of Directors, New York Life Trust Company since 2009; Vice President—Administration, MainStay Funds since 2005,
MainStay Funds Trust since 2009, MainStay VP Funds Trust since 2005**, and MainStay CBRE Global Infrastructure Megatrends Fund since 2021 |
|
| *
|
The officers listed above are
considered to be “interested persons” of the MainStay Group of Funds, MainStay VP Funds Trust, MainStay CBRE Global Infrastructure Megatrends Fund and MainStay MacKay DefinedTerm Municipal Opportunities Fund within the meaning of the
1940 Act because of their affiliation with the MainStay Group of Funds, New York Life Insurance Company and/or its affiliates, including New York Life Investment Management LLC, NYLIM Service Company LLC, NYLIFE Securities LLC and/or NYLIFE
Distributors LLC, as described in detail in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board. |
| **
|
Includes
prior service as an Officer of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
Officers of the Trust (Who are not
Trustees)*
| 56
|
MainStay MacKay DefinedTerm
Municipal Opportunities Fund |
This page intentionally left
blank.
This page intentionally left
blank.
This page
intentionally left blank.
Manager
New York Life Investment Management LLC
New York, New York
Subadvisor
MacKay Shields LLC1
New York, New York
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
Transfer, Dividend Disbursing and Shareholder Servicing
Agent
Computershare Trust Company, N.A.
P.O. Box 505000
Louisville, Kentucky 40233
(855)
456-9683
newyorklifeinvestments.com/mmd
1. An affiliate of New York Life Investment Management
LLC.
“New York Life Investments” is both a
service mark, and the common trade name, of certain investment advisors affiliated with New York Life Insurance Company.
| 1741808MS128-22 |
MSMHI11-07/22
|
(NYLIM) NL265