Note 1Organization 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 amended and restated on June 4, 2015 (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 Funds net asset value (NAV) at that time, which may be greater or less than the price at which Common
shares were issued. The Funds 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 Funds shareholders. The Termination Date may be
extended an unlimited number of times by the Board prior to the first business day of the sixth month before the next occurring Extended Termination Date.
The
Funds 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 2Significant 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 Standard Codification Topic 946 Financial ServicesInvestment
Companies. The Fund prepares its financial statements in accordance with generally accepted accounting principles (GAAP) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are usually valued as of the close of regular trading on the New York Stock Exchange (the Exchange) (usually 4:00 p.m. Eastern time) on each day the Fund is open for
business (valuation date).
The Board adopted procedures establishing methodologies for the valuation of the Funds securities and other
assets and delegated the responsibility for valuation determinations under those procedures to the Valuation Committee of the Fund (the Valuation Committee). The procedures state that, subject to the oversight of the Board and unless
otherwise noted, the responsibility for the day-to-day valuation of portfolio assets (including fair value measurements for the Funds assets and liabilities) rests
with New York Life Investment Management LLC (New York Life Investments or the Manager), aided to whatever extent necessary by the Subadvisor (as defined in Note 3(A)). To assess the appropriateness of security valuations,
the Manager, the Subadvisor or the Funds third-party service provider, who is subject to oversight by the Manager, regularly compares prior day prices, prices on comparable securities and the sale prices to the prior and current day prices and
challenges prices with changes exceeding certain tolerance levels with third-party pricing services or broker sources.
The Board authorized the Valuation Committee
to appoint a Valuation Subcommittee (the Subcommittee) to establish the prices of securities for which market quotations are not readily available or the prices of which are not otherwise readily determinable under the procedures. The
Subcommittee meets (in person, via electronic mail or via teleconference) on an as-needed basis. The Valuation Committee meets to ensure that actions taken by the Subcommittee were appropriate.
For those securities valued through either a standardized fair valuation methodology or a fair valuation measurement, the Subcommittee deals with such valuation and the
Valuation Committee reviews and affirms, if appropriate, the reasonableness of the valuation based on such methodologies and measurements on a regular basis after considering information that is reasonably available and deemed relevant by the
Valuation Committee. Any action taken by the Subcommittee with respect to the valuation of a portfolio security or other asset is submitted for review and ratification (if appropriate) to the Valuation Committee and the Board at the next regularly
scheduled meeting.
Fair value is defined as the price the Fund would reasonably expect to receive upon selling an asset or liability in an orderly
transaction to an independent buyer in the principal or most advantageous market for the asset or liability. Fair value measurements are determined within a framework that establishes a three-tier hierarchy that maximizes the use of observable
market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or
liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable
or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Funds own
assumptions about the assumptions market participants would use in pricing the asset or liability based on the information available. The inputs or methodology
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MainStay MacKay DefinedTerm Municipal Opportunities Fund
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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.
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Level 1quoted prices in active markets for an identical asset or liability
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Level 2other 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.)
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Level 3significant unobservable inputs (including the Funds own assumptions about the assumptions that market participants would use in measuring fair value of an asset or liability)
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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 Funds assets and liabilities as of November 30, 2020, 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:
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Benchmark yields
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Reported trades
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Broker/dealer quotes
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Issuer spreads
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Two-sided markets
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Benchmark securities
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Bids/offers
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Reference data (corporate actions or
material event notices)
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Industry and economic events
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Comparable bonds
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Monthly payment information
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An asset or liability for which market values cannot be measured using the methodologies described above is valued by methods deemed
reasonable in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund generally uses a market-based approach which may use related or comparable
assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the asset or liability are discounted
to calculate fair value. Discounts may also be applied due to the nature and/or duration of any restrictions on the disposition of the asset or liability. Fair value represents a good faith approximation of the value of a security. Fair value
determinations involve the consideration of a number of subjective factors, an analysis of applicable facts and circumstances and the exercise of judgment. As a result, it is possible that the fair value for a security determined in good faith in
accordance with the Funds valuation procedures may differ from valuations for the same security determined by other funds using their own valuation procedures. Although the Funds valuation procedures are designed to value a security at
the price the Fund may reasonably expect to receive upon the securitys 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 six-month period ended November 30, 2020, there were no
material changes to the fair value methodologies.
Securities which may be valued in this manner include, but are not limited to: (i) a security for which trading has
been halted or suspended; (ii) a debt security that has recently gone into default and for which there is not a current market quotation; (iii) a security of an issuer that has entered into a restructuring; (iv) a security that has
been delisted from a national exchange; (v) a security for which the market price is not readily available from a third-party pricing source or, if so provided, does not, in the opinion of the Manager or the Subadvisor, reflect the
securitys market value; (vi) a security subject to trading collars for which no or limited trading takes place; and (vii) a security whose principal market has been temporarily closed at a time when, under normal conditions, it would
be open. Securities valued in this manner are generally categorized as Level 3 in the hierarchy. No securities held by the Fund as of November 30, 2020, were fair valued in such a manner.
Municipal debt securities are valued at the evaluated mean prices supplied by a pricing agent or broker selected by the Manager, in consultation with the Subadvisor.
Those values reflect broker-dealer supplied prices and electronic data processing techniques, if the evaluated bid or mean prices are deemed by the Manager, in consultation with the Subadvisor, to be representative of market values, at the regular
close of trading of the Exchange on each valuation date. 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.
Futures contracts are valued at the last posted settlement price on the market where such futures are primarily traded and are
generally categorized as Level 1 in the hierarchy.
Temporary cash investments acquired in excess of 60 days to maturity at the time of purchase are valued using
the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities and ratings), both as furnished by independent pricing services. Temporary cash investments that mature in 60
days or less at the time of purchase (Short-Term Investments) are valued using the amortized cost method of valuation, unless the use of such method would be inappropriate. The amortized cost method involves valuing a security at its
cost on the date of purchase and thereafter assuming a constant amortization to maturity of the difference between such cost and the value on maturity date. Amortized cost approximates the current fair value of a security. Securities valued using
the amortized cost method are not valued using quoted prices in an active market and 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 Funds 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.
Notes to Financial Statements (Unaudited) (continued)
The Manager evaluates the Funds 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 Funds 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 Funds financial statements. The Funds 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, after payment of any dividends on any outstanding Preferred shares, if any, at least monthly and declares and pays distributions from net realized capital gains, if any, at least annually. To the extent that the Fund realizes any capital
gains or ordinary taxable income, it will be required to allocate such income between the Common shares and Preferred shares issued by the Fund, in proportion to the total dividends paid to each share class for the year in which the income is
realized. Dividends and distributions are determined in accordance with federal income tax regulations and may differ from determinations using GAAP. For information on the Funds dividend reinvestment plan, please see page 27.
(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 for the Fund are accreted and amortized, respectively, on the effective interest rate method over the life of the respective securities.
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.
(G) Futures Contracts. A futures contract is an agreement to purchase or sell a specified quantity of an underlying instrument at a specified future date and price, or to make or receive a cash payment
based on the value of a financial instrument (e.g., foreign currency, interest rate, security or securities index). The Fund is subject to risks such as market price risk and/or interest rate
risk in the normal course of investing in these contracts. Upon entering into a futures contract, the Fund is required to pledge to the broker or futures commission merchant an amount of cash and/or U.S. government securities equal to a certain
percentage of the collateral amount, known as the initial margin. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized appreciation or depreciation by marking to market such
contract on a daily basis to reflect the market value of the contract at the end of each days trading. The Fund agrees to receive from or pay to the broker or futures commission merchant an amount of cash equal to the daily fluctuation in the
value of the contract. Such receipts or payments are known as variation margin. When the futures contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing
transaction and the Funds basis in the contract.
The use of futures contracts involves, to varying degrees, elements of market risk in excess of the amount
recognized in the Statement of Assets and Liabilities. The contract or notional amounts and variation margin reflect the extent of the Funds involvement in open futures positions. There are several risks associated with the use of futures
contracts as hedging techniques. There can be no assurance that a liquid market will exist at the time when the Fund seeks to close out a futures contract. If no liquid market exists, the Fund would remain obligated to meet margin requirements until
the position is closed. Futures contracts may involve a small initial investment relative to the risk assumed, which could result in losses greater than if the Fund did not invest in futures contracts. Futures contracts may be more volatile than
direct investments in the instrument underlying the futures and may not correlate to the underlying instrument, causing a given hedge not to achieve its objectives. The Funds activities in futures contracts have minimal counterparty risk as
they are conducted through regulated exchanges that guarantee the futures against default by the counterparty. In the event of a bankruptcy or insolvency of a futures commission merchant that holds margin on behalf of the Fund, the Fund may not be
entitled to the return of the entire margin owed to the Fund, potentially resulting in a loss. The Fund may invest in futures contracts to seek enhanced returns or to reduce the risk of loss by hedging certain of its holdings. The Funds
investment in futures contracts and other derivatives may increase the volatility of the Funds NAV and may result in a loss to the Fund. As of November 30, 2020, there were no open futures contracts held by the Fund.
(H) 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
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MainStay MacKay DefinedTerm Municipal Opportunities Fund
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interest rate on the TOB Floaters resets periodically, usually weekly, to a prevailing market rate, and holders of the TOB Floaters are granted the option to tender their TOB Floaters back to the
TOB Issuer for repurchase at their principal amount plus accrued interest thereon periodically, usually daily or weekly. The Fund may invest in both TOB Floaters and TOB Residuals. The Fund may not invest more than 5% of its Managed Assets (as
defined in Note 3(A)) in any single TOB Issuer. The Fund may invest in both TOB Floaters and TOB Residuals issued by the same TOB Issuer.
Typically, a fund serves as
the sponsor of the TOB issuer (Fund-sponsored TOB). Under this structure, a fund establishes, structures and sponsors the TOB Issuer in which it holds TOB Residuals. 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 Sponsors duties as sponsor. Regardless of
whether the Fund Sponsor delegates any of its sponsorship duties to a third party, the Fund Sponsors expanded role under the Fund-sponsored TOB structure may increase the Fund Sponsors 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 Funds 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
Notes to Financial Statements (Unaudited) (continued)
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 Funds 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 Funds 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 November 30, 2020, the aggregate value of the Underlying Securities transferred to the TOB Issuer and the related liability for TOB
Floaters were as follows:
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Underlying
Securities Transferred
to TOB
Issuers
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Liability for
Floating Rate Note
Obligations
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$521,053,531
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$329,935,000
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During the six-month period ended November 30, 2020, the Funds average TOB Floaters
outstanding and the daily weighted average interest rate, including fees, were as follows:
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Average
Floating Rate Note
Obligations Outstanding
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Daily Weighted
Average
Interest Rate
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$303,543,306
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0.46%
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(I) Fixed Rate Municipal Term Preferred Shares. On October 4, 2012, the Fund issued two series of Fixed Rate Municipal Term Preferred Shares (Series A FMTP Shares and Series B FMTP Shares, collectively, FMTP
Shares), each with a liquidation preference of $100,000 per share (Liquidation Preference). Dividends on FMTP Shares, which are recognized as interest expense for financial reporting purposes, are paid semiannually at a fixed
annual rate, subject to adjustments in certain circumstances. The FMTP Shares were issued in a private offering exempt from registration under the Securities Act of 1933, as amended.
The Fund is obligated to redeem its FMTP Shares by the date as specified in its offering document (Term Redemption), unless redeemed earlier by the Fund. FMTP
Shares are subject to optional and mandatory redemption in certain circumstances. FMTP Shares will be subject to redemption, at the option of the Fund (Optional Redemption), in whole or in part at any time only for the purposes of
decreasing leverage of the Fund. The Fund may be obligated to redeem certain of the FMTP Shares if the Fund fails to maintain certain asset coverage and leverage ratio requirements and such failures are not cured by the applicable cure date. The
Optional Redemption price per share is equal to the sum of
the Liquidation Preference per share plus any accrued but unpaid dividends. On June 15, 2020, the Fund fully redeemed its Series A FMTP Shares. The redemption price per preferred share
totaled $100,000 for a total redemption amount of $35,000,000.
As of November 30, 2020, the number of FMTP Shares outstanding and annual dividend rate were as
follows:
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Series
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Dates of Issuance
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Shares
Outstanding
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Annual
Dividend Rate
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B
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October 4, 2012
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350
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3.01
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%
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As of November 30, 2020, the Term Redemption date and liquidation value for the FMTP Shares outstanding were as follows:
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Series
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Term Redemption Date
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Liquidation Value
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B
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May 31, 2021
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$
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35,482,854
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For financial reporting purposes only, the liquidation value of FMTP Shares is recorded as a liability on the Statement of Assets and
Liabilities. Unpaid dividends on FMTP Shares are recognized as a component of Interest expense and fees payable on the Statement of Assets and Liabilities. Dividends accrued on FMTP Shares are recognized as a component of Interest
expense and fees in the Statement of Operations. As of November 30, 2020, the fair value of the FMTP Shares for Series B was $34,999,738.
(J) Statement of Cash Flows. The cash amount shown in the Funds Statement of Cash Flows is the amount included in the
Funds Statement of Assets and Liabilities and represents the cash on hand at its custodian and restricted cash, if any, as of November 30, 2020.
(K) 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 Funds 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 Funds 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 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
Ricos budget have further contributed to its financial challenges. Puerto Rico has reached agreements with certain bondholders to restructure outstanding debt issued by certain of Puerto Ricos instrumentalities and is negotiating the
restructuring of its debt with certain other bondholders. Any agreement to restructure such
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MainStay MacKay DefinedTerm Municipal Opportunities Fund
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outstanding debt must be approved by the judge overseeing the debt restructuring. Puerto Ricos debt restructuring process and other economic, political, social, environmental or health
factors or developments could occur rapidly and may significantly affect the value of municipal securities of Puerto Rico. Due to the ongoing budget impact from Covid-19 on the Commonwealths finances,
the Federal Oversight and Management Board or the Commonwealth could seek to revise or even terminate earlier agreements reached with certain creditors prior to the outbreak of COVID-19. Any agreement between
the Federal Oversight and Management Board and creditors is subject to approval by the judge overseeing the Title III proceedings. The composition of the Federal Oversight and Management Board is changing significantly due to existing members either
stepping down or being replaced as the current boards term has expired. There is no assurance that newly appointed board members will approve the restructuring agreements the prior board had negotiated. In light of the spread of the novel
coronavirus in early 2020 to Puerto Rico and globally, the presiding judge has adjourned most of the Commonwealths PROMESA proceedings for public health reasons.
The Funds 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 Ricos 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 November 30, 2020, 90.9% of the Puerto Rico municipal securities held by the Fund were insured. The Funds largest bond insurance provider, Assured
Guaranty Municipal Corp., insured certain Puerto Rico municipal securities totaling 5.5% of the Funds total investments. Those securities, whose principal and interest are covered by bond insurance providers, are shown in the Portfolio of
Investments.
(L) Indemnifications. Under
the Funds 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 Funds 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 3Fees 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 Funds 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
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 Funds 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 six-month period ended November 30, 2020, New York Life Investments earned fees from the Fund in the amount of
$2,744,390, and paid the Subadvisor in the amount of $1,372,756.
State Street 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 NAV of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Funds NAV, and assisting New York Life Investments in conducting various aspects of the Funds administrative operations. For providing these services to the
Fund, State Street 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 Funds transfer, dividend disbursing and shareholder
servicing agent pursuant to an agreement between the Fund and Computershare.
Note 4Federal Income Tax
As of November 30, 2020, the cost and unrealized appreciation (depreciation) of the Funds investment portfolio, including applicable derivative contracts and
other financial instruments, as determined on a federal income tax basis, were as follows:
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Federal Tax
Cost
|
|
|
Gross
Unrealized
Appreciation
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|
|
Gross
Unrealized
(Depreciation)
|
|
|
Net
Unrealized
Appreciation/
(Depreciation)
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|
Investments in Securities
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|
$
|
556,144,154
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|
|
$
|
70,224,129
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|
|
$
|
(62,844,306
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)
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|
$
|
7,379,823
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|
As of May 31, 2020, for federal income tax purposes, capital loss carryforwards of $13,729,635 were available as shown in the table
below, to
Notes to Financial Statements (Unaudited) (continued)
the extent provided by the regulations to offset future realized gains of the Fund through the years indicated. To the
extent that these capital loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to shareholders. No capital gain distributions shall be made until any capital loss
carryforwards have been fully utilized.
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Capital Loss
Available Through
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Short-Term
Capital Loss
Amounts (000s)
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Long-Term
Capital Loss
Amounts (000s)
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|
|
Unlimited
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|
$13,730
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|
$
|
The tax character of distributions paid during the year ended May 31, 2020 to Common shareholders (as reflected in the Statement of
Changes in Net Assets) and Preferred shareholders (included as interest expense for financial statement purposes (See Note 2(I)) were as follows:
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2020
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|
Distributions paid from:
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Ordinary
Income
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Exempt
Interest
Dividends
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Long-Term
Capital Gain
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|
|
|
|
Common shares
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$
|
214,915
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|
|
$
|
27,974,131
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|
|
$
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|
|
Preferred shares
|
|
|
31,930
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|
|
|
2,001,297
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|
|
|
|
|
Total
|
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$
|
246,845
|
|
|
$
|
29,975,428
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$
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Note 5Custodian
State Street is the
custodian of cash and securities held by the Fund. Custodial fees are charged to the Fund based on the Funds net assets and/or the market value of securities held by the Fund and the number of certain transactions incurred by the Fund.
Note 6Purchases and Sales of Securities (in 000s)
During
the six-month period ended November 30, 2020, purchases and sales of securities, other than short-term securities, were $84,210 and $101,056, respectively.
Note 7Capital Share Transactions
Transactions in capital shares for
the six-month period ended November 30, 2020 and the year ended May 31, 2020, were as follows:
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Common Shares:
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Shares
|
|
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Amount
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|
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|
|
For the six-month period ended November 30, 2020:
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|
|
|
|
|
|
|
Common shares issued to shareholders in reinvestment of dividends (a)
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50,614
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|
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$
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1,036,766
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|
|
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|
For the Year ended May 31, 2020:
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|
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|
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|
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Common shares issued to shareholders in reinvestment of dividends (a)
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31,427
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$
|
635,272
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|
|
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|
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|
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|
|
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|
Preferred Shares (b)/(c):
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Shares
|
|
|
Amount
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|
|
|
|
For the period June 26, 2012 through May 31, 2013:
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|
|
|
|
|
|
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Series B Shares Issued
|
|
|
350
|
|
|
$
|
35,000,000
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|
|
|
|
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(a)
|
See page 27 for information on the Funds dividend reinvestment plan.
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(b)
|
For the period June 1, 2013 through November 30, 2020, there were no new shares issued.
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(c)
|
Series A Shares were fully redeemed on June 15, 2020.
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Note 8Recent Accounting Pronouncement
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2020-04 (ASU 2020-04), which provides optional guidance to ease the potential accounting burden associated with transitioning away from LIBOR and other reference rates that are expected to be discontinued. ASU 2020-04 was effective immediately upon release of the update on March 12, 2020, and remains effective through December 31, 2022. At this time, the Manager is evaluating the implications of certain other
provisions of ASU 2020-04 related to new disclosure requirements and any impact on the financial statement disclosures has not yet been determined.
Note 9Other Matters
An outbreak of
COVID-19, first detected in December 2019, has developed into a global pandemic and has resulted in travel restrictions, closure of international borders, certain businesses and securities markets,
restrictions on securities trading activities, prolonged quarantines, supply chain disruptions, and lower consumer demand, as well as general concern and uncertainty. The continued impact of COVID-19 is
uncertain and could further adversely affect the global economy, national economies, individual issuers and capital markets in unforeseeable ways and result in a substantial and extended economic downturn. Developments that disrupt global economies
and financial markets, such as COVID-19, may magnify factors that affect the Funds performance.
Note
10Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the
six-month period ended November 30, 2020, events and transactions subsequent to November 30, 2020, 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
December 1, 2020, the Fund declared a dividend in the amount of $0.085 per Common share, payable on December 31, 2020, to shareholders of record on December 15, 2020.
On December 15, 2020, the Fund paid its semiannual distribution to its Series B FMTP Shares in the amount of 1,505.53, per preferred share.
On December 15, 2020, the Fund fully redeemed its Series B FMTP Shares. The redemption price per share totaled $100,000 for a total redemption amount of $35,000,000.
On January 4, 2020, the Fund declared dividends to Common shareholders for the upcoming quarter as shown in the following schedule:
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|
|
|
|
|
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Month
|
|
Ex-Date
|
|
|
Record Date
|
|
|
Payable Date
|
|
|
Amount
|
|
January
|
|
|
1/14/21
|
|
|
|
1/15/21
|
|
|
|
1/29/21
|
|
|
$
|
0.085
|
|
February
|
|
|
2/12/21
|
|
|
|
2/16/21
|
|
|
|
2/26/21
|
|
|
$
|
0.085
|
|
|
|
|
|
|
March
|
|
|
3/12/21
|
|
|
|
3/15/21
|
|
|
|
3/31/21
|
|
|
$
|
0.085
|
|
|
|
|
26
|
|
MainStay MacKay DefinedTerm Municipal Opportunities Fund
|
Dividend Reinvestment Plan (Unaudited)
Pursuant to the Funds 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 participants 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 shareholders 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 Administrators fees for the handling of the reinvestment of dividends and distributions will be paid by the Fund. However, each participant will pay a per share fee incurred in connection with Open-Market
Purchases. The reinvestment of Dividends will not relieve participants of any Federal, state or local income tax that may be payable (or required to be withheld) on such dividends. See U.S. Federal Income Tax Matters. Participants that
request a sale of shares through the Plan Administrator are subject to a $2.50 sales fee and a $.15 per share sold fee. All per share fees include any brokerage commission the Plan Administrator is required to pay.
The Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants with regard to purchases in the Plan; however, the Fund
reserves the right to amend the Plan to include a service charge payable by the participants.
All correspondence or questions concerning the Plan should be directed
to the Plan Administrator, Computershare Trust Company, N.A., by telephone (855) 456-9683, through the internet at www.computershare.com/investor or in writing to P.O. Box 505000, Louisville, Kentucky 40233.
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|
27
|
|
MainStay MacKay DefinedTerm Municipal Opportunities Fund
|