UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act File Number 811-22551
MAINSTAY MACKAY DEFINEDTERM
MUNICIPAL OPPORTUNITIES FUND
(Exact name of Registrant as specified in charter)
51 Madison Avenue, New York, NY 10010
(Address of principal executive offices) (Zip code)
J. Kevin Gao, Esq.
30 Hudson
Street
Jersey City, New Jersey 07302
(Name and address of agent for service)
Registrant’s telephone number, including area code: (212) 576-7000
Date of fiscal year end: May 31
Date of reporting period:
May 31, 2023
| Item 1. |
Reports to Stockholders. |
MainStay MacKay DefinedTerm Municipal Opportunities Fund
Message from the President and
Annual Report May 31, 2023 | 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,
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Not Insured by Any Government Agency |
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Message
from the President
Despite elevated market volatility driven by high levels of inflation and rising interest rates, broadly based bond
indices saw modest overall changes during the 12-month reporting period ended May 31, 2023. Declines during
the first four-and-a-half months, driven by increasing inflationary pressures and aggressive monetary
efforts to curb them, were largely balanced by gains during the latter months, as inflation began responding to central bank interest rate increases, and the pace of the increases moderated.
In May 2022, before the start of the reporting period, U.S. inflation stood at an annualized rate of 8.58%, up from 4.99% in May 2021 and 0.12% in May 2020. In an effort to rein in
inflation, the U.S. Federal Reserve (the “Fed”) raised the federal funds rate eight times
during the reporting period, hiking the benchmark federal funds rate from 0.75%–1.00% at the beginning of June 2022 to 5.00%–5.25% in May 2023—the Fed’s most aggressive series of rate increases since the
1980’s. Inflation appeared to respond, easing steadily from a peak of 9.06% in June 2022 to 4.05% in
May 2023. Although the Fed projected additional rate rises in 2023, by the end of the reporting period the current rate-hike cycle appeared near its end. Economic growth, although slower, remained positive, supported by historically
high levels of employment and strong consumer spending.
Fixed-income market behavior during the reporting period reflected the arc of monetary policy and economic developments.
Bond prices trended lower early in the period, as yields rose along with interest rates. Short-term yields
rose faster than long-term yields, producing a yield curve inversion—with long-term rates lower than
short-term rates—that persisted from July 2022 through the end of the reporting period. However, market
sentiment improved in the second half of the period when inflationary pressures eased. As the Fed decreased
the level of rate increases, focus turned toward the possibility of eventual rate reductions and a
potential “soft landing” for the economy. On a more negative note, a small number of high-profile, regional U.S.
bank failures in March and April 2023 raised
fears of a possible wider banking industry contagion and future credit constraints. In general, although
most bond classes lost modest ground during the reporting period, municipal issues produced mild gains,
bolstered by favorable supply/demand dynamics and the sector’s historically low default
rates.
While many market observers believe the Fed has neared the end of the current cycle of rate increases, the Fed remains sharply focused on its inflation target of 2%, warning that
further increases are likely. Only time will tell if the market’s favorable expectations prove
well-founded, and if economic growth can stay positive despite the impact of relatively high interest rates.
However, the uncertainties implicit in the current economic environment appear to bode well for the
municipal bond market, due to the sector’s relative stability compared to taxable equivalents,
fundamental credit strength, and tax-advantaged characteristics.
MainStay MacKay DefinedTerm Municipal Opportunities Fund provides an opportunistic investment approach to the municipal
bond market through an active, relative-value strategy managed by MacKay Shields, a team with decades of
municipal bond experience. As such, the Fund exemplifies the one-on-one philosophy and diversified,
multi-boutique investment resources that set New York Life Investments apart.
Thank you for trusting us to help meet your investment needs.
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, 2023* |
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Bloomberg Municipal Bond Index2
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Morningstar Muni National Long Category
Average3 |
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Returns for indices reflect no deductions for fees, expenses or taxes, except for foreign withholding taxes where applicable. Results assume reinvestment of all dividends
and capital gains. An investment cannot be made directly in an index.
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Total returns assume dividends and capital gains distributions are reinvested. |
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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. |
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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 funds
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,
2023
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Total Net Assets (millions) |
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Total Managed Assets (millions)2 |
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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. |
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“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). |
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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.
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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,
2023†(Unaudited)
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Other Assets, Less Liabilities |
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As a percentage of Managed Assets. |
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As of May 31, 2023, 58.3% of the Puerto Rico municipal securities held by the Fund were insured and all bonds continue to pay full principal and interest.
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See Portfolio of Investments beginning on page10 for specific holdings within these categories. The Fund's holdings are subject to change.
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MainStay MacKay DefinedTerm Municipal Opportunities Fund
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Top Ten Holdings and/or Issuers
Held as of May 31, 2023 (excluding short-term investments)# (Unaudited)
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Chicago O'Hare International Airport, 5.25%-5.75%, due 1/1/38–1/1/45 (a) |
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State of Illinois, 5.25%-5.50%, due 5/1/30–5/1/39
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Los Angeles Department of Water & Power, 5.00%, due 7/1/42
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Metropolitan Transportation Authority, 5.00%-5.25%, due 11/15/45–11/15/56 |
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Pennsylvania Economic Development Financing Authority, 5.75%-6.00%, due 7/1/53–12/31/62 (a) |
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Orange County Convention Center, 4.00%, due 10/1/33
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City of Chicago, 5.00%-6.00%, due 1/1/27–1/1/49
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Puerto Rico Sales Tax Financing Corp., 4.55%-5.00%, due 7/1/40–7/1/58 |
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City of Salt Lake, 5.00%, due 7/1/47 |
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County of Broward, 4.00%-5.50%, due
9/1/51–1/1/55 (a)
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Some of these holdings have been transferred to a Tender Option Bond (“TOB”) Issuer in exchange for TOB Residuals and cash. |
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Municipal security may feature credit enhancements, such as bond insurance. |
Credit Quality as of May 31, 2023^ (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 John Loffredo, CFA, Robert DiMella, CFA, Michael Petty, David Dowden, Scott Sprauer, John Lawlor and Michael Denlinger, CFA, 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, 2023?
For the 12 months ended May 31, 2023, MainStay MacKay
DefinedTerm Municipal Opportunities Fund returned −1.49% based on net asset value applicable to
Common shares and −4.16% based on market price. At net asset value and at market price, the Fund
underperformed the 0.49% return of its benchmark, the Bloomberg Municipal Bond Index (the “Index”). At net asset value the Fund outperformed, and at market price the Fund underperformed, the −3.15% return of the
Morningstar Muni National Long Category Average.1
What factors affected the Fund’s relative performance during the reporting period?
During the first half of the reporting period, both municipal rates and U.S. Treasury rates rose, with the municipal
yield curve2 steepening as outflows persisted. As a result, ratios cheapened across the curve, most notably on the long-end. The
Fund’s overweight exposure to this segment of the market compared to the Index was a driver of
relative underperformance. Across the credit spectrum, underweight exposure to AAA/AA-rated3 credits
detracted from relative performance, while security selection among the non-rated credits helped to offset
some of the losses. From a geographic perspective, an overweight allocation to Florida bonds detracted from
relative performance, whereas security selection among Illinois bonds made positive contributions to
relative returns. (Contributions take weightings and total returns into account.) Finally, the Fund’s
overweight exposure to bonds with coupons of 6% detracted on a relative basis.
How was the Fund’s leverage strategy implemented during the reporting
period?
During the reporting period, we reduced the Fund’s leverage modestly to 36.7% of the Fund’s managed assets. The Fund continued to exit positions in names that no longer
represented spread-tightening4 opportunities. The Fund also continued to execute tax loss swaps and reinvest in higher-yielding bonds and structures with potential spread-tightening characteristics.
What was the Fund’s duration5 strategy during the reporting period?
We do
not make interest rate forecasts or duration bets. Rather, we aim to take a duration-neutral posture in the Fund relative to the Index. As of the end of the reporting period, the Fund's modified duration to worst6 was 5.89 years compared to 6.02 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 security selection
among electric holdings contributed positively to relative performance, as did underweight exposure to the
leasing sector. Conversely, underweight exposure to, and security selection in, the transportation and
hospital sectors detracted most significantly.
How did the Fund’s market
segments change during the reporting period?
During the reporting period, there were no material changes to the weightings in the Fund. At the margin, we increased
the Fund’s exposure to the electric and state general obligation sectors during the reporting period.
In the coming year, we anticipate greater demand for traditional municipal bonds—including bonds
backed by the taxing power of general obligation issuers or secured by the revenues of essential service
providers. In addition, we increased the Fund’s credit exposure to AAA-rated bonds, given their
relatively strong financial condition and the fact that they were available at much higher yields.
Furthermore, we increased the Fund’s state exposure to Illinois. Conversely, we decreased the
Fund’s exposure to the hospital and prerefunded/ETM (escrowed to maturity) sectors, as well as credit
exposure to non-investment-grade bonds and state exposure to Michigan.
How was the Fund positioned at the end of the reporting period?
As of May 31,
2023, the Fund remained overweight to the long end of the curve, where municipal yields were more attractive. In addition, the Fund held overweight exposure to the special tax and
1.
See "Fund Performance and Statistics" for more information on Fund 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.
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. 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.
4.
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.
5.
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.
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.
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MainStay MacKay DefinedTerm Municipal Opportunities Fund
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electric sectors. Across states and
territories, the Fund held overweight exposure to bonds from Illinois and Puerto Rico. From a credit
perspective, the Fund held overweight exposure to non-rated bonds not held in the Index. As of the same date, the Fund held underweight exposure to the state general obligation, local general obligation and hospital sectors, as well
as AAA-rated credits and holdings from the state of California.
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, 2023†
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Arizona 0.3%
(0.2% of Managed Assets) |
Industrial Development Authority of the City of Phoenix (The), Espiritu Community Development Corp., Revenue Bonds |
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California 15.7%
(10.0% of Managed Assets) |
Calexico Unified School District, Election of 2020, Unlimited General Obligation |
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California Municipal Finance Authority, LAX Integrated Express Solutions LLC, Revenue Bonds, Senior Lien |
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California Municipal Finance Authority, United Airlines, Inc. Project, Revenue Bonds |
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Los Angeles Department of Water & Power, Power System, Revenue Bonds |
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Regents of the University of California Medical Center Pooled, Revenue Bonds |
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Sacramento City Unified School District, Election of 2020, Unlimited General Obligation |
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San Diego County Regional Airport Authority, Revenue Bonds (a) |
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San Francisco City & County Airport Commission, International Airport, Revenue Bonds |
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Colorado 1.7%
(1.1% of Managed Assets) |
City & County of Denver, Airport System, Revenue Bonds |
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Copper Ridge Metropolitan District, Revenue Bonds |
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Sterling Ranch Community Authority Board, Metropolitan District No. 2, Revenue
Bonds |
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District of Columbia 0.6%
(0.4% of Managed Assets) |
Metropolitan Washington Airports Authority, Dulles Toll Road, Revenue Bonds, Second Lien |
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Florida 16.8%
(10.8% of Managed Assets) |
City of Miami Beach, Unlimited General Obligation |
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County of Broward, Convention Center Expansion Project, Revenue Bonds |
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County of Broward, Convention Center Hotel, Revenue Bonds, First Tier |
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County of Miami-Dade, Transit System, Revenue Bonds |
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The notes to the financial statements are an integral part of, and should be read
in conjunction with, the financial statements.
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MainStay MacKay DefinedTerm Municipal Opportunities Fund
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JEA Electric System, Revenue Bonds |
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Orange County Convention Center, Revenue Bonds |
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Georgia 0.5%
(0.3% of Managed Assets) |
Municipal Electric Authority of Georgia, Plant Vogtle Units 3&4 Project, Revenue Bonds |
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Guam 2.2%
(1.4% of Managed Assets) |
Antonio B Won Pat International Airport Authority, Revenue Bonds |
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Guam Government Waterworks Authority, Water and Wastewater System, Revenue Bonds |
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Illinois 29.7%
(19.0% of Managed Assets) |
Chicago Board of Education, Unlimited General Obligation |
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Chicago Board of Education, Dedicated Capital Improvement, Revenue Bonds |
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Chicago Board of Education, Dedicated Capital Improvement, Unlimited General Obligation (d) |
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Chicago O'Hare International Airport, Revenue Bonds, Senior lien |
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Chicago O'Hare International Airport, Customer Facility Charge, Revenue Bonds, Senior Lien |
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City of Chicago, Unlimited General Obligation |
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City of Chicago, Wastewater Transmission, Revenue Bonds, Second Lien |
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Metropolitan Pier & Exposition Authority, McCormick Place Expansion Project, Revenue Bonds |
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(zero coupon), due 6/15/43 |
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Sales Tax Securitization Corp., Revenue Bonds |
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State of Illinois, Unlimited General Obligation |
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Will County School District No. 114
Manhattan, Unlimited General
Obligation |
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Massachusetts 4.3%
(2.8% of Managed Assets) |
Commonwealth of Massachusetts, Unlimited General Obligation |
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The notes to the financial statements are an integral part of, and should be read
in conjunction with, the financial statements.
Portfolio
of Investments May 31, 2023†
(continued)
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Massachusetts (continued)
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Massachusetts Development Finance Agency, North Eastern University Issue, Revenue Bonds |
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Massachusetts School Building Authority, Revenue Bonds |
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Michigan 2.2%
(1.4% of Managed Assets) |
Great Lakes Water Authority Sewage Disposal System, Revenue Bonds, Senior Lien |
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Series B, Insured: AGM-CR |
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Nebraska 0.5%
(0.3% of Managed Assets) |
Omaha Public Power District, Electric System, Revenue Bonds |
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Nevada 5.1%
(3.3% of Managed Assets) |
County of Clark, Regional Transportation Commission of Southern Nevada Motor Fuel Tax, Revenue Bonds |
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Las Vegas Convention & Visitors Authority, Convention Center Expansion, Revenue Bonds |
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New Hampshire 1.0%
(0.6% of Managed Assets) |
Manchester Housing and Redevelopment Authority, Inc., Meals & Rooms Tax, Revenue Bonds |
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(zero coupon), due 1/1/24 |
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New Jersey 4.7%
(3.0% of Managed Assets) |
New Jersey Economic Development Authority, Continental Airlines, Inc. Project, Revenue Bonds |
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New Jersey Economic Development Authority, New Jersey Transit Transportation Project, Revenue Bonds |
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New Jersey Transportation Trust Fund Authority, Transportation Program, Revenue Bonds |
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State of New Jersey, COVID-19 General Obligation Emergency Bonds, Unlimited General Obligation |
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Tobacco Settlement Financing Corp., Revenue Bonds |
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New York 21.0%
(13.4% of Managed Assets) |
Metropolitan Transportation Authority, Revenue Bonds |
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New York City Transitional Finance Authority, Future Tax Secured, Revenue Bonds |
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New York State Dormitory Authority, State Personal Income Tax, Revenue Bonds |
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The notes to the financial statements are an integral part of, and should be read
in conjunction with, the financial statements.
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MainStay MacKay DefinedTerm Municipal Opportunities Fund
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New York State Housing Finance Agency, Revenue Bonds |
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New York Transportation Development Corp., LaGuardia Airport Terminal B Redevelopment Project, Revenue Bonds |
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Onondaga County Trust for Cultural Resources, Syracuse University Project, Revenue Bonds |
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Port Authority of New York & New Jersey, Revenue Bonds |
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Riverhead Industrial Development Agency, Riverhead Charter School, Revenue Bonds |
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Triborough Bridge & Tunnel Authority, Payroll Mobility Tax, Revenue Bonds, Senior Lien |
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Triborough Bridge & Tunnel Authority, Sales Tax, Revenue Bonds |
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North Carolina 0.6%
(0.4% of Managed Assets) |
Charlotte-Mecklenburg Hospital Authority (The), Atrium Health Obligated Group, Revenue Bonds |
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Pennsylvania 9.6%
(6.2% of Managed Assets) |
Allentown Neighborhood Improvement Zone Development Authority, City Center Project, Revenue Bonds |
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Commonwealth Financing Authority, Tobacco Master Settlement Payment, Revenue Bonds |
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Pennsylvania Economic Development Financing Authority, Capital Region Parking System, Revenue Bonds |
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Series B, Insured: County Guaranteed |
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|
| |
|
|
Pennsylvania Economic Development Financing Authority, The Penndot Major Bridges Package One Project, Revenue Bonds |
|
|
| |
|
|
5.75%, due 12/31/62 (a)(b) |
|
|
Pennsylvania Turnpike Commission, Revenue Bonds |
|
|
| |
|
|
| |
|
|
Southeastern Pennsylvania Transportation Authority, Asset Improvement Program, Revenue Bonds |
|
|
| |
|
|
| |
|
|
Puerto Rico 11.7%
(7.5% of Managed Assets) |
Children's Trust Fund, Asset-Backed, Revenue Bonds |
|
|
| |
|
|
Commonwealth of Puerto Rico, Restructured, Unlimited General Obligation |
|
|
| |
|
|
| |
|
|
Puerto Rico Commonwealth Aqueduct & Sewer Authority, Revenue Bonds, Senior Lien |
|
|
| |
|
|
| |
|
|
Puerto Rico Electric Power Authority, Revenue Bonds (f) |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
The notes to the financial statements are an integral part of, and should be read
in conjunction with, the financial statements.
Portfolio
of Investments May 31, 2023†
(continued)
| |
|
|
|
|
Puerto Rico Electric Power Authority, Revenue Bonds (f) (continued) |
|
|
Series PP, Insured: NATL-RE |
|
|
| |
|
|
Series PP, Insured: NATL-RE |
|
|
| |
|
|
Series TT, Insured: AGM-CR |
|
|
| |
|
|
Puerto Rico Municipal Finance Agency, Revenue Bonds |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
Puerto Rico Sales Tax Financing Corp., Revenue Bonds |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
South Carolina 3.0%
(1.9% of Managed Assets) |
South Carolina Public Service Authority, Santee Cooper, Revenue Bonds |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
Texas 6.2%
(4.0% of Managed Assets) |
City of Georgetown, Utility System, Revenue Bonds |
|
|
| |
|
|
| |
|
|
City of Lubbock, Electric Light & Power System, Revenue Bonds |
|
|
| |
|
|
| |
|
|
Harris County-Houston Sports Authority, Revenue Bonds, Senior Lien |
|
|
Series A, Insured: AGM, NATL-RE |
|
|
(zero coupon), due 11/15/38 |
|
|
Harris County-Houston Sports Authority, Revenue Bonds, Junior Lien |
|
|
Series H, Insured: NATL-RE |
|
|
(zero coupon), due 11/15/28 |
|
|
| |
|
|
| |
Harris County-Houston Sports Authority, Revenue Bonds, Junior Lien (continued) |
|
|
Series H, Insured: NATL-RE |
|
|
(zero coupon), due 11/15/38 |
|
|
San Antonio Water System, Water System, Revenue Bonds, Junior Lien |
|
|
| |
|
|
| |
|
|
Texas Water Development Board, State Water Implementation, Revenue Bonds |
|
|
| |
|
|
| |
|
|
| |
|
|
U.S. Virgin Islands 3.4%
(2.2% of Managed Assets) |
Matching Fund Special Purpose Securitization Corp., United States Virgin Islands Federal Excise Tax, Revenue Bonds |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
Virgin Islands Public Finance Authority, Gross Receipts Taxes Loan, Revenue Bonds |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
Series A, Insured: AGM-CR |
|
|
| |
|
|
| |
|
|
Utah 7.5%
(4.8% of Managed Assets) |
City of Salt Lake, International Airport, Revenue Bonds |
|
|
| |
|
|
| |
|
|
Intermountain Power Agency, Revenue Bonds |
|
|
| |
|
|
| |
|
|
| |
|
|
The notes to the financial
statements are an integral part of, and should be read in conjunction with, the financial statements.
| |
MainStay MacKay DefinedTerm Municipal Opportunities Fund
|
| |
|
|
Virginia 1.0%
(0.6% of Managed Assets) |
Tobacco Settlement Financing Corp., Asset-Backed, Revenue Bonds, Senior Lien |
|
|
| |
|
|
| |
|
|
Washington 1.5%
(1.0% of Managed Assets) |
State of Washington, Various Purpose, Unlimited General Obligation |
|
|
| |
|
|
| |
|
|
Washington State Housing Finance Commission, Single Family Program, Revenue Bonds |
|
|
| |
|
|
| |
|
|
| |
|
|
Wisconsin 1.3%
(0.8% of Managed Assets) |
Public Finance Authority, Bancroft NeuroHealth Project, Revenue Bonds |
|
|
| |
|
|
| |
|
|
Public Finance Authority, Ultimate Medical Academy Project, Revenue Bonds |
|
|
| |
|
|
| |
|
|
| |
|
|
Total Investments
(Cost $710,692,670) |
|
|
Floating Rate Note Obligations (g) |
|
|
Other Assets, Less Liabilities |
|
|
Net Assets Applicable to Common
Shares |
|
|
| |
Percentages indicated are based on Fund net assets applicable to Common shares. |
| |
Interest on these securities was subject to alternative minimum tax. |
| |
All or portion of principal amount transferred to a Tender Option Bond (“TOB”) Issuer in exchange for TOB Residuals and cash. |
| |
Step coupon—Rate shown was the rate in effect as of May 31, 2023. |
| |
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. |
| |
Variable-rate demand notes (VRDNs)—Provide the right to sell the security at face value on either that day or within the rate-reset period. VRDNs will normally trade as if the maturity is the earlier put date, even though stated maturity is longer. The interest rate is reset on the put date at a stipulated daily, weekly, monthly, quarterly, or other specified time interval to reflect current market conditions. These securities do not indicate a reference rate and spread in their description. The maturity date shown is the final maturity. |
| |
Bond insurance is paying principal and interest, since the issuer is in default. |
| |
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 $739,491,367 as of May 31, 2023.
| |
AGC—Assured Guaranty Corp. |
AGM—Assured Guaranty Municipal Corp. |
BAM—Build America Mutual Assurance Co. |
| |
NATL-RE—National Public Finance Guarantee Corp. |
The notes to
the financial statements are an integral part of, and should be read in conjunction with, the financial statements.
Portfolio
of Investments May 31, 2023†
(continued)
The following is a summary of the fair valuations according to the inputs used as of May 31, 2023, for valuing the Fund’s
assets:
| |
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1) |
Significant
Other
Observable
Inputs
(Level 2) |
Significant
Unobservable
Inputs
(Level 3) |
|
| |
|
|
|
|
Investments in Securities (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.
| |
MainStay MacKay DefinedTerm Municipal Opportunities Fund
|
Statement
of Assets and Liabilities as of May 31, 2023
| |
Investment in securities, at value
(identified cost $710,692,670) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Payable for Floating Rate Note Obligations |
|
| |
|
| |
|
| |
|
Shareholder communication |
|
| |
|
| |
|
| |
|
| |
|
Interest expense and fees payable |
|
| |
|
Net assets applicable to Common shares |
|
Common shares outstanding |
|
Net asset value per Common share (Net assets applicable to Common shares divided by Common shares outstanding) |
|
Net Assets Applicable to Common Shares Consist of |
Common shares, $0.001 par value per share, unlimited number of shares authorized |
|
Additional paid-in-capital |
|
| |
|
Total distributable earnings (loss) |
|
Net assets applicable to Common shares |
|
The notes to the financial statements are an integral part of, and should be read
in conjunction with, the financial statements.
Statement
of Operations for the year ended May 31, 2023
| |
| |
|
| |
|
| |
|
| |
|
Interest expense and fees |
|
| |
|
Shareholder communication |
|
| |
|
| |
|
| |
|
| |
|
Total expenses before waiver/reimbursement |
|
Reimbursement from prior custodian(a)
|
|
| |
|
Net investment income (loss) |
|
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) on investments |
|
Net change in unrealized appreciation (depreciation)
on investments |
|
Net realized and unrealized gain (loss) |
|
Net increase (decrease) in net assets to Common shares
resulting from operations |
|
| |
Represents a refund for overbilling of custody fees. |
The notes to the financial statements are an integral part of, and should be read
in conjunction with, the financial statements.
| |
MainStay MacKay DefinedTerm Municipal Opportunities Fund
|
Statements of Changes in Net Assets
for the years ended May 31, 2023 and May 31, 2022
| |
|
|
Increase (Decrease) in Net Assets Applicable to
Common Shares |
| |
|
|
Net investment income (loss) |
|
|
| |
|
|
Net change in unrealized appreciation (depreciation) |
|
|
Net increase (decrease) in net assets applicable to Common shares resulting from operations |
|
|
Distributions to Common shareholders |
|
|
Capital share transactions
(Common shares): |
|
|
Net proceeds issued to shareholders resulting from reinvestment of dividends |
|
|
Net increase (decrease) in net assets applicable to Common shares |
|
|
Net Assets Applicable to Common Shares |
| |
|
|
| |
|
|
The notes to the financial
statements are an integral part of, and should be read in conjunction with, the financial statements.
Statement of Cash Flows
for
the year ended May 31, 2023
Cash Flows From (Used in) Operating Activities: |
Net decrease in net assets resulting from operations |
|
Adjustments to reconcile net decrease in net assets resulting from operations to net cash used in operating activities: |
|
| |
|
| |
|
Amortization (accretion) of discount and premium, net |
|
Decrease in interest receivable |
|
| |
|
Decrease in due to custodian |
|
Decrease in professional fees payable |
|
Decrease in custodian payable |
|
Decrease in shareholder communication payable |
|
Increase in due to Trustees |
|
Decrease in due to manager |
|
Increase in due to transfer agent |
|
Decrease in accrued expenses |
|
Increase in interest expense and fees payable |
|
Net realized loss from investments |
|
Net change in unrealized (appreciation) depreciation on unaffiliated investments |
|
Net cash from operating activities |
|
Cash Flows From (Used in) Financing Activities: |
Net proceeds resulting from reinvestment of dividends |
|
Proceeds from floating rate note obligations |
|
Payments on floating rate note obligations |
|
Cash distributions paid, net of change in Common share dividend payable |
|
Net cash used in financing activities |
|
| |
|
Cash at beginning of year |
|
| |
|
The notes to the financial statements are an integral part of, and should be read
in conjunction with, the financial statements.
| |
MainStay MacKay DefinedTerm Municipal Opportunities Fund
|
Financial
Highlights selected per share data and ratios
| |
|
| |
|
|
|
|
|
Net asset value at beginning of year applicable to Common shares |
|
|
|
|
|
Net investment income (loss) |
|
|
|
|
|
Net realized and unrealized gain (loss) |
|
|
|
|
|
Total from investment operations |
|
|
|
|
|
Dividends and distributions to Common shareholders |
|
|
|
|
|
Net asset value at end of year applicable to Common shares |
|
|
|
|
|
Market price at end of year applicable to Common shares |
|
|
|
|
|
Total investment return on market price (a) |
|
|
|
|
|
Total investment return on net asset value (a) |
|
|
|
|
|
Ratios (to average net assets of Common shareholders)/
Supplemental Data: |
|
|
|
|
|
Net investment income (loss) |
|
|
|
|
|
Net expenses (including interest expense and fees) |
|
|
|
|
|
Interest expense and fees (b) |
|
|
|
|
|
| |
|
|
|
|
|
Net assets applicable to Common shareholders at end of year (in 000’s) |
|
|
|
|
|
Preferred shares outstanding at $100,000 liquidation preference,
end of year (in 000’s) (d)(e) |
|
|
|
|
|
Assets coverage per Preferred share, end of year (d)(e) |
|
|
|
|
|
Average market value per Preferred share: |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
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. |
| |
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, 2023, 2022, 2021, 2020 and 2019,
respectively. |
| |
The portfolio turnover rate includes variable rate demand notes. |
| |
Redeemed on June 15, 2020. |
| |
Redeemed on December 15, 2020. |
| |
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.
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").
Pursuant to Rule 2a-5 under the 1940 Act, the Board has designated New York Life Investment Management LLC (“New
York Life Investments” or the "Manager")as its Valuation Designee (the "Valuation Designee"). The
Valuation Designee is responsible for performing fair valuations relating to all investments in the Fund’s portfolio for which market quotations are not readily available; periodically assessing and managing material valuation risks; establishing and
applying fair value methodologies; testing fair valuation methodologies; evaluating and overseeing pricing
services; ensuring appropriate segregation of valuation and portfolio management functions; providing quarterly, annual and prompt reporting to the Board, as appropriate; identifying potential conflicts of interest; and maintaining appropriate
records. The Valuation Designee has established a valuation committee ("Valuation Committee") to assist in
carrying out the Valuation Designee’s responsibilities and establish prices of securities for which market quotations are not readily available. The Fund’s and the Valuation Designee's policies and procedures ("Valuation Procedures") govern the
Valuation Designee’s selection and application of methodologies for determining and
| |
MainStay MacKay DefinedTerm Municipal Opportunities Fund
|
calculating the fair value of Fund investments.
The Valuation Designee may value the Fund's portfolio securities for which market quotations are not
readily available and other Fund assets utilizing inputs from pricing services and other third-party sources. The Valuation Committee meets (in person, via electronic mail or via teleconference) on an ad-hoc basis to determine fair valuations and on a
quarterly basis to review fair value events with respect to certain securities for which market quotations are not readily available, including valuation risks and back-testing results, and to preview reports to the
Board.
The Valuation Committee establishes prices of securities for which market quotations are not readily available based on such methodologies and measurements on a regular basis after considering
information that is reasonably available and deemed relevant by the Valuation Committee. The Board shall
oversee the Valuation Designee and review fair valuation materials on a prompt, quarterly and annual basis and approve proposed revisions to the Valuation Procedures.
Investments for which market quotations are not readily available are valued at fair value as determined in good faith pursuant to the Valuation Procedures. A market quotation is readily
available only when that quotation is a quoted price (unadjusted) in active markets for identical
investments that the Fund can access at the measurement date, provided that a quotation will not be readily
available if it is not reliable. "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 (unadjusted) 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, 2023, 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:
| |
|
| |
|
| |
|
| |
• Reference data (corporate actions or
material event notices) |
• Industry and economic events |
|
• Monthly payment information |
|
An asset or liability for which a market quotation is not readily available is valued by methods deemed reasonable in good faith by the Valuation Committee, following the Valuation Procedures to
represent fair value. Under these procedures, the Valuation Designee 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 Valuation Designee 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 Valuation Procedures may differ from valuations for the same security determined for other funds using their own valuation
procedures. Although the 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, 2023, 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 or otherwise does not have a readily available market
quotation on a given day; (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 subject to trading collars for which no or limited trading takes place; and
(vi) a security whose principal market has been temporarily closed at a time when, under normal
Notes to
Financial Statements (continued)
conditions, it would be open. Securities valued in this manner
are generally categorized as Level 2 or 3 in the hierarchy.
Municipal debt securities are valued at the evaluated mean prices supplied by a pricing agent or broker selected by the
Valuation Designee, 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 Valuation Designee, 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
page35.
(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
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MainStay MacKay DefinedTerm Municipal Opportunities Fund
|
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. 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
Notes to
Financial Statements (continued)
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.
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, 2023, 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 |
| |
|
During the year ended May 31, 2023, 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 |
| |
|
(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, 2023.
(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 included 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 long-term economic
challenges that arose from COVID-19.
The Commonwealth concluded its Title III restructuring proceedings on behalf of itself and certain instrumentalities
effective March 15, 2022. Approximately $18.75 billion of claims related to debt guaranteed under Puerto
Rico's constitution including the Commonwealth of Puerto Rico 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. Two of the Commonwealth's agencies are still under Title III restructuring proceedings including the Puerto Rico Electric Power Authority (PREPA) and the Puerto Rico Industrial
Development Authority (PRIDCO).
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. 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 is subject to change every three years 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 that a prior board negotiated.
As of May 30, 2023 PREPA remains in Title III Bankruptcy after nearly 6 years. A significant number of net
revenue bond creditors, the Oversight Board, and the Commonwealth have been unable to reach a consensual
resolution on PREPA’s debt restructuring following the termination of the previous 2019 PREPA
Restructuring Support Agreement by the Commonwealth of Puerto Rico in March of 2022. Further bankruptcy
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MainStay MacKay DefinedTerm Municipal Opportunities Fund
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litigation has ensued between the Oversight
Board and a group of net revenue bond creditors over the security provisions of PREPA’s $8.3 billion
of net revenue bonds resulting in a ruling from Judge Swain that PREPA’s net revenue bonds are unsecured. The Ad Hoc group of net revenue bond creditors and bond insurer Assured Guaranty have informed Judge Swain they will seek to appeal her decision
absent a consensual resolution in the case. The Oversight Board has reached plan confirmation support from
at least one creditor class, the ~ $700 million of claims relating to fuel line lenders. In addition, the Oversight Board reached a settlement agreement with bond insurer National Public Finance Guaranty regarding ~ $836 million of PREPA’s net
revenue bond claims or~11% of PREPA’s net revenue bond claims.
If a settlement agreement cannot be reached between a majority of net revenue bond holders and the Oversight Board, Judge Swain could approve a cram-down plan or dismiss the bankruptcy case
entirely. A cram-down plan could significantly reduce recoveries. Furthermore, a dismissal of
the case would result in further litigation in local Puerto Rico courts with guaranty of additional recovery.
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, 2023, 58.3% 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 securities
totaling 1.12% 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. The Fund reimburses 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 the 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, 2023, New York Life Investments earned fees from the Fund in the amount of $4,695,069 and
paid the Subadvisor in the amount of $2,346,613.
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.
Notes to
Financial Statements (continued)
Note 4-Federal Income Tax
As of
May 31, 2023, 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:
| |
|
Gross
Unrealized
Appreciation |
Gross
Unrealized
(Depreciation) |
Net
Unrealized
Appreciation/
(Depreciation) |
Investments in Securities |
|
|
|
|
As of May 31, 2023, the components of accumulated gain (loss) on a tax basis were as follows:
| |
Undistributed
Tax Exempt
Income |
Accumulated
Capital
and Other
Gain (Loss) |
Other
Temporary
Differences |
Unrealized
Appreciation
(Depreciation) |
Total
Accumulated
Gain (Loss) |
| |
|
|
|
|
|
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily due to TOB transactions, premium amortization, and wash sale adjustments.
As of May 31, 2023, for federal income tax purposes, capital loss carryforwards of $66,357,969, 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) |
|
|
|
|
During the years ended May 31, 2023 and May 31, 2022, the tax character of distributions paid to Common shareholders (as reflected in the Statements of Changes in Net Assets) was as
follows:
| |
|
|
|
|
| |
|
Exempt
Interest
Dividends |
|
Exempt
Interest
Dividends |
| |
|
|
|
|
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, 2023, purchases and sales of securities, other than short-term securities, were $319,870
and $391,852, respectively.
Note 7–Capital Share Transactions
Transactions in capital shares for the years ended May 31, 2023 and May 31, 2022, were as follows:
| |
|
|
| |
|
|
Common shares issued to shareholders in reinvestment of distributions (a)
|
|
|
| |
|
|
Common shares issued to shareholders in reinvestment of distributions (a)
|
|
|
| |
See page35 for information on the Fund’s dividend reinvestment plan. |
Note
8–Other Matters
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 ascend from historically low levels. Thus, the Fund currently faces a
heightened level of risk associated with rising interest rates. This could be driven by a variety of
factors, including but not limited to central bank monetary policies, changing inflation or real growth rates, general economic conditions, increasing bond issuances or reduced market demand for low yielding investments.
Social, political, economic and other conditions and events, such as war, natural disasters, health emergencies (e.g., epidemics and pandemics), terrorism, conflicts, social unrest, recessions,
inflation, rapid interest rate changes and supply chain disruptions, may occur and could significantly
impact the Fund, issuers, industries, governments and other systems, including the financial markets.
Developments that disrupt global economies and financial markets, such as COVID-19, the conflict in
Ukraine, and the failures of certain U.S. and non-U.S. banks, 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, 2023, events and transactions subsequent to May 31, 2023, 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 3, 2023, the Fund declared a dividend
in the amount of $0.075 per Common share, payable on June 30, 2023, to shareholders of record on June 15,
2023.
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MainStay MacKay DefinedTerm Municipal Opportunities Fund
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On July 3, 2023, the Fund declared dividends to
Common shareholders for the upcoming quarter as shown in the following
schedule:
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, 2023, the related statements of operations and cash flows for the year ended May 31, 2023, the statements of changes in net assets for each of the two years in the period ended May 31, 2023, including the related notes, and the financial highlights for each of the five years in the period ended May 31, 2023 (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, 2023, 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, 2023 and the financial highlights for each of the five years in the period ended May 31, 2023 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, 2023 by correspondence with the custodian and trust administrators. We believe that our audits provide a reasonable basis for our
opinion.
/s/PricewaterhouseCoopers LLP
New York, New York
July 24, 2023
We have served as the auditor of one or more investment companies in the MainStay group of funds since
1984.
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MainStay MacKay DefinedTerm Municipal Opportunities Fund
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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”) 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
6–7, 2022 meeting, the Board, which is comprised solely of Trustees who are not an “interested person” (as such term is defined in the 1940 Act) of the Fund (“Independent Trustees”), 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 October 2022 through December 2022, 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 Board, 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, generally annually, MacKay personnel. In addition,
the Board took into account other
information provided by 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 that figured prominently in the Board’s consideration of the continuation of each of the Advisory Agreements are summarized in
more 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 any economies of scale have been shared, 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. The Board considered that New York Life
Investments and CBRE agreed to pay all organizational expenses of the Fund and all offering costs associated with the Fund’s initial public offering as well as compensation to the underwriters and certain dealers in connection
with the offering and that the Fund is not obligated to repay any such expenses, costs or compensation paid
by New York Life Investments or CBRE. With respect to the Subadvisory Agreement, the Board took into account New York Life Investments’ recommendation to approve the continuation of the Subadvisory Agreement. 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
Board
Consideration and Approval of Management Agreement and Subadvisory Agreement (Unaudited) (continued)
been based, in part, on the Board’s knowledge of New York Life Investments and MacKay resulting from, among other things, the Board’s prior consideration of each of the Advisory
Agreements, 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 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 6–7, 2022 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 another listed closed-end 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 overseeing the services provided by MacKay, 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. The Board observed that New York Life
Investments devotes significant resources and time to providing management and administrative and other
non-advisory services to the Fund, including New York Life Investments’ oversight 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. 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, except for a portion of the salary of the Fund’s Chief Compliance Officer. The Board recognized that New York Life Investments provides certain other non-advisory services to the Fund and
has provided an increasingly broad array of non-advisory services to the MainStay Group of Funds as a
result of regulatory and other developments, including in connection with the implementation of the
MainStay Group of Funds’ derivatives risk management program and policies and procedures adopted pursuant to Rule 18f-4 under the 1940 Act.
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 as well as the experience of investment advisory, senior management and administrative personnel at MacKay. The Board considered New
York Life Investments’ and MacKay’s overall resources, legal and compliance environment,
capabilities, reputation, financial condition 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 also considered MacKay’s ability to recruit and retain qualified investment professionals and willingness to invest in personnel and other resources 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 COVID-19 pandemic and the continued remote work environment.
Based on these considerations, among others, the Board concluded that the Fund would likely continue to benefit from the nature, extent and quality of these services.
| |
MainStay MacKay DefinedTerm Municipal Opportunities Fund
|
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 a relevant investment category 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
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. In addition, the Board reviewed the methodology used by ISS to construct the group of peer funds for comparative
purposes.
The Board also took into account its discussions with senior management at New York Life Investments concerning the Fund’s investment performance over various periods 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, among others, 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 and Other Benefits 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 as well as the MainStay Group of Funds.
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’, including MacKay’s, 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 recruit 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 noted it had previously engaged an
independent consultant to review the methods used to allocate costs among the funds in the MainStay Group of Funds. The Board also 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 considered 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, including MacKay, 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 the management agreement for 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 relationship with 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.
Board
Consideration and Approval of Management Agreement and Subadvisory Agreement (Unaudited) (continued)
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 and other expected benefits that may accrue to New
York Life Investments and its affiliates, including MacKay, are reasonable.
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, 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 closed-end funds
managed by other investment advisers. The Board reviewed the methodology used by ISS to construct the group
of peer funds for comparative purposes. 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 contractual management fee schedules of the Fund as compared to those of such other investment advisory clients, taking into account the rationale for any differences in fee schedules. The Board also took into account information 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. 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 this annual report. 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, among other considerations, the Board concluded that the Fund’s management fee and total ordinary operating expenses are 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 economies of scale may exist for the Fund and whether the Fund’s expense structure permits any
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 the services provided to the Fund. 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.
Based on this information, the Board concluded that economies of scale are appropriately shared 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 unanimously voted to approve the continuation of each of the Advisory
Agreements.
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MainStay MacKay DefinedTerm Municipal Opportunities Fund
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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 (currently $0.05) 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 $0.15 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 43078, Providence, RI 02940-3078.
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 97.9% of the ordinary income dividends paid during its fiscal year ended May 31, 2023 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 2024, 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 2023. 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, 2023.
Application of Control Share Provisions of the Delaware Statutory Trust Act
Under Delaware law applicable to the Fund as of August 1, 2022, if a shareholder acquires direct or indirect ownership or power to direct the voting of shares of the Fund in an amount that
equals or exceeds certain percentage thresholds specified under Delaware law (beginning at 10% or more of
shares of the Fund), the shareholder’s ability to vote certain of these shares may be limited.
Proxy Results
The Annual
Meeting of Shareholders was held on September 28, 2022, to elect two Class I Trustees of the Fund by shareholders of record as on July 6, 2022. Listed below are the results of this voting.
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.
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MainStay MacKay DefinedTerm Municipal Opportunities Fund
|
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
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.
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.
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MainStay MacKay DefinedTerm Municipal Opportunities Fund
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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 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.
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MainStay MacKay DefinedTerm Municipal Opportunities Fund
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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.
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 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 state of
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.
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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 NAV 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 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, supply chain disruptions,
inflation, 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. It is difficult to accurately predict or foresee when events or conditions affecting the U.S. or global financial markets, economies, and issuers may occur, the effects of
such events or conditions, potential escalations or expansions of these events, possible retaliations in
response to sanctions or similar actions and the duration or ultimate impact of those events. There is an increased likelihood that these types of events or conditions can, sometimes rapidly and unpredictably, result in a variety of adverse
developments and circumstances, such as reduced liquidity, supply chain disruptions and market volatility,
as well as increased general uncertainty and broad ramifications for markets, economies, issuers, businesses in many sectors and societies globally. Stocks of large capitalization issuers that are included as 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. Low interest rates (or negative interest rates) may magnify the risks associated
with rising interest rates. The Fund may also be subject to heightened interest rate risk when the Federal Reserve raises interest rates. For more information on risks associated with inflation, please see “Inflation/Deflation
Risk.”
Changing interest rates may have unpredictable effects on markets, including market volatility, and may adversely affect performance. A low or negative interest rate environment may pose
additional risks because low or negative yields on portfolio holdings may have an adverse impact on the
Fund’s ability to provide a positive yield to its shareholders. 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, 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 an investment. Moreover, in a rising interest rate environment, the risk that such issuer or guarantor may default on its obligations is heightened. 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
would 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 and the Manager’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
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MainStay MacKay DefinedTerm Municipal Opportunities Fund
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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 previously 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.
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.
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.
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
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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. The effects of geopolitical
events, environmental matters and other public health issues 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 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.
From time to time, the Fund may invest a
substantial amount of its assets in municipal bonds on which interest is paid solely from revenues of
similar projects. If a Fund focuses its investments in this manner, it assumes the legal and economic risks
relating to such projects, which may have a significant impact on a Fund's investment performance.
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
Manager, as valuation designee, may rely on various sources of information to value investments and
calculate NAVs. The Manager 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 because 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). A Fund's investments may not keep pace with inflation, which would adversely affect the real value of Fund shareholders'
investment in the Fund. The market price of debt securities generally falls as inflation increases because
the purchasing power of the future income and repaid principal is expected to be worth less when received by a Fund. The risk of inflation is greater for debt instruments with longer maturities and especially those that pay a fixed rather than variable
interest rate. In addition, this risk may be significantly elevated compared to normal conditions because of
monetary policy measures and the current interest rate environment and level of government intervention and
spending.
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. 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
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MainStay MacKay DefinedTerm Municipal Opportunities Fund
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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, or result in the deferral of losses, that would otherwise be recognized by the Fund in determining the amount of dividends distributable to shareholders.
The
Securities and Exchange Commission ("SEC") and its staff have rescinded and withdrawn previous guidance and relief regarding asset segregation and coverage transactions. Trading of derivatives and other transactions that create future payment or
delivery obligations (except reverse repurchase agreements and similar financing transactions) is now
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 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 efficiency in implementing its strategy, liquidity and/or ability to pursue its investment objectives.
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.
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 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
managed. 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, Private Placements 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 where the Fund would suffer 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
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 could result in losses on investment in ETFs. In addition,
an actual trading market may
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MainStay MacKay DefinedTerm Municipal Opportunities Fund
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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.
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 4.16%. The common shares
must experience an annual return of 2.08%. 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.
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Common Share Total Return for (10.00)%
Assumed Portfolio Total Return |
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Common Share Total Return for (5.00)%
Assumed Portfolio Total Return |
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Common Share Total Return for 0.00%
Assumed Portfolio Total Return |
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Common Share Total Return for 5.00%
Assumed Portfolio Total Return |
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Common Share Total Return for 10.00%
Assumed Portfolio Total Return |
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Assumed Portfolio 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).
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MainStay MacKay DefinedTerm Municipal Opportunities Fund
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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. 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”).
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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 |
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MainStay MacKay
DefinedTerm Municipal
Opportunities Fund:
Trustee since June 2023 |
Chief Executive Officer of New York Life
Investment Management LLC since
2023. Previously, Abou-Jaoudé was the
Chief Executive Officer of Candriam (an
affiliate of New York Life Investment
Management LLC) from 2007 to 2023. |
|
MainStay Funds: Trustee since June 2023;
MainStay Funds Trust: Trustee since June
2023;
MainStay VP Funds Trust: Trustee since
June 2023 (31 portfolios);
MainStay CBRE Global Infrastructure
Megatrends Fund: Trustee since June 2023; and
New York Life Investment Management International: Chair since 2015 |
*
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 his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Candriam, 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)
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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 |
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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) |
|
MainStay VP Funds Trust:Trustee since
January 2016, Advisory Board Member
(June 2015 to December 2015) (31
portfolios);
MainStay Funds:Trustee since January
2016, Advisory Board Member (June
2015 to December 2015) (12 funds);
MainStay Funds Trust: Trustee since
January 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:Trustee since 2006 and
Independent Chairman of the Board of
Trustees from 2008 to 2022 (57
portfolios)
Berea College of Kentucky: Trustee since
2009, Chair of Investment Committee
since 2018 |
| |
|
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) |
|
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.:Director
since 2018;
Rhode Island State Investment Commission: Member since 2017; and
Blue Cross Blue Shield of Rhode Island: Director since 2019 |
| |
|
MainStay MacKay
DefinedTerm Municipal
Opportunities Fund:
Chairman since January
2017, Trustee since 2011
and Audit Committee
Financial Expert |
President, Strategic Management
Advisors LLC (since 1990) |
|
MainStay VP Funds Trust:Chairman since
January 2017 and Trustee since 2007
(31 portfolios)*;
MainStay Funds:Chairman since January
2017 and Trustee since 2007 (12 funds); MainStay Funds Trust: Chairman since
January 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) |
| |
MainStay MacKay DefinedTerm Municipal Opportunities Fund
|
| |
|
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 |
| |
|
|
|
|
|
| |
|
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) |
|
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 |
| |
|
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) |
|
MainStay VP Funds Trust:Trustee since
January 2016, Advisory Board Member
(June 2015 to December 2015)
(31 portfolios);
MainStay Funds:Trustee since January
2016, Advisory Board Member (June
2015 to December 2015) (12 funds);
MainStay Funds Trust: Trustee since
January 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;
and
MSCI Inc.: Director since 2017 |
| |
|
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)
|
|
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 of MainStay VP Series Fund, Inc., the predecessor to
MainStay VP Funds Trust.
**
Includes prior service as a Director/Trustee of certain predecessor entities to MainStay
Funds Trust.
Board of
Trustees and Officers (Unaudited) (continued)
| |
|
Position(s) Held and
Length of Service |
Principal Occupation(s)
During Past Five Years |
|
| |
|
|
|
|
| |
|
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 |
|
| |
|
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) |
|
| |
|
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) |
|
| |
|
Vice President and Chief
Compliance Officer, MainStay
MacKay DefinedTerm
Municipal Opportunities Fund
(since June 2022) |
Vice President and Chief Compliance Officer, MainStay Funds and MainStay Funds
Trust (since June 2022); Vice President and Chief Compliance
Officer, IndexIQ Trust, IndexIQ ETF Trust and Index IQ Active ETF
Trust (since June 2022); Vice President and Chief Compliance Officer, MainStay CBRE Global Infrastructure Megatrends Fund, and MainStay VP Funds Trust (since June 2022); Senior Vice
President, Voya Investment Management and Chief Compliance Officer, Voya Family
of Funds (2012-2022) |
|
| |
|
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, New York Life Insurance Company, 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)*
| |
MainStay MacKay DefinedTerm Municipal Opportunities Fund
|
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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 43078
Providence, RI 02940-3078
(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.
5021066MS088-23
MSMHI11-07/23
(NYLIM) NL265
As of the end of the period covered by this report, the Registrant has adopted a code of ethics (the “Code”) that applies to the Registrant’s
principal executive officer (“PEO”) and principal financial officer (“PFO”). A copy of the Code is filed herewith. Schedule II of the Code has been amended to name Kevin Gleason as the Compliance Officer. The Registrant did not
grant any waivers, including implicit waivers, from any provisions of the Code to the PEO or PFO during the period covered by this report.
| Item 3. |
Audit Committee Financial Expert. |
The Board of Trustees (“Board”) has determined that the Registrant has three audit committee financial experts serving on its Audit Committee. The
Audit Committee financial experts are Alan R. Latshaw, Karen Hammond and Susan B. Kerley. Mr. Latshaw, Ms. Hammond, and Ms. Kerley are “independent” as defined by Item 3 of Form N-CSR.
| Item 4. |
Principal Accountant Fees and Services. |
The aggregate fees billed for the fiscal year ended May 31, 2023 for professional services rendered by PricewaterhouseCoopers LLP (“PwC”) for
the audit of the Registrant’s annual financial statements or services that are normally provided by PwC in connection with statutory and regulatory filings or engagements for that fiscal year were $90,000.
The aggregate fees billed for the fiscal year ended May 31, 2022 for professional services rendered by PwC for the audit of the Registrant’s annual
financial statements or services that are normally provided by PwC in connection with statutory and regulatory filings or engagements for that fiscal year were $83,430.
The aggregate fees billed for assurance and related services by PwC that are reasonably related to the performance of the audit of the Registrant’s
financial statements and are not reported under paragraph (a) of this Item were: (i) $0 for the fiscal year ended May 31, 2023, and (ii) $0 for the fiscal year ended May 31, 2022.
The aggregate fees billed for professional services rendered by PwC for tax compliance, tax advice, and tax planning were: (i) $0 during the fiscal year ended
May 31, 2023, and (ii) $0 during the fiscal year ended May 31, 2022.
The aggregate fees billed for products and services provided by PwC, other than the services reported in paragraphs (a) through (c) of this Item were:
(i) $0 during the fiscal year ended May 31, 2023, and (ii) $0 during the fiscal year ended May 31, 2022.
| (e) |
Pre-Approval Policies and Procedures |
| |
(1) |
The Registrant’s Audit Committee has adopted pre-approval policies
and procedures (the “Procedures”) to govern the Committee’s pre-approval of (i) all audit services and permissible non-audit services to be provided
to the Registrant by its independent accountant, and (ii) all permissible non-audit services to be provided by such independent accountant to the Registrant’s investment adviser and to any entity
controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Registrant (collectively, “Service Affiliates”) if the services directly relate to the Registrant’s operations and
financial reporting. In accordance with the Procedures, the Audit Committee is responsible for the engagement of the independent accountant to certify the Registrant’s financial statements for each fiscal year. With respect to the pre-approval of non-audit services provided to the Registrant and its Service Affiliates, the Procedures provide that the Audit Committee may annually pre-approve a list of the types of services that may be provided to the Registrant or its Service Affiliates, or the Audit Committee may pre-approve such services on a project-by-project basis as they arise. Unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee if it is to be provided by the independent accountant. The Procedures also permit the Audit Committee to delegate authority to one or more of its members to pre-approve any proposed non-audit services that have not been previously pre-approved by the Audit Committee, subject to the
ratification by the full Audit Committee no later than its next scheduled meeting. To date, the Audit Committee has not delegated such authority. |
| |
(2) |
With respect to the services described in paragraphs (b) through (d) of this Item 4, no amount was
approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. |
(f) There were no hours expended on PwC’s engagement to audit the Registrant’s financial statements for the most recent fiscal year was
attributable to work performed by persons other than PwC’s full-time, permanent employees.
(g) All
non-audit fees billed by PwC for services rendered to the Registrant for the fiscal year ended May 31, 2023 and May 31, 2022 are disclosed in 4(b)-(d) above.
The aggregate non-audit fees billed by PwC for services rendered to the Registrant’s investment adviser (not
including any subadvisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing
services to the Registrant were approximately: (i) $13.2 million for the fiscal year ended May 31, 2023, and (ii) $12.5 million for the fiscal year ended May 31, 2022.
(h) The Registrant’s Audit Committee has determined that the non-audit services rendered by PwC for
the fiscal year ended May 31, 2023 to the Registrant’s investment adviser and any entity controlling, controlled by, or under common control with the Registrant’s investment adviser that provides ongoing services to the Registrant
that were not required to be pre-approved by the Audit Committee because they did not relate
directly to the operations and financial reporting of the Registrant were compatible with maintaining the respective independence of PwC during the relevant time period.
| Item 5. |
Audit Committee of Listed Registrants. |
(a) The Board has a separately-designated Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act
(“Exchange Act”) (15 U.S.C. 78c(a)(58)(A)). The members of the Audit Committee are Alan R. Latshaw, Karen Hammond and Susan B. Kerley.
(b) Not applicable.
| (a) |
The Schedule of Investments is included as part of Item 1 of this report. |
| Item 7. |
Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. |
It is the policy of the Registrant that proxies received by the Registrant are voted in the best
interests of the Registrant’s shareholders. The Board has adopted Proxy Voting Policies and Procedures for the Registrant that delegate all responsibility for voting proxies received relating to the Registrant’s portfolio securities to New
York Life Investment Management LLC (“New York Life Investments” or “Manager”), subject to the oversight of the Board. The Manager has adopted its own Proxy Voting Policies and Procedures in order to assure that proxies voted on
behalf of the Registrant are voted in the best interests of the Registrant and its shareholders. The Manager has delegated proxy voting authority to MacKay Shields LLC (“MacKay Shields” or
“Sub-Advisor”); provided that, as specified in the Manager’s Proxy Voting Policies and Procedures, the Sub-Advisor either (1) follows the
Manager’s Proxy Voting Policy and the Registrant’s Procedures; or (2) has demonstrated that its proxy voting policies and procedures are consistent with the Manager’s Proxy Voting Policies and Procedures or are otherwise
implemented in the best interests of the Manager’s clients and appear to comply with governing regulations. The Registrant may revoke all or part of this delegation (to the Manager and/or Sub-Advisor as
applicable) at any time by a vote of the Board.
Conflicts of Interest. When a proxy presents a conflict of interest, such as when the Manager has actual
knowledge of a material business arrangement between a particular proxy issuer or closely affiliated entity and the Manager or an affiliated entity of the Manager, both the Registrant’s and the Manager’s proxy voting policies and
procedures mandate that the Manager follow an alternative voting procedure rather than voting proxies in its sole discretion. In these cases, the Manager may: (1) cause the proxies to be voted in accordance with the recommendations of an
independent service provider; (2) notify the Board or a designated committee of the Manager, or a representative of either, and seek a waiver of the conflict to permit the Manager to vote the proxies as it deems appropriate and in the best
interest of Registrant shareholders, under its usual policy; or (3) forward the proxies to the Board, or a designated committee of the Manager, so that the Board or the committee may vote the proxies itself. In the case of proxies received in
connection with a fund of funds structure, whereby the Manager, on behalf of the Registrant, receives proxies in its capacity as a shareholder in an underlying fund, the Manager may vote in accordance with the recommendations of an independent
service provider who has been retained to assist in voting proxies or echo the vote of the other shareholders in those underlying funds. As part of its delegation of proxy voting responsibility to the Manager, the Registrant also delegated to the
Manager responsibility for resolving conflicts of interest based on the use of acceptable alternative voting procedures, as described above. If the
Manager chooses to override a voting recommendation made by Institutional Shareholder Services Inc. (‘‘ISS’’), the Manager’s compliance department will review the
override prior to voting to determine the existence of any potential conflicts of interest. If the compliance department determines a material conflict may exist, the issue is referred to the Manager’s Proxy Voting Committee who will consider
the facts and circumstances and determine whether to allow the override or take other action, such as the alternative voting procedures just mentioned.
| Item 8. |
Portfolio Managers of Closed-End Management Investment Companies.
|
(a)(1) The Registrant’s portfolio is managed on a team
basis. As of May 31, 2023, the following persons are primarily responsible for the day-to-day management of the registrant’s portfolio.
Michael Denlinger, CFA. Mr. Denlinger joined MacKay Shields in 2019 and is currently a Managing Director. He has managed the
Registrant’s portfolio since 2021. He has also been a portfolio manager of the MainStay MacKay California Tax Free Opportunities Fund, MainStay MacKay Tax Free Bond Fund and MainStay MacKay U.S. Infrastructure Bond Fund and MainStay MacKay
Strategic Municipal Allocation Fund since 2021, MainStay MacKay New York Tax Free Opportunities Fund since February 2022. Prior to joining MacKay Shields, Mr. Denlinger was an institutional municipal credit trader at Bank of America Merrill
Lynch with a primary focus on taxable and healthcare securities. Prior to trading credit, he was a high grade municipal trader. Mr. Denlinger earned a Bachelor’s degree in Economics from Johns Hopkins University in 2014. Mr. Denlinger
is a Chartered Financial Analyst® (“CFA®”) charterholder and has been in the financial services industry since 2014.
Robert DiMella, CFA. Mr. DiMella is an Executive Managing Director of MacKay Shields, Co-Head
of MacKay Municipal Managers. He has managed the Registrant’s portfolio since inception. Mr. DiMella has also managed the MainStay MacKay Tax Free Bond Fund since 2009, the MainStay High Yield Municipal Fund since 2010, the MainStay MacKay
New York Tax Free Opportunities Fund since 2012, the MainStay MacKay California Tax Free Opportunities Fund since 2013, the MainStay MacKay Short Term Municipal Fund since June 2015 and MainStay MacKay U.S. Infrastructure Bond Fund and MainStay
MacKay Strategic Municipal Allocation Fund since 2019. Previously, he was the President and co-founder of Mariner Municipal Managers LLC (2007 to 2009). He has been a municipal portfolio manager since 1992,
with a broad range of trading and portfolio management experience in the municipal markets. He was a Managing Director and Co-Head of BlackRock’s Municipal Portfolio Management Group (from 2006 to 2007).
Prior to BlackRock’s merger with Merrill Lynch Investment Managers (MLIM), he served as a Senior Portfolio Manager and Managing Director of the Municipal Products Group. He was employed by Merrill Lynch from 1993 to 2006. He is a member of
MacKay’s Senior Leadership Team. Mr. DiMella earned his Master’s degree at Rutgers University Business School and a Bachelor’s Degree at the University of Connecticut. He is a
CFA® charterholder.
John Lawlor. Mr. Lawlor is a Managing Director at MacKay
Shields. He joined the firm in 2016 as a Director. He has managed the Registrant’s portfolio, the MainStay MacKay Short Term Municipal Fund, the MainStay MacKay Strategic Municipal Allocation Fund and the MainStay MacKay U.S. Infrastructure
Bond Fund since 2019. Before joining the firm, he was Vice President Equity Sales at Deutsche Bank and was previously at Bank of America Merrill Lynch. From 1997-2011, he was a senior trader on the floor of the New York Stock Exchange.
Mr. Lawlor has a broad and diverse set of skills in sales, trading, and electronic trading platforms. He earned a Bachelor’s degree in Finance from Lehigh University and has been in the financial services industry since 1997.
John Loffredo, CFA. Mr. Loffredo is an Executive Managing Director of MacKay Shields and Co-Head
of MacKay Municipal Managers. In addition, John was named Vice Chairman in September 2022 and oversees the firm’s investment teams. He has managed the Registrant’s portfolio since inception. Mr.
Loffredo has also managed the MainStay MacKay Tax Free Bond Fund since 2009, the MainStay MacKay High Yield Municipal Bond Fund since 2010, the MainStay MacKay New York Tax Free Opportunities
Fund since 2012, the MainStay MacKay California Tax Free Opportunities Fund since 2013, the MainStay MacKay Short Term Municipal Fund since June 2015 and MainStay MacKay U.S. Infrastructure Bond Fund and MainStay MacKay Strategic Municipal
Allocation Fund since 2019. He has been a municipal portfolio manager and/or municipal analyst on Wall Street since 1990, with a broad range of portfolio management and analytic experience in the municipal markets. He was previously the Chairman and
co-founded Mariner Municipal Managers LLC (2007 to 2009). He has been a municipal portfolio manager and/or municipal analyst since 1990, with a broad range of portfolio management and analytic experience in
the municipal markets. Mr. Loffredo was a Managing Director and Co-Head of BlackRock’s Municipal Portfolio Management Group (from 2006 to 2007). Prior to BlackRock’s merger with Merrill Lynch
Investment Managers (MLIM), he served as Chief Investment Officer of the Municipal Products Group. He was employed by Merrill Lynch from 1990 to 2006. Before Merrill Lynch, he worked for the City of Boston Treasury Department. He is a member of the
firm’s Senior Leadership Team. Mr. Loffredo graduated cum laude with an MBA from Utah State University where he was a Harry S. Truman Scholar. He also has a Certificate of Public Management from Boston University. He is a CFA® charterholder.
Michael Petty. Mr. Petty is a Senior Managing Director and
portfolio manager for MacKay Shields. He has managed the Registrant’s portfolio since inception. Mr. Petty has also managed the MainStay MacKay High Yield Municipal Bond Fund since 2010, the MainStay MacKay Tax Free Bond Fund since 2011,
the MainStay MacKay New York Tax Free Opportunities Fund since 2012, the MainStay MacKay California Tax Free Opportunities Fund since 2013, the MainStay MacKay Short Term Municipal Fund since 2015 and the MainStay MacKay U.S. Infrastructure Bond
Fund and MainStay MacKay Strategic Municipal Allocation Fund since 2019. Mr. Petty joined MacKay Shields in July 2009. Before joining the firm he was a Portfolio Manager for Mariner Municipal Managers in 2009. He has been a municipal bond
portfolio manager since 1992, and has worked in the municipal products market since 1985. Mr. Petty has a broad array of trading, portfolio management, and sales experience. Prior to joining Mariner Municipal Managers, he was a Senior Portfolio
Manager at Dreyfus Corporation from 1997 to 2009. From 1992 to 1997, he served as a Portfolio Manager for Merrill Lynch Investment Managers (MLIM). Mr. Petty graduated from Hobart College with a BS in Mathematics and Economics.
Scott Sprauer. Mr. Sprauer is a Senior Managing Director. He joined MacKay Shields in 2009 as a Portfolio Manager in the Municipal Bond
Division. He has managed the Registrant’s portfolio since inception. He has also managed the MainStay MacKay New York Tax Free Opportunities Fund since 2012, the MainStay MacKay California Tax Free Opportunities Fund since 2013, the MainStay
MacKay High Yield Municipal Bond Fund and MainStay MacKay Tax Free Bond Fund since 2014, the MainStay MacKay Short Term Municipal Fund since June 2015 and MainStay MacKay Strategic Municipal Allocation Fund and MainStay MacKay U.S. Infrastructure
Bond Fund since 2019. Before joining the firm, he was Head Trader, Fixed Income at Financial Guaranty Insurance Company. Mr. Sprauer was previously with Dreyfus Corporation and Merrill Lynch Investment Managers as a Municipal Bond Portfolio
Manager/Trader. He has a BSBA from Villanova University, and has been in the investment management industry since 1991.
David Dowden.
Mr. Dowden is a Managing Director. He joined MacKay Shields in 2009 as a Portfolio Manager in the Municipal Bond Division. He has managed the Registrant’s portfolio since inception. He has managed the MainStay MacKay New York Tax Free
Opportunities Fund since 2012, the MainStay MacKay California Tax Free Opportunities Fund since 2013, the MainStay MacKay High Yield Municipal Bond Fund and MainStay MacKay Tax Free Bond Fund since February 2014 and the MainStay MacKay Short Term
Municipal Fund since June 2015, and MainStay MacKay Strategic Municipal Allocation Fund and MainStay MacKay U.S. Infrastructure Bond Fund since 2019. Before joining the firm, he was Chief Investment Officer at Financial Guaranty Insurance Company.
He was previously with Alliance Capital Management as a Senior Portfolio Manager and at Merrill Lynch & Co. as a Municipal Strategist. He has
an AB from Brown University and an MBA from Columbia University. He has been in the investment management industry since 1989.
(a)(2) Other Accounts Managed by Portfolio Managers or Management Team Member and
Potential Conflicts of Interest as of May 31, 2023.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
| |
|
NUMBER OF OTHER ACCOUNTS MANAGED AND
ASSETS BY ACCOUNT TYPE |
|
|
|
NUMBER OF ACCOUNTS AND ASSETS
MANAGED FOR WHICH THE ADVISORY FEE IS
BASED ON
PERFORMANCE |
|
|
|
|
|
|
|
|
| PORTFOLIO
MANAGER |
|
REGISTERED
INVESTMENT
COMPANY |
|
OTHER
POOLED
INVESTMENT
VEHICLES |
|
OTHER
ACCOUNTS |
|
|
|
REGISTERED
INVESTMENT
COMPANY |
|
OTHER
POOLED
INVESTMENT
VEHICLES |
|
OTHER
ACCOUNTS |
| Michael
Denlinger |
|
14 RICs
$21,434,290,486 |
|
10 Accounts
$10,772,569,138 |
|
83 Accounts
$24,785,539,751 |
|
|
|
0 |
|
2 Accounts
$795,579,981 |
|
2 Accounts
$603,344,924 |
| Robert
DiMella |
|
17 RICs
$30,295,749,738 |
|
10 Accounts
$10,772,569,138 |
|
83 Accounts
$24,785,539,751 |
|
|
|
0 |
|
2 Accounts
$795,579,981 |
|
2 Accounts
$603,344,924 |
| David
Dowden |
|
18 RICs
$31,035,869,020 |
|
10 Accounts
$10,772,569,138 |
|
83 Accounts
$24,785,539,751 |
|
|
|
0 |
|
2 Accounts
$795,579,981 |
|
2 Accounts
$603,344,924 |
| John
Lawlor |
|
13 RICs
$7,980,572,270 |
|
10 Accounts
$10,772,569,138 |
|
83 Accounts
$24,785,539,751 |
|
|
|
0 |
|
2 Accounts
$795,579,981 |
|
2 Accounts
$603,344,924 |
| John
Loffredo |
|
15 RICs
$26,712,100,535 |
|
10 Accounts
$10,772,569,138 |
|
83 Accounts
$24,785,539,751 |
|
|
|
0 |
|
2 Accounts
$795,579,981 |
|
2 Accounts
$603,344,924 |
| Michael
Petty |
|
18 RICs
$27,602,482,228 |
|
10 Accounts
$10,772,569,138 |
|
83 Accounts
$24,785,539,751 |
|
|
|
0 |
|
2 Accounts
$795,579,981 |
|
2 Accounts
$603,344,924 |
| Scott
Sprauer |
|
18 RICs
$25,991,727,930 |
|
10 Accounts
$10,772,569,138 |
|
83 Accounts
$24,785,539,751 |
|
|
|
0 |
|
2 Accounts
$795,579,981 |
|
2 Accounts
$603,344,924 |
Potential Conflicts of Interest
MacKay Shields does not favor the interest of one client over another and it has adopted a Trade Allocation Policy designed so that all client
accounts will be treated fairly and no one client account will receive, over time, preferential treatment over another.
We maintain
investment teams with their own distinct investment process that operate independent of each other when making portfolio management decisions. Certain investment teams consist of Portfolio Managers, Research Analysts, and Traders, while certain
other investment teams share Research Analysts and/or Traders. MacKay Shields’ investment teams may compete with each other for the same investment opportunities and/or take contrary positions. At times, two or more of MacKay Shields’
investment teams may jointly manage the assets of a single client portfolio (“Crossover Mandate”). In such instances, the asset allocation decisions will be discussed amongst the various investment teams, but the day-to-day investment decision-making process will typically be made independently by each team for the portion of the Crossover Mandate that team is responsible for managing.
Orders within an investment team will typically be aggregated or bunched to reduce the costs of the transactions. Orders are typically not aggregated across investment teams even though there may be orders by separate investment teams to execute the
same instrument on the same trading day; provided, however, that orders for the same instrument are typically aggregated across investment teams that are supported by a shared trading desk.
MacKay Shields’ clients have held, and it is expected that in the future they will at times hold, different segments of the capital
structure of the same issuer that have different priorities. These investments create conflicts of interest, particularly because MacKay Shields can take certain actions for clients that can have an adverse effect on other clients. For example,
certain MacKay Shields clients may hold instruments that are senior or subordinated relative to instruments of the same issuer held by other clients, and any action that the portfolio managers were to take on behalf of the issuer’s senior
instrument, for instance, could have an adverse effect on the issuer’s junior instrument held by other clients, and vice versa, particularly in
distressed or default situations. To the extent MacKay Shields or any of its employees were to serve on a formal or informal creditor or similar committee on behalf of a client, such conflicts of
interest may be exacerbated.
MacKay Shields engages in transactions and investment strategies for certain clients that differ from the
transactions and strategies executed on behalf of other clients, including clients that have retained the services of the same investment team. MacKay Shields may make investments for certain clients that they conclude are inappropriate for other
clients. For instance, clients within one investment strategy may take short positions in the debt or equity instruments of certain issuers, while at the same time those instruments or other instruments of that issuer are acquired or held long by
clients in another investment strategy, or within the same strategy, and vice versa.
Additionally, MacKay Shields’ investment
strategies are available through a variety of investment products, including, without limitation, separately managed accounts, private funds, mutual funds and ETFs. Given the different structures of these products, certain clients are subject to
terms and conditions that are materially different or more advantageous than available under different products. For example, mutual funds offer investors the ability to redeem from the fund daily, while private funds offer less frequent liquidity.
Similarly a client with a separately managed account may have more transparency regarding the positions held in its account than would be available to an investor in a collective investment vehicle. Further, separately managed account clients have
the ability to terminate their investment management agreement with little or no notice (subject to the terms of the investment advisory agreement or similar agreement).
As a result of these differing liquidity and other terms, MacKay Shields may acquire and/or dispose of investments for a client either prior to
or subsequent to the acquisition and/or disposition of the same or similar securities held by another client. In certain circumstances, purchases or sales of securities by one client could adversely affect the value of the same securities held in
another client’s portfolio. In addition, MacKay Shields has caused, and expects in the future to cause, certain clients to invest in opportunities with different levels of concentration or on different terms than that to which other clients
invest in the same securities. These differences in terms and concentration could lead to different investment outcomes among clients investing in the same securities. MacKay Shields seeks to tailor its investment advisory services to meet each
client’s investment objective, constraints and investment guidelines and MacKay Shields’ judgments with respect to a particular client will at times differ from its judgments for other clients, even when such clients pursue similar
investment strategies.
MacKay Shields permits its personnel, including portfolio managers and other investment personnel, to engage in
personal securities transactions, including buying or selling securities that it has recommended to, or purchased or sold on behalf of, clients. These transactions raise potential conflicts of interest, including when they involve securities owned
or considered for purchase or sale by or on behalf of a client account. MacKay Shields has adopted a Code of Ethics to assist and guide the portfolio managers and other investment personnel when faced with a conflict. MacKay Shields’ services
to each client are not exclusive. The nature of managing accounts for multiple clients creates a conflict of interest with regard to time available to serve clients. MacKay Shields and its portfolio managers will devote as much of their time to the
activities of each client as they deem necessary and appropriate. Although MacKay Shields strives to identify and mitigate all conflicts of interest, and seeks to treat its clients in a fair and reasonable manner consistent with its fiduciary
duties, there may be times when conflicts of interest are not resolved in a manner favorable to a specific client.
Additional material
conflicts of interest are presented within Part 2A of MacKay Shields’ Form ADV.
The Manager has delegated proxy-voting authority to the Fund(s)’ subadvisor, MacKay Shields.
MacKay Shields has adopted Proxy-Voting Policies and Procedures designed to make sure that where clients have delegated proxy-voting authority to MacKay Shields, proxies are voted in the best interest of such clients without regard to the interests
of MacKay Shields or related parties. MacKay Shields currently uses Institutional Shareholder Services, Inc. (“ISS”) to assist in voting client securities. For purposes of the Policy, the “best interests of clients” means, unless
otherwise specified by the client, the clients’ best economic interests over the long term – that is, the common interest that all clients share in seeing the value of a common investment increase over time. MacKay Shields has adopted
standard proxy voting guidelines, which follow ISS voting recommendations and standard guidelines will vary based on client type and/or investment strategy (e.g., union or non-union voting guidelines, or
sustainability voting guidelines).
For those clients who have given us voting authority, we instruct the client’s custodian to send
all ballots to ISS and we instruct ISS which guidelines to follow. MacKay Shields votes proxies in accordance with the applicable standard voting guidelines unless MacKay Shields agrees with the client to apply custom guidelines. ISS researches each
proxy issue and provides a recommendation to MacKay Shields on how to vote based on such research and its application of the research to the applicable voting guidelines. ISS casts votes in accordance with its recommendation unless a portfolio
manager believes that it is in the best interests of the client(s) to vote otherwise. To override a proxy recommendation, a portfolio manager must submit a written override request to the Legal and/or Compliance Department. MacKay Shields has
procedures in place to review each such override request for potential material conflicts of interest between clients and MacKay Shields. MacKay Shields will memorialize the basis for any decision to override a recommendation or to abstain from
voting, including the resolution of any conflicts of interest.
(a)(3) Portfolio Managers
or Management Team Members’ Compensation Structure
Salaries are set by reference to a range of factors, taking into account each
individual’s seniority and responsibilities and the market rate of pay for the relevant position. Annual salaries are set at competitive levels to attract and maintain the best professional talent. Variable or incentive compensation, both cash
bonus and deferred awards, are a significant component of total compensation for portfolio managers at MacKay Shields. Incentive compensation received by portfolio managers is generally based on both quantitative and qualitative factors. The
quantitative factors include, but are not limited to: (i) investment performance; (ii) assets under management; (iii) revenues and profitability; and (iv) industry benchmarks. The qualitative factors may include, among others:
leadership, adherence to the firm’s policies and procedures, and contribution to the firm’s goals and objectives.
MacKay
Shields maintains a phantom equity plan for those employees who qualify whereby awards vest and pay out after several years, to attract, retain, motivate and reward key personnel. Portfolio managers that participate in the phantom equity plan share
in the results and success of the firm as the value of award tracks the operating revenue and operating profit of Mackay Shields. This approach helps to instill a strong sense of commitment towards the overall success of the firm.
MacKay Shields maintains an employee benefit program, including health and non-health insurance and a
401(k) defined contribution plan for all of its employees regardless of their job title, responsibilities or seniority.
(a)(4) Disclosure of Securities Ownership
The following table states, as of May 31, 2023, the dollar range of fund securities beneficially owned by each Portfolio Manager in the Registrant ($1-$10,000, $10,001-$50,000, $50,001-$100,000, $100,001- $500,000, $500,001-$1,000,000, or over $1,000,000).
|
|
|
|
PORTFOLIO MANAGER
|
|
RANGE OF OWNERSHIP
|
| Michael Denlinger |
|
$50,001-$100,000 |
| Robert DiMella |
|
$100,001- $500,000 |
| David
Dowden |
|
$0 |
| John
Lawlor |
|
$0 |
| John
Loffredo |
|
$0 |
| Michael
Petty |
|
$1-$10,000 |
| Scott
Sprauer |
|
$10,001-$50,000 |
| (b) |
Changes in Portfolio Management |
Not applicable
Item 9. Purchases of
Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
There have been no
purchases of equity securities by or on behalf of the Registrant of shares or other units of any registered class of the Registrant’s equity securities.
| Item 10. |
Submission of Matters to a Vote of Security Holders. |
Since the Registrant’s last response to this Item, there have been no material changes to the procedures by which shareholders may recommend nominees to
the Board.
| Item 11. |
Controls and Procedures. |
(a) Based on an evaluation of the Registrant’s
Disclosure Controls and Procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (“1940 Act”) and Rules 13a-15(b) or 15d-15(b) under the Exchange Act) (“Disclosure Controls”), as of a date within 90 days prior to the filing date (“Filing Date”) of this Form N-CSR
(“Report”), the Registrant’s principal executive officer and principal financial officer have concluded that the Disclosure Controls are reasonably designed to ensure that information required to be disclosed by the Registrant in the
Report is recorded, processed, summarized and reported by the Filing Date, including ensuring that information required to be disclosed in the Report is accumulated and communicated to the Registrant’s management, including the
Registrant’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes in the Registrant’s
internal control over financial reporting (as defined in Rule 30a-3(d)) under the Investment Company Act of 1940 that occurred during the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
| Item 12. |
Disclosure of Securities Lending Activities for Closed End Management Investment Companies.
|
Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MAINSTAY MACKAY DEFINEDTERM MUNICIPAL OPPORTUNITIES FUND
|
|
|
| By: |
|
/s/ Kirk C. Lehneis |
|
|
Kirk C. Lehneis
President and Principal Executive Officer |
Date: August 4, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
|
|
| By: |
|
/s/ Kirk C. Lehneis |
|
|
Kirk C. Lehneis
President and Principal Executive Officer |
Date: August 4, 2023
|
|
|
| By: |
|
/s/ Jack R. Benintende |
|
|
Jack R. Benintende
Treasurer and Principal Financial and Accounting
Officer |
Date: August 4, 2023
Exhibit (a)(1)
CODE OF ETHICS FOR PRINCIPAL EXECUTIVE OFFICER AND
PRINCIPAL FINANCIAL OFFICERS
MAINSTAY GROUP OF FUNDS (THE “FUNDS”)
Mainstay Funds Trust
The
Mainstay Funds
Mainstay VP Funds Trust
MainStay MacKay DefinedTerm Municipal Opportunities Fund
MainStay CBRE Global Infrastructure Megatrends Fund
Approved by the Board of the Directors/Trustees
of Mainstay Group of Funds (the “Board”)
on September 30, 2009
Pursuant to the Sarbanes-Oxley Act Of 2002
| I. |
Introduction and Application |
The Funds recognize the importance of high ethical standards in the conduct of their business and requires this Code of Ethics (“Code”) be observed
by their principal executive officers (each, a “Covered Officer”) (defined below). In accordance with the Sarbanes-Oxley Act of 2002 (the “Act”) and the rules promulgated thereunder by the U.S. Securities and Exchange Commission
(“SEC”) the Funds are required to file reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (“1934 Act”), and must disclose whether each has adopted a code of ethics applicable to the
principal executive officers. The Board, including a majority of its Independent Directors/Trustees (defined below), has approved this Code as compliant with the requirements of the Act and related SEC rules.
All recipients of the Code are directed to read it carefully, retain it for future reference, and abide by the rules and policies set forth herein. Any
questions concerning the applicability or interpretation of such rules and policies, and compliance therewith, should be directed to the relevant Compliance Officer (defined below).
This Code has been adopted by the Board in accordance with the Act and the rules promulgated by the SEC in order to deter wrongdoing and promote:
| |
● |
|
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between
personal and professional relationships; |
| |
● |
|
full, fair, accurate, timely and understandable disclosure in reports and documents filed by the Funds with the
SEC or made in other public communications by the Funds; |
| |
● |
|
compliance with applicable governmental laws, rules and regulations; |
| |
● |
|
prompt internal reporting to an appropriate person or persons of violations of the Code to an appropriate person
or persons identified in the Code; and |
| |
● |
|
accountability for adherence to the Code. |
(A) “Covered Officer” means the principal executive officer and senior financial officers, including
the principal financial officer, controller or principal accounting officer, or persons performing similar functions. The Covered Officers of the Funds shall be identified in Schedule I, as amended from time to time.
(B) “Compliance Officer” means the person appointed by the Funds’ Board to administer the Code.
The Compliance Officer of the Funds shall be identified in Schedule II as amended from time to time.
(C) “Director” or “Trustee” means a director or trustee of the Funds, as applicable.
(D) “Executive Officer” shall have the same meaning as set forth in Rule 3b-7 of the 1934 Act. Subject to any changes in the Rule, an Executive Officer means the president, any vice president, any officer who performs a policy making function, or any other person who performs similar
policy making functions for the Funds.
(E) “Independent Director/Trustee” means a director/trustee
of the Board who is not an “interested person” of the Funds within the meaning of Section 2(a)(19) of the Investment Company Act of 1940, as amended (“Investment Company Act”).
(F) “Implicit Waiver” means the Compliance Officer failed to take action within a reasonable period of
time regarding a material departure from a provision of the Code that has been made known to an Executive Officer.
(G) “Restricted List” means that listing of securities maintained by the Compliance Officer in which
trading by certain individuals subject to the Funds’ 17j-1 code of ethics is generally prohibited.
(H) “Waiver” means the approval by the Compliance Officer of a material departure from a provision of
the Code.
| IV. |
Honest and Ethical Conduct |
(A) Overview. A “conflict of interest” occurs when a Covered Officer’s personal interest
interferes with the interests of, or his or her service to, the Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of his or her position
with the Funds.
Certain conflicts of interest arise out of the relationships between Covered Officers and the Funds and already are subject to conflict
of interest provisions in the Investment Company Act and the Investment Advisers Act of 1940, as amended (the “Advisers Act”). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale
of securities or other property) with the Funds because of their status as “affiliated persons” of the Funds. The Funds’ and certain of its service providers’ compliance policies, programs and procedures are designed to prevent,
or identify and correct, violations of these provisions. This Code does not, and is not intended to, restate or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code.
Although typically not presenting an opportunity for improper personal benefit, conflicts may arise or result from the contractual relationship between the
Funds and New York Life Investment Management LLC (the “Adviser”). The Covered Officers may be officers or employees of the Adviser. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties
(whether formally for
the Funds or the Adviser), be involved in establishing policies and implementing decisions that will have different effects on the Adviser and the Funds. The participation of the Covered Officers
in such activities is inherent in the contractual relationships between the Funds and the Adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Funds. Thus, if performed in conformity with the
provisions of the Investment Company Act and the Advisers Act, such activities normally will be deemed to have been handled ethically. In addition, it is recognized by the Board that the Covered Officers may also be officers or employees of one or
more other investment companies covered by this or other codes.
(B) General Policy. Each Covered Officer
shall adhere to high standards of honest and ethical conduct. Each Covered Officer has a duty to exercise his or her authority and responsibility for the benefit of the Funds and its shareholders, to place the interests of the shareholders first,
and to refrain from having outside interests that conflict with the interests of the Funds and its shareholders. Each such person must avoid any circumstances that might adversely affect, or appear to affect, his or her duty of loyalty to the Funds
and its shareholders in discharging his or her responsibilities, including the protection of confidential information and corporate integrity.
(C) Conflicts of Interest. Other conflicts of interest are covered by the Code, even if such conflicts of
interest are not subject to provisions of the Investment Company Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching
principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Funds.
| |
(1) |
Prohibited Conflicts of Interest. Each Covered Officer must: |
| |
● |
|
not use his or her personal influence or personal relationships improperly to influence decisions or financial
reporting by the Funds whereby the Covered Officer would benefit personally to the detriment of the Funds; |
| |
● |
|
not cause the Funds to take action, or fail to take action, for the individual personal benefit of the Covered
Officer rather than benefit the Funds; |
| |
● |
|
not use material non-public knowledge of portfolio transactions made or
contemplated for the Funds to trade personally or cause others to trade personally in contemplation of the market effect of such transactions; or |
| |
● |
|
report at least annually the information elicited in the Funds’ Director/Trustee’s and Officer’s
Questionnaire relating to potential conflicts of interest. |
(2) Duty to Disclose
Conflicts. Each Covered Officer has the duty to disclose to the Compliance Officer any interest that he or she may have in any firm, corporation or business entity that is not affiliated or participating in any joint venture or partnership with
the Funds or its affiliates and that does business with the Funds or that otherwise presents a possible conflict of interest. Disclosure must be timely so that the Funds may take action concerning any possible conflict as it deems appropriate. It is
recognized, however, that the Funds or its affiliates may have business relationships with many organizations and that a relatively small interest in publicly traded securities of an organization does not necessarily give rise to a prohibited
conflict of interest. Therefore, the following procedures have been adopted.
(3) Conflicts of Interest that
may be Waived. There are some conflict of interest situations for which a Covered Officer may seek a Waiver from a provision(s) of the
Code. Waivers must be sought in accordance with Section VII of the Code. Examples of these include:
| |
● |
|
Board Memberships. Except as described below, it is considered generally incompatible with the duties of a
Covered Officer to assume the position of director of a corporation not affiliated with the Funds. A report should be made by a Covered Officer to the Compliance Officer of any invitation to serve as a director of a corporation that is not an
affiliate and the person must receive the approval of the Compliance Officer prior to accepting any such directorship. In the event that approval is given, the Compliance Officer shall immediately determine whether the corporation in question is to
be placed on the Funds’ Restricted List. |
| |
● |
|
“Other” Business Interests. Except as described below, it is considered generally incompatible
with the duties of a Covered Officer to act as an officer, general partner, consultant, agent, representative or employee of any business other than an affiliate. A report should be made of any invitation to serve as an officer, general partner,
consultant, agent, representative or employee of any business that is not an affiliate for the approval of the Compliance Officer prior to accepting any such position. In the event that approval is given, the Compliance Officer shall immediately
determine whether the business in question is to be placed on the Funds’ Restricted List. |
| |
● |
|
Gifts, Entertainment, Favors or Loans. Covered Officers are subject to the New York Life Investment
Management Gift and Entertainment Policy and should refer to that Policy for guidance with respect to the limits on giving and receiving gifts/entertainment to and from third parties that do business with the Funds. |
| |
● |
|
Permissible Outside Activities. Covered Officers who, in the regular course of their duties relating to
the Funds’ private equity/venture capital advisory and investment activities, are asked to serve as the director, officer, general partner, consultant, agent, representative or employee of a privately-held business may do so with the prior
written approval of the Compliance Officer. |
| |
● |
|
Doing Business with the Funds. Except as approved by the Compliance Officer, Covered Officers may not have
a monetary interest, as principal, co-principal, agent or beneficiary, directly or indirectly, or through any substantial interest in any other corporation or business unit, in any transaction involving the
Funds, subject to such exceptions as are specifically permitted under law. |
| V. |
Full, Fair, Accurate, Timely And Understandable Disclosure And Compliance |
Covered Officers shall:
| |
● |
|
be familiar with the disclosure requirements generally applicable to the Funds; |
| |
● |
|
not knowingly misrepresent, or cause others to misrepresent, facts about the Funds to others, whether within or
outside the Funds, including the Funds’ Directors/Trustees and auditors, governmental regulators and self-regulatory organizations; |
| |
● |
|
to the extent appropriate within his or her area of responsibility, consult with other officers and employees of
the Funds, the Adviser and other Funds service providers with the goal of promoting full, fair, accurate, timely and understandable |
| |
disclosure in the reports and documents the Funds files with, or submits to, the SEC and in other public communications made by the Funds; and |
| |
● |
|
promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations.
|
| VI. |
Internal Reporting by Covered Persons |
| |
(A) |
Certifications and Accountability. Each Covered Officer shall: |
| |
(1) |
upon adoption of the Code (or thereafter as applicable upon becoming a Covered Officer), affirm in writing on
Schedule A hereto that the Covered Officer has received, read, and understands the Code; |
| |
(2) |
annually thereafter affirm on Schedule A hereto that the Covered Officer has complied with the requirements of
the Code; and |
| |
(3) |
not retaliate against any other Covered Officer or employee of the Funds or their affiliated persons for
reports of potential violations that are made in good faith. |
(B)
Reporting. A Covered Officer shall promptly report any knowledge of a material violation of this Code to the Compliance Officer. Failure to do so is itself a violation of the Code.
| VII. |
Waivers of Provisions of the Code |
(A) Application of the Code. The Compliance Officer is responsible for applying
this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. The Compliance Officer is authorized to consult, as appropriate, with counsel to the Funds/counsel
to the Independent Directors/Trustees. However, any approvals or Waivers sought by and/or granted to a Covered Officer will be reported to the Board in accordance with Section VIII, below.
(B) Waivers. The Compliance Officer may grant Waivers to the Code in circumstances
that present special hardship. Waivers shall be structured to be as narrow as is reasonably practicable with appropriate safeguards designed to prevent abuse of the Waiver. To request a Waiver from the Code, the Covered Officer shall submit to the
Compliance Officer a written request describing the transaction, activity or relationship for which a Waiver is sought. The request shall briefly explain the reason for engaging in the transaction, activity or relationship. Notwithstanding the
foregoing, no exception will be granted where such exception would result in a violation of SEC rules or other applicable laws.
(C) Documentation. The Compliance Officer shall document all Waivers (including
Implicit Waivers). If a Waiver is granted, the Compliance Officer shall prepare a brief description of the nature of the Waiver, the name of the Covered Officer and the date of the Waiver so that this information may be disclosed in the next Form N-CSR to be filed on behalf of the Funds or posted on the Funds’ internet website within five business days following the date of the Waiver. All Waivers must be reported to the Board at each quarterly meeting
as set forth in Section VIII below.
The Compliance Officer shall report any violations of the Code to the Board for its consideration on a quarterly basis. At a minimum, the report shall:
| |
● |
|
describe the violation under the Code and any sanctions imposed; |
| |
● |
|
identify and describe any Waivers sought or granted under the Code; and |
| |
● |
|
identify any recommended changes to the Code. |
The Covered Officers and the Compliance Officer may recommend amendments to the Code for the consideration and approval of the Board. In connection with any
amendment to the Code, the Compliance Officer shall prepare a brief description of the amendment so that the necessary disclosure may be made with the next Form N-CSR to be filed on behalf of the Funds or
posted on the Funds’ internet website within five business days following the date of the amendment.
Compliance by Covered Officers with the provisions of the Code is required. Covered Officers should be aware that in response to any violation, the Funds will
take whatever action is deemed necessary under the circumstances, including, but not limited to, the imposition of appropriate sanctions. These sanctions may include, among others, the reversal of trades, reallocation of trades to client accounts,
fines, disgorgement of profits, suspension or termination.
The Compliance Officer shall maintain all records, including any internal memoranda, relating to compliance with the Code or Waivers of a provision(s) of the
Code, for a period of 7 years from the end of the fiscal year in which such document was created, 2 years in an accessible place.
| XII. |
Other Policies and Procedures |
This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Act and the rules and forms applicable to registered
investment companies thereunder. Insofar as other policies or procedures of the Funds, the Adviser, and NYLIFE Distributors LLC (the “Underwriter”), or other service providers govern or purport to govern the behavior or activities of the
Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Funds’ the Adviser’s and the Underwriter’s codes of ethics under Rule 17j-1 under the Investment Company Act are separate requirements applying to the Covered Officers and others, and are not part of this Code.
All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except
as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Board, the Adviser and the Compliance Officer, and their respective counsels.
The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of the Funds, as to any fact,
circumstance, or legal conclusion.
SCHEDULE I
COVERED OFFICERS
Kirk C.
Lehneis, President and Principal Executive Officer
Jack R. Benintende, Treasurer and Principal Financial and Accounting Officer
SCHEDULE II
COMPLIANCE OFFICER
Kevin
Gleason
EXHIBIT A
MainStay Group of Funds
Mainstay Funds Trust
The
Mainstay Funds
Mainstay VP Funds Trust
MainStay MacKay DefinedTerm Municipal Opportunities Fund
MainStay CBRE Global Infrastructure Megatrends Fund
Code of Ethics for
Principal Executive Officer and Principal Financial Officers
INITIAL AND ANNUAL CERTIFICATION OF
COMPLIANCE WITH THE
MAINSTAY GROUP OF FUNDS CODE OF
ETHICS FOR
PRINCIPAL EXECUTIVE OFFICER AND
PRINCIPAL FINANCIAL OFFICERS
| [ X ] |
I hereby certify that I have received the MainStay Group of Funds Code of Ethics for Principal Executive
Officers adopted pursuant to the Sarbanes-Oxley Act of 2002 (the “Code”) and that I have read and understood the Code. I further certify that I am subject to the Code and will comply with each of the Code’s provisions to which I am
subject. |
| [ X ] |
I hereby certify that I have received the MainStay Group of Funds Code of Ethics for Principal Financial
Officers adopted pursuant to the Sarbanes-Oxley Act of 2002 (the “Code”) and that I have read and understood the Code. I further certify that I have complied with and will continue to comply with each of the provisions of the Code to which
I am subject. |
|
|
|
| By: |
|
/s/ Kirk C. Lehneis |
| Name: |
|
Kirk C. Lehneis |
| Title: |
|
President and Principal Executive Officer |
| Date: |
|
August 4, 2023 |
|
|
| By: |
|
/s/ Jack R. Benintende |
| Name: |
|
Jack R. Benintende |
| Title: |
|
Treasurer and Principal Financial and Accounting Officer |
| Date: |
|
August 4, 2023 |
Exhibit (a)(2)
SECTION 302 CERTIFICATIONS
I, Kirk C.
Lehneis, President and Principal Executive Officer of MainStay MacKay DefinedTerm Municipal Opportunities Fund, certify that:
| 1. |
I have reviewed this report on Form N-CSR of MainStay MacKay
DefinedTerm Municipal Opportunities Fund; |
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the
periods presented in this report; |
| 4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule
30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
| |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared; |
| |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles; |
| |
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and |
| |
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. |
The registrant’s other certifying officer and I have disclosed to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and |
| |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting. |
|
|
|
| By: /s/ Kirk C. Lehneis |
| Kirk C. Lehneis |
| President and Principal Executive
Officer, |
| MainStay MacKay DefinedTerm
Municipal |
| Opportunities Fund |
|
|
| Date: |
|
August 4, 2023 |
SECTION 302 CERTIFICATIONS
I, Jack R. Benintende, Treasurer and Principal Financial and Accounting Officer of MainStay MacKay DefinedTerm Municipal Opportunities Fund, certify that:
| 1. |
I have reviewed this report on Form N-CSR of MainStay MacKay
DefinedTerm Municipal Opportunities Fund; |
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the
periods presented in this report; |
| 4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule
30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
| |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared; |
| |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles; |
| |
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and |
| |
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. |
The registrant’s other certifying officer and I have disclosed to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and |
| |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting. |
|
|
|
| By: |
|
/s/ Jack R. Benintende |
|
|
Jack R. Benintende |
|
|
Treasurer and Principal Financial and Accounting Officer, MainStay MacKay DefinedTerm Municipal Opportunities Fund |
Exhibit (b)
SECTION 906 CERTIFICATIONS
In connection with this report on Form N-CSR for the Registrant as furnished to the Securities and
Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| |
(1) |
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as applicable; and |
| |
(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Registrant. |
|
|
|
| By: |
|
/s/ Kirk C. Lehneis |
|
|
Kirk C. Lehneis |
|
|
President and Principal Executive Officer, MainStay MacKay DefinedTerm Municipal Opportunities Fund |
SECTION 906 CERTIFICATIONS
In connection with this report on Form N-CSR for the Registrant as furnished to the Securities and
Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| |
(1) |
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as applicable; and |
| |
(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Registrant. |
|
|
|
| By: |
|
/s/ Jack R. Benintende |
|
|
Jack R. Benintende |
|
|
Treasurer and Principal Financial and
Accounting Officer, MainStay MacKay DefinedTerm Municipal Opportunities Fund |
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