UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 80 [X]
AND
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 82 [X]
51 MADISON AVENUE, NEW YORK, NEW YORK 10010
REGISTRANT'S TELEPHONE NUMBER: (212) 576-7000
Marguerite E. H. Morrison, Esq. Copy To: Sander M. Bieber, Esq.
The MainStay Funds Dechert LLP
51 Madison Avenue 1775 I St, NW
New York, New York 10010 Washington, D.C. 20006
(NAME AND ADDRESS OF AGENT FOR SERVICE)
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It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on April 28, 2006, pursuant to paragraph (b)(1) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on ________, pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on ________, pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[X] This post-effective amendment designates a new effective date for a previously filed post-effective amendment.
Explanatory Statement
This Post-Effective Amendment No. 80 to the Registration Statement of The MainStay Funds (the "Registrant"), is being filed to: (1) delay the effectiveness of Post-Effective Amendment No. 77, which was filed pursuant to Rule 485(a)(1) under the Securities Act of 1933, as amended, on February 7, 2006; (2) make certain other non-material changes to the Prospectus and Statement of Additional Information included in Parts A and B, respectively, of Post-Effective Amendment No. 77 pursuant to Rule 485(b)(1)(v); and (3) file certain exhibits. Since the Statement of Additional Information included in Part B has been amended so that it incorporates all series of the Registrant by combining the Statement of Additional Information contained in Part B of Post-Effective Amendment No. 77 with the Statement of Additional Information contained in Part B of Post-Effective Amendment No. 78, Part A of Post-Effective Amendment No. 78 also is incorporated by reference in its entirety. A Part C (Other Information) is included in this filing. As stated on the cover page to this filing, this Post-Effective Amendment No. 80 is intended to become effective on April 28, 2005.
(MAINSTAY LOGO)
EQUITY FUNDS
MainStay Large Cap Growth Fund
MainStay MAP Fund
MainStay Mid Cap Growth Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MAINSTAY(R) FUNDS
CLASS R3 SHARES
Prospectus
April 28, 2006
Neither the Securities and Exchange
Commission nor any state securities
commission has approved or
disapproved of these securities or
passed upon the accuracy or adequacy
of this prospectus. Any
representation to the contrary is a
criminal offense.
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WHAT'S INSIDE?
3 Investment Objectives, Principal Investment Strategies and
Principal Risks:
An Overview
EQUITY FUNDS
6 MainStay Large Cap Growth Fund
10 MainStay MAP Fund
14 MainStay Mid Cap Growth Fund
INTERNATIONAL FUNDS
18 MainStay International Equity Fund
22 More About Investment Strategies and Risks
26 Shareholder Guide
41 Know With Whom You're Investing
45 Financial Highlights for the Funds
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INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS: AN OVERVIEW
This Prospectus discusses the Class R3 shares of the MainStay International Equity Fund, MainStay Large Cap Growth Fund, MainStay MAP Fund, and MainStay Mid Cap Growth Fund, series of The MainStay Funds, a Massachusetts business trust (the "Trust") (the series of the Trust are collectively referred to as the "Funds") that invest for varying combinations of income and capital appreciation. Each Fund is managed by New York Life Investment Management LLC ("NYLIM" or "Manager"). NYLIM has retained its affiliate, MacKay Shields LLC ("MacKay Shields"), as the Subadvisor that is responsible for the day-to-day portfolio management of two of the Funds. NYLIM has also retained Markston International LLC ("Markston International"), Jennison Associates LLC ("Jennison") and Winslow Capital Management, Inc. ("Winslow") as the Subadvisors that are responsible for the day-to-day portfolio management of the remaining Funds.
The Funds pursue somewhat different strategies to achieve their investment objectives. Under normal market conditions, the Funds invest primarily in equity securities. The MainStay International Equity Fund invests primarily in non-U.S. securities. In times of unusual or adverse conditions each Fund may invest for temporary or defensive purposes outside the scope of its principal investment focus.
EQUITY SECURITIES
Publicly held corporations may raise needed cash by issuing or selling equity securities to investors. When you buy the equity securities of a corporation you become a part owner of the issuing corporation. Equity securities may be bought on stock exchanges, such as the New York Stock Exchange and the American Stock Exchange, foreign stock exchanges, or in the over-the-counter market, such as The Nasdaq Stock Market, Inc. There are many different types of equity securities, including:
- common and preferred stocks;
- convertible securities;
- American Depositary Receipts (ADRs); and
- real estate investment trusts (REITs).
Investors buy equity securities to make money through dividend payments and/or selling them for more than they paid.
The risks involved with investing in common stocks and other equity securities include:
- Changing economic conditions: Equity securities may fluctuate as a result of general economic conditions, including changes in interest rates.
- Industry and company conditions: Certain industries may come in and out of favor with investors. In addition, changing technology and competition may make equity securities volatile.
- Security selection: A manager may not be able to consistently select equity securities that appreciate in value, or to anticipate changes which can adversely affect the value of a Fund's holdings. Investments in smaller and mid-size companies may be more volatile than investments in larger companies.
DEBT SECURITIES
Investors buy debt securities primarily to profit through interest payments. Both governments and companies raise cash by issuing or selling debt securities to investors. Debt securities may be bought directly from those issuers or in the secondary trading markets. There are many different types of debt securities, including:
- bonds;
- notes; and
- debentures.
Some debt securities pay interest at fixed rates of return, while others pay interest at variable rates. Interest may be paid at different intervals. Some debt securities do not make regular interest payments, but instead are initially sold at a discount to the principal amount that is to be paid at maturity.
The risks involved with investing in debt securities include:
- Credit risk: The purchaser of a debt security lends 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.
- Maturity risk: A debt security with a longer maturity may fluctuate more in value than a debt security with a shorter maturity. Therefore, the net asset value of a Fund that holds debt securities with a longer average maturity may fluctuate in value more than the net asset value of a Fund that holds debt securities with a shorter maturity.
- Market risk: Like other securities, debt securities are subject to the forces of supply and demand. Low demand may negatively impact the price of a debt security.
- Interest rate risk: The value of debt securities 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.
NOT INSURED--YOU COULD LOSE MONEY
Before considering an investment in a Fund, you should understand that you could lose money.
An investment in a Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency.
NAV WILL FLUCTUATE
The value of Fund shares, also known as the net asset value (NAV), fluctuates based on the value of the Fund's holdings.
Investments in common stocks and other equity securities are particularly subject to the risks of changing economic, stock market, industry and company conditions, currency exchange rates and the risks inherent in management's ability to anticipate such changes that can adversely affect the value of a Fund's holdings.
Factors that can affect debt security values are changes in the average maturity of a Fund's investments, interest rate fluctuations, and how the market views the creditworthiness of an issuer, as well as the risks described above for equity securities.
MORE INFORMATION
The next section of this Prospectus gives you more detailed information about the investment objectives, policies, strategies, risks, performance, and expenses of the Funds. Please review it carefully.
MAINSTAY LARGE CAP
GROWTH FUND
The MainStay Large Cap Growth Fund's (the "Fund") investment objective is to seek long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests in companies that have the potential for above-average future earnings growth. Under normal circumstances, the Fund invests at least 80% of its assets (net assets plus any borrowings) in large capitalization companies. These are companies having a market capitalization in excess of $4.0 billion at the time of purchase and generally are improving their financial returns. The Fund's investment strategy may result in high portfolio turnover.
INVESTMENT PROCESS
The Fund will invest in those companies that Winslow Capital Management, Inc., the Fund's Subadvisor, believes will provide an opportunity for achieving superior portfolio returns (i.e., returns in excess of the returns of the average stock mutual fund) over the long term.
When purchasing stocks for the Fund, the Subadvisor looks for companies typically having some or all of the following attributes:
- above-average future growth of revenue and earnings,
- low financial leverage with strong cash flow,
- high return on invested capital/low debt-to-total capital ratio,
- management focused on shareholder value, and
- dominant market leader.
The Subadvisor takes a "bottom-up" investment approach when selecting investments for the Fund. This means it bases investment decisions on company specific factors, not general economic conditions. The Subadvisor also employs a sell discipline pursuant to which it will typically:
- trim back a position which exceeds 5% of the Fund,
- sell an entire position when fundamentals are deteriorating,
- reduce or sell an entire position when it finds a better investment, and/or
- trim back a position after a strong relative price increase.
PRINCIPAL RISKS
Investment in common stocks and other equity securities is particularly subject to the risk of changing economic, stock market, industry and company conditions and the risks inherent in management's ability to anticipate those changes that can adversely affect the value of the Fund's holdings.
The principal risk of growth stocks is that investors expect growth companies to increase their earnings at a certain rate that is generally higher than the rate expected for non-growth companies. If these expectations are not met, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can cushion stock prices in market downturns.
Due to its investment process, the Fund may experience a portfolio turnover rate of over 100%. Funds with high turnover rates (over 100%) often have higher
transaction costs (which are paid by the Fund) and may generate short-term capital gains (on which you will pay taxes, even if you do not sell any shares by year-end).
Typically, the Subadvisor intends to invest substantially all of the Fund's investable assets in domestic securities, however, the Fund is permitted to invest up to 20% of its net assets in foreign securities (those issued by companies organized outside the U.S. and traded in markets outside the U.S.). Since the Fund may invest in foreign securities, it may be subject to various risks of loss that are different from the risks of investing in securities of U.S.-based companies. Please see "More About Investment Strategies and Risks" for a more detailed discussion of foreign securities risks.
LARGE CAP GROWTH FUND
[LARGE CAP GROWTH FUND BAR CHART]
96 16.85 -- ----- 97 22.40 98 29.23 99 19.07 00 -10.24 01 -14.98 02 -28.87 03 32.84 04 13.93 05 9.52 |
ANNUAL RETURNS, CLASS A SHARES(1)
(by calendar year 1996-2005)
PAST PERFORMANCE
The bar chart (left) and tables (below) indicate some of the risks of investing in the Fund. The bar chart shows you how the Fund's performance has varied over the last ten years. Sales loads are not reflected in the bar chart or in the best and worst quarterly returns. If they were, returns would be less than those shown. The second table below shows how the Fund's average annual total returns (before and after taxes) for one year, five year and ten year periods of the Fund's Class A shares compare to those of two broad-based securities market indices. Average Annual Total Returns reflect actual sales loads, service and/or distribution fees. Performance figures for Class A shares include the historical performance of the FMI Winslow Growth Fund (a predecessor to the Fund) from January 1, 1996 through March 31, 2005 adjusted to reflect the current maximum sales charge applicable to the Class A shares. As with all mutual funds, past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.
As of March 31, 2006, the Class A shares of the Fund had a year to date return of 4.68%.
BEST AND WORST QUARTERLY RETURNS, CLASS A SHARES
(1996-2005)
RETURN QUARTER/YEAR
Highest return/best quarter 29.76% 4/98
Lowest return/worst quarter -20.12% 3/01
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AVERAGE ANNUAL TOTAL RETURNS(1)
(for the periods ending December 31, 2005)
1 YEAR 5 YEARS 10 YEARS
Large Cap Growth Fund(2)
Return Before Taxes
Class A 3.50% -1.08% 6.47%
Return After Taxes on Distributions(3)
Class A 3.49% -1.08% 2.89%
Return After Taxes on Distributions and Sale of Fund
Shares(3)
Class A 2.28% -0.91% 3.99%
Russell 1000(R) Growth Index(4) 5.26% -3.58% 6.73%
S&P 500(R) Index(5) 4.91% 0.54% 9.07%
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1 As of the date of this prospectus, the Class R3 shares had not commenced operations. The performance shown is that of the Class A shares of the Fund, an existing share class, and has not been adjusted to reflect the differences in fees and other expenses between the classes. Class A shares are not offered in this prospectus. Class R3 and Class A shares would have substantially similar performance to Class A shares because the shares are invested in the same portfolio of securities, and the performance would differ only to extent that the classes have different expenses. Because Class R3 shares are subject to higher fees and expenses than Class A shares, their performance would have been lower than the performance of Class A shares.
2 From July 1, 1995 until March 31, 2005, the Fund operated as the FMI Winslow Growth Fund ("Winslow Fund") and was advised by Fiduciary Management, Inc. (Resource Capital Advisers, Inc. prior to October 15, 2001) and sub-advised by the Subadvisor. On March 31, 2005, the Winslow Fund was reorganized with and into the Class A shares of the Fund. The performance shown is that of the Class A shares of the Fund and reflects the historical performance of the Winslow Fund through March 31, 2005, adjusted for the current maximum sales charge of the Class A shares but has not been adjusted to reflect the fees of the Class A shares; had it been, the performance shown would have been lower.
3 After-tax returns are calculated using the historical highest individual federal marginal tax rates and do not reflect the impact of state and local taxes. In some cases, the return after taxes may exceed the return before taxes due to an assumed benefit from any losses on a sale of Fund shares at the end of the measurement period. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. After-tax returns shown are for Class A shares of the Fund. After-tax returns for the Class R3 shares may vary.
4 The Russell 1000(R) Growth Index is an unmanaged index that measures the performance of those Russell 1000(R) companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000(R) Index measures the performance of the 1,000 largest companies in the Russell 3000(R) Index, which represents approximately 92% of the total market capitalization of the Russell 3000(R) Index. The Russell 3000(R) Index is an unmanaged index that measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. Total returns assume reinvestment of all dividends and capital gains. You cannot invest directly in an index.
5 The S&P 500(R) Index is an unmanaged index widely regarded as the standard for measuring large-cap U.S. stock market performance. Total returns assume reinvestment of all dividends and capital gains. You cannot invest directly in an index.
LARGE CAP GROWTH FUND
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
SHAREHOLDER FEES CLASS (FEES PAID DIRECTLY FROM YOUR INVESTMENT) R3 Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None Maximum Deferred Sales Charge (Load) (as a percentage of the lesser of the original purchase price or redemption proceeds) None Redemption Fee (as a percentage of redemption proceeds) None Maximum Account Fee None ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fee(1) 0.79% Distribution and/or Service (12b-1) Fees(2) 0.50% Other Expenses(3) 0.28% Total Annual Fund Operating Expenses 1.57% Less Waivers/Reimbursements(4) -0.37% Net Annual Fund Operating Expenses(4) 1.20% |
1 The management fee for the Fund is an annual percentage of the Fund's average daily net assets as follows: 0.800% up to $250 million; 0.750% in excess of $250 million up to $500 million; 0.725% in excess of $500 million up to $750 million; 0.700% in excess of $750 million up to $2 billion; 0.650% in excess of $2 billion up to $3 billion; and 0.600% in excess of $3 billion. NYLIM has voluntarily agreed to waive a portion of its management fee so that the management fee does not exceed 0.750% on assets up to $250 million. This waiver may be discontinued at any time without notice.
2 Because the 12b-1 fee is an on-going fee charged against the assets of the Fund, long-term shareholders may indirectly pay an amount that is more than the economic equivalent of paying other types of sales charges.
3 "Other Expenses" shown for Class R3 shares are projected for the current year; actual expenses may vary. In addition, other expenses for Class R3 shares include shareholder service fees of 0.10%.
4 NYLIM has entered into a written expense limitation agreement under which it agreed to waive a portion of the Fund's management fee or reimburse the Fund so that the Fund's total ordinary operating expenses (total annual fund operating expenses excluding taxes, interest, litigation, extraordinary expenses, and brokerage and other transaction expenses relating to the purchase or sale of portfolio investments) do not exceed 1.40% of average daily net assets for Class A shares. NYLIM will apply an equivalent waiver or reimbursement, in an equal amount of basis points, to the Class R3 shares. Class A shares are not offered in this prospectus.
This expense limitation may be modified or terminated only with the approval of the Board of Trustees of the Fund. NYLIM may recoup the amount of any management fee waivers or expense reimbursements from the Fund pursuant to this agreement if such action does not cause the Fund to exceed existing expense limitations and the recoupment is made within three years after the year in which NYLIM incurred the expense.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and reflects what you would pay if you redeemed all your shares at the end of each time period shown or continued to hold them. The Example also assumes that your investment has a 5% return each year, that the Fund's operating expenses remain the same and that all dividends and distributions are reinvested. There is no sales charge (load) on reinvested dividends. Your actual costs may be higher or lower than those shown.
EXPENSES AFTER CLASS R3 1 Year $ 122 3 Years $ 381 5 Years $ 660 10 Years $1,455 |
MAINSTAY MAP FUND
The MAP Fund's investment objective is to seek long-term appreciation of capital. The Fund also seeks to earn income, but this is a secondary objective.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in equity-type securities, including common stocks, as well as securities convertible into, or exchangeable for, common stocks. The Fund primarily invests in domestic securities.
The Fund employs two Subadvisors, Jennison and Markston, with complementary investment processes and styles, each of whom is responsible for managing a portion of the assets, as designated by NYLIM from time to time, under the general supervision of NYLIM.
INVESTMENT PROCESS
In pursuing the Fund's investment objective, each Subadvisor seeks to identify securities that are out of favor but where a catalyst exists for turning such securities into investments that the Subadvisor believes will have improved performance. The Subadvisors' investment processes and styles are as follows:
JENNISON: Jennison seeks to identify attractively valued companies with current or emerging earnings growth that are not fully recognized or appreciated by the market. There are two types of companies which may exhibit the characteristics Jennison is seeking. The first type is a company that is out of favor with investors but which Jennison expects will experience a dynamic earnings cycle over the next 12 to 18 months due to corporate restructuring, new product development, an industry cycle turn, increased management focus on shareholder value or improving balance sheet and cash flow. The second type is a company currently delivering good growth characteristics but which Jennison believes is being mispriced by the market as the result of a short-term earnings glitch relative to "street" expectations or market uncertainty regarding sustainability of earnings growth.
Jennison may sell investments when price objectives are reached, the risk/ reward outlook changes, or a company's fundamentals change. Certain securities may be acquired from time to time in an effort to earn short-term profits.
MARKSTON: Factors examined by Markston to seek value opportunities include statistical indications, such as low multiples of book value or cash flow, and more fundamental factors, such as industry consolidations. Markston also places emphasis on the presence of a catalyst that may unlock a company's potential, such as management changes, restructurings and sales of underperforming assets. In selecting securities for investment, Markston also assesses the judgment, quality and integrity of company management and the track record of product development.
Although, under normal circumstances, Markston intends for the Fund to hold its securities for a relatively long period of time, Markston may sell investments when it believes the opportunity for current profits or the risk of market decline outweighs the prospect of capital gains. Certain securities may be acquired from time to time in an effort to earn short-term profits.
MAP FUND
PRINCIPAL RISKS
Investment in common stocks and other equity securities is particularly subject to the risk of changing economic, stock market, industry and company conditions and the risks inherent in management's ability to anticipate such changes that can adversely affect the value of the Fund's holdings. The total return for a convertible security will be partly dependent upon the performance of the underlying common stock into which it can be converted.
Convertible securities tend to be subordinate to other debt securities issued by the same company. Also, issuers of convertible securities are often not as strong financially as those issuing securities with higher credit ratings. These companies are more likely to encounter financial difficulties and are more vulnerable to changes in the economy, such as a recession or a sustained period of rising interest rates, that could affect their ability to make interest and principal payments. If an issuer stops making interest and/or principal payments, these securities may be worthless and the Fund could lose its entire investment.
The principal risk of investing in stocks (including value stocks) is that they may never reach what the Subadvisors believe is their full value or that they may even go down in value. In addition, different types of stocks tend to shift in and out of favor depending on market and economic conditions, and therefore the Fund's performance may be lower or higher than that of funds that invest in other types of equity securities (such as those emphasizing growth stocks).
MAP FUND
[MAP FUND BAR CHART]
96 23.82 97 27.99 98 24.23 99 12.18 00 16.88 01 2.36 02 -19.81 03 38.72 04 16.29 05 8.93 |
ANNUAL RETURNS, CLASS I SHARES(1)
(by calendar year 1996-2005)
PAST PERFORMANCE
The bar chart (left) and tables (below) indicate some of the risks of investing in the Fund. The bar chart shows you how the Fund's performance has varied over the last ten years. The table shows how the Fund's average annual total returns (before and after taxes) for one year, five year and ten year periods of the Fund's Class I shares compare to those of two broad-based securities market indices. Performance figures for Class I shares, first offered on June 9, 1999, include the historical performance of the MAP-Equity Fund shares (a predecessor to the Fund) from January 1, 1996 through June 8, 1999. As with all mutual funds, past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.
As of November 25, 2002, Jennison and Markston each subadvise an allocated portion of the Fund's assets under the supervision of and as designated by NYLIM from time to time. Prior to that date, Markston was solely responsible for subadvising the Fund's portfolio.
As of March 31, 2006, the Class I shares of the Fund had a year to date return of 6.82%.
BEST AND WORST QUARTERLY RETURNS, CLASS I SHARES
(1996-2005)
RETURN QUARTER/YEAR
Highest return/best quarter 20.27% 2/03
Lowest return/worst quarter -15.77% 3/02
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AVERAGE ANNUAL TOTAL RETURNS(1)
(for the periods ended December 31, 2005)
1 YEAR 5 YEARS 10 YEARS
MAP Fund
Return Before Taxes
Class I 8.93% 7.60% 13.55%
Return After Taxes on Distributions(2)
Class I 7.65% 7.11% 11.51%
Return After Taxes on Distributions and Sale of Fund
Shares(2)
Class I 6.78% 6.44% 10.89%
Russell Midcap(R) Index(3) (reflects no deduction for fees,
expenses, or taxes) 12.65% 8.45% 12.49%
S&P 500(R) Index(4) (reflects no deduction for fees,
expenses, or taxes) 4.91% 0.54% 9.07%
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1 As of the date of this prospectus, the Class R3 shares had not commenced operations. The performance shown is that of the Class I shares of the Fund, an existing share class, and has not been adjusted to reflect the differences in fees and other expenses between the classes. Class I shares of the Fund are not offered in this prospectus. Class R3 and Class I shares would have substantially similar performance because the shares are invested in the same portfolio of securities, and the performance would differ only to the extent that the classes have different expenses. Because Class R3 shares are subject to higher fees and expenses than Class I shares, their performance would have been lower than the performance of Class I shares.
2 After-tax returns are calculated using the historical highest individual federal marginal tax rates and do not reflect the impact of state and local taxes. In some cases, the return after taxes may exceed the return before taxes due to an assumed benefit from any losses on a sale of Fund shares at the end of the measurement period. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. After-tax returns shown are for Class I shares of the Fund. After-tax returns for Class R3 shares may vary.
3 The Russell Midcap(R) Index is an unmanaged index that measures the performance of the 800 smallest companies in the Russell 1000(R) Index, which represent approximately 25% of the total market capitalization of the Russell 1000(R) Index. The Russell 1000(R) Index measures the performance of the 1,000 largest companies in the Russell 3000(R) Index, which represents approximately 92% of the total market capitalization of the Russell 3000(R) Index. The Russell 3000(R) Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. Total returns assume reinvestment of all dividends and capital gains. You cannot invest directly in an index.
4 The S&P 500(R) Index is an unmanaged index widely regarded as the standard for measuring large-cap U.S. stock market performance. Total returns assume reinvestment of all dividends and capital gains. You cannot invest directly in an index.
MAP FUND
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
SHAREHOLDER FEES (fees paid directly from your investment) CLASS R3 Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None Maximum Deferred Sales Charge (Load) (as a percentage of the lesser of the original offering price or redemption proceeds) None Redemption Fee (as a percentage of redemption proceeds) None Maximum Account Fee None ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees(1) 0.74% Distribution and/or Service (12b-1) Fees(2) 0.50% Other Expenses(3) 0.33% Total Annual Fund Operating Expenses 1.57% Less Waivers/Reimbursements(4) -0.02% Net Annual Fund Operating Expenses(4) 1.55% |
1 The management fee for the Fund is an annual percentage of the Fund's average daily net assets as follows: 0.75% up to $1.0 billion and 0.70% in excess of $1.0 billion.
2 Because the 12b-1 fee is an ongoing fee charged against the assets of the Fund, long-term shareholders may indirectly pay an amount that is more than the economic equivalent of paying other types of sales charges.
3 "Other expenses" shown for R3 shares are projected for the current year; actual expenses may vary. In addition, other expenses for Class R3 shares include shareholder service fees of 0.10%.
4 NYLIM has entered into a written expense limitation agreement under which it has agreed to waive a portion of the Fund's management fee or reimburse the Fund so that the Fund's total ordinary operating expenses (total annual fund operating expenses excluding taxes, interest, litigation, extraordinary expenses, and brokerage and other transaction expenses relating to the purchase or sale of portfolio investments) do not exceed 1.35% of average daily net assets for Class A shares. NYLIM will apply an equivalent waiver or reimbursement, in an equal amount of basis points, to the Class R3 shares. Class A shares are not offered in this prospectus.
This expense limitation may be modified or terminated only with the approval of the Board of Trustees of the Fund. NYLIM may recoup the amount of any management fee waivers or expense reimbursements from the Fund pursuant to the agreement if such action does not cause the Fund to exceed existing expense limitations and the recoupment is made within three years after the year in which NYLIM incurred the expense.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and reflects what you would pay if you redeemed all your shares at the end of each time period shown or if you continued to hold them. The Example also assumes that your investment has a 5% return each year, that the Fund's operating expenses remain the same and that all dividends and distributions are reinvested. There is no sales charge (load) on reinvested dividends. Your actual costs may be higher or lower than those shown.
CLASS
EXPENSES AFTER R3
1 Year $ 158
3 Years $ 490
5 Years $ 845
10 Years $1,845
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The RUSSELL MIDCAP(R) GROWTH INDEX measures the performance of those Russell Midcap(R) companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000(R) Growth Index. The market capitalizations of companies in this Index fluctuate; as of the date of this prospectus, they range from $968 million to $22.5 billion.
MAINSTAY MID CAP
GROWTH FUND
The Mid Cap Growth Fund's investment objective is to seek long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its assets in companies with market capitalizations that, at the time of investment, are similar to the market capitalization of companies in the RUSSELL MIDCAP(R) GROWTH INDEX from time to time, and invests primarily in U.S. common stocks and securities related to U.S. common stocks. The Fund seeks to participate primarily in the expanding markets of technology, healthcare, communications and other dynamic high-growth industries. Securities issued by many companies in these markets are frequently considered "growth stocks." The common stocks of companies with a history of increasing earnings at a rate that is generally higher than that of average companies are also considered "growth stocks." MacKay Shields, the Fund's Subadvisor, will select investments based on the economic environment and the attractiveness of particular markets, as well as the financial condition and competitiveness of individual companies.
INVESTMENT PROCESS
The Fund maintains a flexible approach towards investing in various types of companies as well as multiple types of securities, including common stocks, preferred stocks, warrants and other equity securities, depending upon the economic environment and the relative attractiveness of the various securities markets. It may invest in any securities that, in the judgment of the Subadvisor, are ready for a rise in price, or are expected to undergo an acceleration in growth of earnings. The latter could occur because of special factors, such as:
- new management,
- new products,
- changes in consumer demand, and
- changes in the economy.
The Subadvisor may sell a stock if the stock's earnings growth rate decelerates, if its valuation is deemed too high in relation to its growth rate or to its peer group or if, in general, the Subadvisor does not believe that the security will help the Fund meet its investment objective.
PRINCIPAL RISKS
Investment in common stocks and other equity securities is particularly subject to the risks of changing economic, stock market, industry and company conditions and the risk inherent in management's ability to anticipate those changes that can adversely affect the value of the Fund's holdings. Mid-cap stocks are generally less established and may be more volatile and less liquid than stocks of larger companies. Because these businesses frequently rely on narrower product lines and niche markets, they can suffer isolated business setbacks. Some of the securities in the Fund may carry above-average risk compared to common stocks that comprise indices such as the Dow Jones Industrial Average and the S&P 500(R) Index.
MID CAP GROWTH FUND
PORTFOLIO TURNOVER measures the amount of trading a fund does during the year.
The principal risk of growth stocks is that investors expect growth companies to increase their earnings at a rate that is generally higher than the rate expected for non-growth companies. If these expectations are not met, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can cushion stock prices in market downturns. In addition, the Fund normally invests in companies in highly competitive industries and sectors. Competition and advances in technology make these companies highly volatile investments.
Due to its trading strategies, the Fund may experience a PORTFOLIO TURNOVER rate of over 100%. Funds with high turnover rates (over 100%) often have higher transaction costs (which are paid by the Fund) and may generate short-term capital gains (on which you will pay taxes, even if you do not sell any shares by year-end).
MID CAP GROWTH FUND
[Mid Cap Growth Fund Bar Chart]
01 -18.20 02 -29.46 03 45.06 04 21.03 05 14.12 |
ANNUAL RETURNS, CLASS B SHARES(1)
(by calendar year 2001-2005)
PAST PERFORMANCE
The bar chart (left) and tables (below) indicate some of the risks of investing in the Fund. The bar chart shows you how the Fund's performance has varied over the life of the Fund. Sales loads are not reflected in the bar chart or in the best and worst quarterly returns. If they were, returns would be less than those shown. The table shows how the Fund's average annual total returns (before and after taxes) for the one year and five year periods and for the life of the Fund's Class B shares compare to those of several broad-based securities market indices. Average Annual Total Returns reflect actual sales loads, service and/or distribution fees. As with all mutual funds, past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.
As of March 31, 2006, the Class B shares of the Fund had a year to date return of 8.48%.
BEST AND WORST QUARTERLY RETURNS, CLASS B SHARES
(2001-2005)
RETURN QUARTER/YEAR
Highest return/best quarter 24.51% 2/03
Lowest return/worst quarter -20.67% 3/01
|
AVERAGE ANNUAL TOTAL RETURNS(1)
(for the periods ended December 31, 2005)
5 LIFE OF
1 YEAR YEARS FUND(2)
Mid Cap Growth Fund
Return Before Taxes
Class B 9.12% 2.58% 2.58%
Return After Taxes on Distributions(3)
Class B 9.12% 2.58% 2.58%
Return After Taxes on Distributions and Sale of Fund
Shares(3)
Class B 5.93% 2.21% 2.21%
Russell MidCap(R) Growth Index(4) (reflects no deductions
for fees, expenses, or taxes) 12.10% 1.38% 1.38%
Russell 2500(R) Growth Index(5) (reflects no deduction for
fees, expenses, or taxes) 8.17% 2.78% 2.78%
S&P MidCap 400(R) Index(6) (reflects no deduction for fees,
expenses, or taxes) 12.56% 8.60% 8.60%
|
1 As of the date of this prospectus, the Class R3 shares had not commenced
operations. The performance shown is that of the Class B shares of the Fund, an
existing share class, and has not been adjusted to reflect the differences in
fees and other expenses between the classes. Class B shares of the Fund are not
offered in this prospectus. Class R3 and Class B shares would have substantially
similar performance because the shares are invested in the same portfolio of
securities, and the performance would differ only to the extent that the classes
have different expenses. Because Class R3 shares are subject to lower fees and
expenses than Class B shares, their performance would have been higher than the
performance of Class B shares.
2 The Fund commenced investment operations on January 2, 2001.
3 After-tax returns are calculated using the historical highest individual
federal marginal tax rates and do not reflect the impact of state and local
taxes. In some cases, the return after taxes may exceed the return before taxes
due to an assumed benefit from any losses on a sale of Fund shares at the end of
the measurement period. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns are not
relevant to investors who hold their Fund shares through tax-deferred
arrangements such as 401(k) plans or individual retirement accounts. After-tax
returns shown are for Class B shares of the Fund. After-tax returns for Class R3
shares may vary.
4 The Russell Midcap(R) Growth Index measures the performance of those Russell
Midcap(R) companies with higher price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000(R) Growth Index.
Total returns assume reinvestment of all dividends and capital gains. You cannot
invest directly in an index.
5 The Russell 2500(R) Growth Index measures the performance of those Russell
2500(R) companies with higher price-to-book ratios and higher forecasted growth
values. The Russell 2500(R) Index measures the performance of the 2,500 smallest
companies in the Russell 3000(R) Index, which represents approximately 17% of
the total market capitalization of the Russell 3000(R) Index. The Russell
3000(R) Index measures the performance of the 3,000 largest U.S. companies based
on total market capitalization, which represents approximately 98% of the
investable U.S. equity market. Total returns assume reinvestment of all
dividends and capital gains. You cannot invest directly in an index.
6 The S&P MidCap 400(R) Index is an unmanaged, market-value weighted index that
consists of 400 domestic stocks chosen for market-size, liquidity, and industry
group representation, and is a benchmark of mid-capitalization stock price
movement. Total returns assume reinvestment of all dividends and capital gains.
You cannot invest directly in an index.
MID CAP GROWTH FUND
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
CLASS
R3
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of the lesser of the original offering
price or redemption proceeds) None
Redemption Fee
(as a percentage of redemption proceeds) None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees(1) 0.75%
Distribution and/or Service (12b-1) Fees(2) 0.50%
Other Expenses(3) 0.58%
Total Annual Fund Operating Expenses 1.83%
Less Waivers/Reimbursements(4) -0.13%
Net Annual Fund Operating Expenses(4) 1.70%
|
1 The management fee for the Fund is an annual percentage of the Fund's average daily net assets as follows: 0.75% up to $500 million and 0.70% in excess of $500 million.
2 Because the 12b-1 fee is an ongoing fee charged against the assets of the Fund, long-term shareholders may indirectly pay an amount that is more than the economic equivalent of paying other types of sales charges.
3 "Other expenses" shown for Class R3 shares are projected for the current year; actual expenses may vary. In addition, other expenses for Class R3 shares include shareholder service fees of 0.10%.
4 NYLIM has entered into a written expense limitation agreement under which it has agreed to waive a portion of the Fund's management fee or reimburse the Fund so that the Fund's total ordinary operating expenses (total annual fund operating expenses excluding taxes, interest, litigation, extraordinary expenses, and brokerage and other transaction expenses relating to the purchase or sale of portfolio investments) do not exceed 1.50% of average daily net assets for Class A shares. NYLIM will apply an equivalent waiver or reimbursement, in an equal amount of basis points, to the Class R3 shares. Class A shares are not offered in this prospectus.
This expense limitation may be modified or terminated only with the approval of the Board of Trustees of the Fund. NYLIM may recoup the amount of any management fee waivers or expense reimbursements from the Fund pursuant to the agreement if such action does not cause the Fund to exceed existing expense limitations and the recoupment is made within three years after the year in which NYLIM incurred the expense.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and reflects what you would pay if you redeemed all your shares at the end of each time period shown or if you continued to hold them. The Example also assumes that your investment has a 5% return each year, that the Fund's operating expenses remain the same and that all dividends and distributions are reinvested. There is no sales charge (load) on reinvested dividends. Your actual costs may be higher or lower than those shown.
EXPENSES AFTER CLASS R3 1 Year $ 173 3 Years $ 536 5 Years $ 923 10 Years $2,009 |
A BOTTOM UP approach selects stocks based on their individual strengths, rather than focusing on the underlying sectors/industries of those stocks or on general economic trends.
MAINSTAY INTERNATIONAL
EQUITY FUND
The International Equity Fund's investment objective is to provide long-term growth of capital commensurate with an acceptable level of risk by investing in a portfolio consisting primarily of non-U.S. equity securities. Current income is a secondary objective.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to generate superior risk-adjusted returns by investing in quality companies that are currently undervalued. The Fund normally invests at least 80% of its assets in equity securities of issuers, wherever organized, who do business mainly outside the United States. Investments will be made in a variety of countries, with a minimum of five countries other than the United States. This includes countries with established economies as well as emerging market countries that MacKay Shields, the Fund's Subadvisor, believes present favorable opportunities.
The Fund's stock selection process favors well-established companies with stable earnings and below average debt. As a result, the Fund may not perform as well as its peers or benchmark during periods when the stock market favors the securities of businesses with low quality earnings, weak or high-risk business models or weak balance sheets.
INVESTMENT PROCESS
- The Subadvisor seeks to identify investment opportunities by pursuing a BOTTOM UP, stock picking investment discipline.
- Proprietary, quantitative and qualitative tools are used to identify attractive companies. Fundamental research is performed on identified companies to assess their business and investment prospects. In conducting the research, particular attention is paid to the generation and utilization of cash flows, the returns on invested capital, and the overall track record of management in creating shareholder value.
- Portfolios are constructed by combining securities with low correlation. Quantitative tools are used for risk control at the portfolio level.
- Country allocations in the portfolio are a result of the bottom up, stock selection process. To reduce risk, an attempt is made at the portfolio level to stay within a reasonable range of the key sector and regional constituents of the benchmark, unless the stock selection process strongly argues against it.
The Fund may buy and sell currency on a spot basis and enter into foreign currency forward contracts for hedging purposes. In addition, the Fund may buy or sell foreign currency options, securities and securities index options and enter into swap agreements and futures contracts and related options. These techniques may be used for any legally permissible purpose, including to increase the Fund's return.
The Subadvisor may sell a security if it no longer believes the security will contribute to meeting the investment objective of the Fund. In considering
INTERNATIONAL EQUITY FUND
PORTFOLIO TURNOVER measures the amount of trading a Fund does during the year.
whether to sell a security, the Subadvisor may evaluate, among other things, the condition of foreign economies and meaningful changes in the issuer's financial condition and competitiveness.
In unusual market conditions, the Fund may invest all or a portion of its assets in equity securities of U.S. issuers, investment grade notes and bonds, cash and cash equivalents.
PRINCIPAL RISKS
Investment in common stocks and other equity securities is particularly subject to the risk of changing economic, stock market, industry and company conditions and the risks inherent in management's ability to anticipate such changes that can adversely affect the value of the Fund's holdings.
Since the Fund principally invests in foreign securities, it will be subject to various risks of loss that are different from the risks of investing in securities of U.S.-based companies. These include losses due to:
- fluctuating currency values,
- less liquid trading markets,
- greater price volatility,
- political and economic instability,
- less publicly available information about issuers,
- changes in U.S. or foreign tax or currency laws, and
- changes in monetary policy.
The risks are likely to be greater in emerging market countries than in developed market countries.
The Fund's investments include derivatives such as options and forwards. The Fund may use derivatives to enhance return or reduce the risk of loss of (hedge) certain of its holdings. Regardless of the purpose, the Fund may lose money using derivatives. The use of derivatives may increase the volatility of the Fund's net asset value and may involve a small investment of cash relative to the magnitude of risk assumed.
Due to its trading strategies, the Fund may experience a PORTFOLIO TURNOVER rate of over 100%. Funds with high turnover rates (over 100%) often have higher transaction costs (which are paid by the Fund) and may generate short-term capital gains (on which you will pay taxes, even if you do not sell any shares by year-end).
INTERNATIONAL EQUITY FUND
[International Equity Fund Bar Chart]
96 9.05 -- ---- 97 3.78 98 19.34 99 26.60 00 -21.71 01 -16.34 02 -4.95 03 31.11 04 15.74 05 6.22 |
ANNUAL RETURNS, CLASS B SHARES(1)
(by calendar year 1996-2005)
PAST PERFORMANCE
The bar chart (left) and tables (below) indicate some of the risks of investing in the Fund. The bar chart shows you how the Fund's performance has varied over the last ten years. Sales loads are not reflected in the bar chart or in the best and worst quarterly returns. If they were, returns would be less than those shown. The table shows how the Fund's average annual total returns (before and after taxes) for one, five and ten year periods of the Fund's Class B shares compare to those of a broad-based securities market index. Average Annual Total Returns reflect actual sales loads, service and/or distribution fees. As with all mutual funds, past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.
As of March 31, 2006, the Class B shares of the Fund had a year to date return of 8.28%.
BEST AND WORST QUARTERLY RETURNS, CLASS B SHARES
(1996-2005)
RETURN QUARTER/YEAR
Highest return/best quarter 19.23% 4/98
Lowest return/worst quarter -14.02% 1/01
|
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 2005)
1 5 10
YEAR YEARS YEARS
International Equity Fund
Return Before Taxes
Class B 1.22% 4.76% 5.55%
Return After Taxes on Distributions(2)
Class B 0.59% 4.64% 4.81%
Return After Taxes on Distributions and Sale of Fund
Shares(2)
Class B 1.78% 4.15% 4.48%
Morgan Stanley Capital International EAFE(R) Index(3)
(reflects no deduction for fees, expenses, or taxes) 13.54% 4.55% 5.84%
|
1 As of the date of this prospectus, the Class R3 shares had not commenced operations. The performance shown is that of the Class B shares of the Fund, an existing share class, and has not been adjusted to reflect the differences in fees and other expenses between the classes. Class B shares of the Fund are not offered in this prospectus. Class R3 and Class B shares would have substantially similar performance because the shares are invested in the same portfolio of securities, and the performance would differ only to the extent that the classes have different expenses. Because Class R3 shares are subject to lower fees and expenses than Class B shares, their performance would have been higher than the performance of Class B shares.
2 After-tax returns are calculated using the historical highest individual federal marginal tax rates and do not reflect the impact of state and local taxes. In some cases, the return after taxes may exceed the return before taxes due to an assumed benefit from any losses on a sale of Fund shares at the end of the measurement period. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. After-tax returns shown are for Class B shares of the Fund. After-tax returns for Class R3 shares may vary.
3 The Morgan Stanley Capital International Europe, Australasia and Far East Index--the MSCI EAFE(R) Index--is an unmanaged, capitalization-weighted index containing approximately 985 equity securities of companies located outside the U.S. Total returns assume reinvestment of all dividends and capital gains. You cannot invest directly in an index.
INTERNATIONAL EQUITY FUND
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
SHAREHOLDER FEES (fees paid directly from your investment) CLASS R3 Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None Maximum Deferred Sales Charge (Load) (as a percentage of the lesser of the original offering price or redemption proceeds) None Redemption Fee (as a percentage of redemption proceeds) None Maximum Account Fee None ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees(1) 0.90% Distribution and/or Service (12b-1) Fees(2) 0.50% Other Expenses(3) 0.39% Total Annual Fund Operating Expenses 1.79% Less Waivers/Reimbursements(4) -0.01% Net Annual Fund Operating Expenses(4) 1.78% |
1 The management fee for the Fund is an annual percentage of the Fund's average daily net assets as follows: 0.90% up to $500 million and 0.85% in excess of $500 million.
2 Because the 12b-1 fee is an ongoing fee charged against the assets of the Fund, long-term shareholders may indirectly pay an amount that is more than the economic equivalent of paying other types of sales charges.
3 "Other expenses" shown for Class R3 shares are projected for the current year; actual expenses may vary. In addition, other expenses for Class R3 shares include shareholder service fees of 0.10%.
4 NYLIM has entered into a written expense limitation agreement under which it has agreed to waive a portion of the Fund's management fee or reimburse the Fund so that the Fund's total ordinary operating expenses (total annual fund operating expenses excluding taxes, interest, litigation, extraordinary expenses, and brokerage and other transaction expenses relating to the purchase or sale of portfolio investments) do not exceed 1.75% of average daily net assets for Class A shares. NYLIM will apply an equivalent waiver or reimbursement, in an equal amount of basis points, to the Class R3 shares. Class A shares are not offered in this prospectus.
This expense limitation may be modified or terminated only with the approval of the Board of Trustees of the Fund. NYLIM may recoup the amount of any management fee waivers or expense reimbursements from the Fund pursuant to the agreement if such action does not cause the Fund to exceed existing expense limitations and the recoupment is made within three years after the year in which NYLIM incurred the expense.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and reflects what you would pay if you redeemed all your shares at the end of each time period shown or if you continued to hold them. The Example also assumes that your investment has a 5% return each year, that the Fund's operating expenses remain the same and that all dividends and distributions are reinvested. There is no sales charge (load) on reinvested dividends. Your actual costs may be higher or lower than those shown.
EXPENSES AFTER CLASS R3 1 Year $ 181 3 Years $ 560 5 Years $ 964 10 Years $2,095 |
MORE ABOUT INVESTMENT
STRATEGIES AND RISKS
Information about each Fund's principal investments, investment practices and principal risks appears at the beginning of the Prospectus. The information below describes in greater detail the investments, investment practices and other risks pertinent to one or more of the Funds.
Additional information about the investment practices of the Funds and risks pertinent to these practices is included in the Statement of Additional Information (SAI) (see the back cover of this Prospectus).
INVESTMENT POLICIES
The discussion of Principal Investment Strategies for some of the Funds states that the relevant Fund normally invests at least 80% of its assets in a particular type of investment. For these purposes "assets" means the Fund's net assets plus any borrowings for investment purposes. Under normal circumstances, the 80% requirement must be complied with at the time the Fund invests its assets. A Fund, which under normal circumstances, no longer meets the 80% requirement as a result of circumstances beyond its control, such as changes in the value of portfolio holdings, would not have to sell its holdings but would have to make any new investments in such a way as to bring the portfolio into compliance with the 80% requirement. Where other than normal circumstances exist, a Fund would not be subject to such constraints on new investments.
When the discussion states that a Fund invests primarily in a certain type or style of investment, this means that under normal circumstances the Fund will invest under normal circumstances at least 65% of its assets (as described above) in that type or style of investment.
DERIVATIVE SECURITIES
The value of derivative securities is based on certain underlying equity or fixed-income securities, interest rates, currencies or indices. Derivative securities may be hard to sell and are very sensitive to changes in the underlying security, interest rate, currency or index, and as a result can be highly volatile. If the Manager or the Subadvisor is wrong about its expectations of changes in interest rates or market conditions, the use of derivatives could result in a loss. A Fund could also lose money if the counterparty to the transaction does not meet its obligations. In addition, the leverage associated with inverse floaters, a type of derivative, may result in greater volatility in their market value than other income-producing securities.
SWAP AGREEMENTS
Certain Funds may enter into interest rate, index and currency exchange rate swap agreements to attempt to obtain a desired return at a lower cost than a direct investment in an instrument yielding that desired return.
Whether a Fund's use of swap agreements will be successful will depend on whether the Manager or Subadvisor correctly predicts movements in interest rates, indices and currency exchange rates. Because they are two-party contracts and because they may have terms of greater than seven days, swap agreements
may be considered to be illiquid. There is a risk that the other party could go bankrupt and the Fund would lose the value of the security it should have received in the swap. See the Tax Information section in the Statement of Additional Information for information regarding the tax considerations relating to swap agreements.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
The Funds may invest in REITs. Investment in REITs carries with it many of the risks associated with direct ownership of real estate, including declines in property values, extended vacancies, increases in property taxes, and changes in interest rates. In addition to these risks, REITs are dependent upon management skills, may not be diversified, may experience substantial cost in the event of borrower or lessee defaults, and are subject to heavy cash flow dependency.
RISK MANAGEMENT TECHNIQUES
Various techniques can be used to increase or decrease a Fund's exposure to changing security prices, interest rates, currency exchange rates, commodity prices or other factors that affect security values. These techniques may involve derivative transactions such as buying and selling futures contracts and options on futures contracts, entering into foreign currency transactions (such as foreign currency forward contracts and options on foreign currencies) and purchasing put or call options on securities and securities indices.
These practices can be used in an attempt to adjust the risk and return characteristics of a Fund's portfolio of investments. For example, to gain exposure to a particular market, a Fund may be able to purchase a futures contract with respect to that market. The use of such techniques in an attempt to reduce risk is known as "hedging." If the Manager or the Subadvisor judges market conditions incorrectly or employs a strategy that does not correlate well with the Fund's investments, these techniques could result in a loss, regardless of whether the intent was to reduce risk or increase return. These techniques may increase the volatility of a Fund and may involve a small investment of cash relative to the magnitude of the risk assumed. In addition, these techniques could result in a loss if the counterparty to the transaction does not perform as promised.
FOREIGN SECURITIES
Foreign securities are issued by companies organized outside the U.S. and are traded in markets outside the U.S. These foreign securities can be subject to most, if not all, of the risks of foreign investing. For example, foreign investments may be more difficult to sell than U.S. investments. Investments in foreign securities involve difficulties in receiving or interpreting financial and economic information, possible imposition of taxes, higher brokerage and custodian fees, possible currency exchange controls or other government restrictions, including possible seizure or nationalization of foreign deposits or assets. Foreign securities may also be less liquid and more volatile than U.S. securities. There may also be difficulty in invoking legal protections across borders. In addition, investments in emerging market countries present risks to a greater degree than those presented by investments in foreign securities in countries with developed securities markets and more advanced regulatory systems.
Some securities may be issued by companies organized outside the U.S. but are traded in U.S. securities markets and are denominated in U.S. dollars. For example, American Depositary Receipts and shares of some large foreign-based companies are traded on principal U.S. exchanges. Other securities are not
traded in the U.S. but are denominated in U.S. dollars. These securities are not subject to all of the risks of foreign investing. For example, foreign trading market or currency risks will not apply to dollar denominated securities traded in U.S. securities markets.
Many of the foreign securities in which the Funds invest will be denominated in foreign currency. Changes in foreign currency exchange rates will affect the value of securities denominated or quoted in foreign currencies. Exchange rate movements can be large and can endure for extended periods of time, affecting either favorably or unfavorably the value of the Funds' assets. However, a Fund may engage in foreign currency transactions to attempt to protect itself against fluctuations in currency exchange rates in relation to the U.S. dollar. See "Risk Management Techniques."
LENDING OF PORTFOLIO SECURITIES
Portfolio securities may be loaned to brokers, dealers and financial institutions to realize additional income under guidelines adopted by the Board of Trustees. A risk of lending portfolio securities, as with other extensions of credit, is the possible loss of rights in the collateral should the borrower fail financially. In determining whether to lend securities, the Manager or the Subadvisors will consider all relevant facts and circumstances, including the creditworthiness of the borrower.
INVESTMENTS IN TECHNOLOGY SECTOR
Certain Funds intend to invest in competitive sectors of the economy, such as the technology sector. When investing in such sectors, the Funds may invest in companies that are exposed to the risk of increased competition and rapidly changing technology, which can result in the obsolescence of a product or technology.
INITIAL PUBLIC OFFERINGS
Certain Funds may invest in securities that are made available in initial public offerings (IPOs). IPO securities may be volatile, and the Funds cannot predict whether investments in IPOs will be successful. As the Funds grow in size, the positive effect of IPO investments on the Funds may decrease.
ILLIQUID AND RESTRICTED SECURITIES
A Fund's investments may include illiquid securities or restricted securities. The principal risk of investing in illiquid and restricted securities is that they may be difficult to sell. 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. Illiquid securities are securities that have no ready market.
TEMPORARY DEFENSIVE INVESTMENTS
In times of unusual or adverse market, economic or political conditions, for temporary defensive purposes or for liquidity purposes, each Fund may invest outside the scope of its principal investment strategies. Under such conditions, a Fund may not invest in accordance with its investment objective or principal investment strategies and, as a result, there is no assurance that the Fund will achieve its investment objective. Under such conditions, a Fund may invest without limit in cash or money market and other investments.
In unusual market conditions, the International Equity Fund may invest all or a portion of its assets in equity securities of U.S. issuers, investment grade notes and bonds, and cash and cash equivalents.
PORTFOLIO TURNOVER
Portfolio turnover measures the amount of trading a Fund does during the year. Due to their trading strategies, some of the Funds may experience a portfolio turnover rate of over 100%. The portfolio turnover rate for each Fund is found in its Financial Highlights. The use of certain investment strategies may generate increased portfolio turnover. Funds with high turnover rates (at or over 100%) often have higher transaction costs (which are paid by the Fund) and may generate short-term capital gains (on which you'll pay taxes, even if you don't sell any shares by year-end).
SHAREHOLDER
GUIDE
The following pages are intended to help you understand the costs associated with buying, holding and selling your Fund investments. This prospectus describes Class R3 shares. The Funds offer other classes of shares in a different prospectus.
Class R3 Shares
CLASS R3
Initial sales charge None
Contingent deferred sales charge None
Ongoing service and/or distribution fee (Rule 12b-1 fee) 0.50%
Shareholder service fee 0.10%
Redemption fee None
Conversion feature None
Purchase maximum None
|
CLASS R3 CONSIDERATIONS
You pay no initial sales charge or contingent deferred sales charge on an investment in Class R3 shares. However, Class R3 shares do pay the following ongoing distribution and/or service fees and ongoing shareholder service fees:
- DISTRIBUTION AND/OR SERVICE (12b-1) FEE -- named after the SEC rule that permits their payment, "12b-1 fees" are paid by a class of shares to the Fund's distributor, NYLIFE Distributors LLC ("Distributor"), for distribution and/or shareholder services such as marketing and selling Fund shares, compensating brokers and others who sell Fund shares, advertising, printing and mailing of prospectuses, responding to shareholder inquiries, etc.
- SHAREHOLDER SERVICE FEE -- this fee covers certain services provided to retirement plans investing in Class R3 shares that are not included under a Fund's 12b-1 plan, such as certain account establishment and maintenance, order processing and communication services.
An important point to keep in mind about 12b-1 fees and shareholder service fees is that they reduce the value of your shares, and therefore, will proportionately reduce the returns you receive on your investment and any dividends that are paid. See "Information on Fees" for more information about these fees.
Class R3 shares are available in certain individual retirement accounts and in certain retirement plans that have a service arrangement with NYLIM Retirement Plan Services or the Distributor, including:
- Section 401(a) and 457 plans;
- Certain section 403(b)(7) plans;
- 401(k), profit sharing, money purchase pension and defined benefit plans; and
- Non-qualified deferred compensation plans.
SHAREHOLDER GUIDE
INFORMATION ON FEES
Rule 12b-1 Plans
Each Fund has adopted a distribution plan under Rule 12b-1 of the Investment Company Act of 1940, as amended (the "1940 Act"), for Class R3 shares pursuant to which service and/or distribution fees are paid to the Distributor. The Class R3 12b-1 plan typically provides for payment of 0.25% for distribution and 0.25% for service activities, in each case, of the average annual net assets of Class R3 shares of the Fund. The distribution fee is intended to pay the Distributor for distribution services, which include any activity or expense primarily intended to result in the sale of Fund shares. The service fee is paid to the Distributor for providing shareholders with personal services and maintaining shareholder accounts. This portion of the 12b-1 fee dedicated to service activities is in addition to the 0.10% of annual net assets of the Class R3 shares of the Fund paid from the Shareholder Services Plan. The Distributor may pay all or a portion of the 12b-1 fee to your investment professional. Because Rule 12b-1 fees are ongoing, over time they will increase the cost of an investment in the Fund and may cost more than other types of sales charges.
Shareholder Services Plans
Each Fund has adopted a shareholder services plan with respect to the Class R3 shares. Under the terms of the shareholder services plans, each Fund's Class R3 shares are authorized to pay to NYLIM, its affiliates, or independent third-party service providers, as compensation for services rendered to the shareholders of the Class R3 shares, a shareholder service fee at the rate of 0.10% on an annualized basis of the average daily net assets of Class R3 shares of such Fund.
Pursuant to the shareholder services plans, each Fund's Class R3 shares may pay for shareholder services or account maintenance services, including assistance in establishing and maintaining shareholder accounts, processing purchase and redemption orders, communicating periodically with shareholders and assisting shareholders who have questions or other needs relating to their account. Because service fees are ongoing, over time they will increase the cost of an investment in the Fund and may cost more than certain types of sales charges. With respect to the Class R3 shares, these services are in addition to those services that may be provided under the Class R3 12b-1 plan.
COMPENSATION TO DEALERS
Financial intermediary firms and their associated financial advisors are paid in different ways for the services they provide to the Funds and shareholders. Such compensation varies depending upon the Fund sold, the amount invested, the share class purchased, the amount of time that shares are held, and/or the services provided.
- The Distributor pays, pursuant to a 12b-1 plan, distribution-related and other service fees to qualified dealers for providing certain shareholder services.
- In addition to payments described above, the Distributor or an affiliate, from its own resources, pays other significant amounts to certain financial intermediary firms, including an affiliated broker-dealer, in connection with the sale of Fund shares and/or shareholder or account servicing arrangements. These sales and/or servicing fee arrangements vary and may amount to payments of up to 0.40% on new sales and/or up to 0.20% annually on assets held.
SHAREHOLDER GUIDE
GOOD ORDER means all the necessary information, signatures and documentation have been fully completed.
- The Distributor may pay a finder's fee or other compensation to third parties in connection with the sale of Fund shares and/or shareholder or account servicing arrangements.
- The Distributor or an affiliate may sponsor training or informational meetings or provide other non-monetary benefits for financial intermediary firms and their associated financial advisors.
- The Distributor or an affiliate may also make payments for recordkeeping and other administrative services to financial intermediaries that sell Fund shares.
- Wholesale representatives of the Distributor visit brokerage firms on a regular basis to educate financial advisors about the Funds and to encourage the sale of the Fund shares to their clients. The costs and expenses associated with these efforts may include travel, lodging, sponsorship at educational seminars and conferences, entertainment and meals to the extent permitted by law.
Although the Funds may use financial firms that sell Fund shares to make transactions for a Fund's portfolio, the Fund, the Manager and any Subadvisor will not consider the sale of Fund shares as a factor when choosing financial firms to effect those transactions.
Payments made from the Distributor's or an affiliate's own resources do not increase the price or decrease the amount or value of the shares you purchase. However, if investment advisers, distributors or affiliates of mutual funds make such payments in differing amounts, financial intermediary firms and their financial advisors may have financial incentives for recommending a particular mutual fund or a particular share class of that fund over other mutual funds. For example, payments made by the Distributor or an affiliate, as described above, may be used by the financial intermediary firm to reduce or eliminate transaction charges associated with purchases of fund shares.
For more information regarding any of the types of compensation described above, see the Statement of Additional Information or consult with your financial intermediary firm or financial advisor. YOU SHOULD REVIEW CAREFULLY ANY DISCLOSURE BY YOUR FINANCIAL INTERMEDIARY FIRM AS TO COMPENSATION RECEIVED BY THAT FIRM AND/OR YOUR FINANCIAL ADVISOR.
BUYING, SELLING AND EXCHANGING MAINSTAY SHARES
HOW TO OPEN YOUR ACCOUNT
If you are participating in a company savings plan, such as a 401(k) plan, profit sharing plan, defined benefit plan or other employee-directed plan, your company will provide you with the information you need to open an account and buy or sell Class R3 shares of the Funds.
If you are investing through a financial intermediary firm, the firm will assist you with opening an account. Your financial advisor may place your order by phone. The Funds' transfer agent, NYLIM Service Company LLC ("MainStay Investments"), must receive your completed application and check in GOOD ORDER within three business days.
You buy shares at net asset value (NAV). NAV is generally calculated as of the close of regular trading (usually 4 pm eastern time) on the New York Stock Exchange (the "Exchange") every day the Exchange is open. When you buy shares, you must pay the NAV next calculated after MainStay Investments receives your order in good order. Alternatively, MainStay Funds has arrangements with certain financial intermediary firms such that purchase orders through these entities are considered received in good order when received by the financial intermediary firm together with the purchase price of the shares
SHAREHOLDER GUIDE
ordered. The order will then be priced at a Fund's NAV next computed after acceptance by these entities. Such financial intermediary firms are responsible for timely transmitting the purchase order to the Funds.
When you open your account, you may also want to choose certain buying and selling options, including transactions by wire. In most cases, these choices can be made later in writing, but it may be quicker and more convenient to decide on them when you open your account.
To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens a new account and to determine whether such person's name appears on government lists of known or suspected terrorists and terrorist organizations. As a result, the Funds, or your financial advisor on their behalf, must obtain the following information for each person who opens a new account:
- Name;
- Date of birth (for individuals);
- Residential or business street address (although post office boxes are still permitted for mailing); and
- Social security number, taxpayer identification number, or other identifying number.
You may also be asked for a copy of your driver's license, passport or other identifying document in order to verify your identity. In addition, it may be necessary to verify your identity by cross-referencing your identification information with a consumer report or other electronic database. Additional information may be required to open accounts for corporations and other entities.
FEDERAL LAW PROHIBITS THE FUNDS AND OTHER FINANCIAL INSTITUTIONS FROM OPENING A NEW ACCOUNT UNLESS THEY RECEIVE THE MINIMUM IDENTIFYING INFORMATION LISTED ABOVE.
After an account is opened, the Funds may restrict your ability to purchase additional shares until your identity is verified. The Funds also may close your account or take other appropriate action if they are unable to verify your identity within a reasonable time. If your account is closed for this reason, your shares will be redeemed at the NAV next calculated after the account is closed.
INVESTMENT MINIMUMS
If you are eligible to invest in Class R3 shares of the Funds there are no minimum initial or subsequent purchase amounts.
SHAREHOLDER GUIDE
BUYING AND SELLING MAINSTAY SHARES
OPENING YOUR ACCOUNT
HOW DETAILS
BY WIRE: You or your registered representative The wire must include:
should call MainStay Investments - name(s) of investor(s);
toll-free at 1-800-MAINSTAY - your account number; and
(1-800-624-6782) to obtain an account - Fund Name and Class of shares.
number and wiring instructions. Wire Your bank may charge a fee for the wire transfer.
the purchase amount to:
State Street Bank and Trust Company
- ABA #011-0000-28
- MainStay Funds (DDA #99029415)
- Attn: Custody and Shareholder
Services
To buy shares the same day, MainStay
Investments must receive your wired
money by 4 pm eastern time.
BY PHONE: Have your investment professional - MainStay Investments must receive your application
call MainStay Investments toll-free and check, payable to MainStay Funds, in good order
at 1-800-MAINSTAY within three business days. If not, MainStay
(1-800-624-6782) between 8 am and 6 Investments can cancel your order and hold you liable
pm eastern time any day the New York for costs incurred in placing it.
Stock Exchange is open. Call before 4 Be sure to write on your check:
pm to buy shares at the current day's - name(s) of investor(s);
NAV. - your account number; and
- Fund name and Class of shares.
BY MAIL: Return your completed MainStay Funds Make your check payable to MainStay Funds.
Application with a check for the Be sure to write on your check:
amount of your investment to: - name(s) of investor(s); and
MainStay Funds - Fund name and Class of shares.
P.O. Box 8401
Boston, MA 02266-8401
Send overnight orders to:
MainStay Funds
c/o Boston Financial Data Services
66 Brooks Drive
Braintree, MA 02184
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SHAREHOLDER GUIDE
BUYING ADDITIONAL SHARES OF THE FUNDS
HOW DETAILS
BY WIRE: Wire the purchase amount to: The wire must include:
State Street Bank and Trust Company - name(s) of investor(s);
- ABA #011-0000-28 - your account number; and
- MainStay Funds (DDA #99029415) - Fund name and Class of shares.
- Attn: Custody and Shareholder Services.
Your bank may charge a fee for the wire transfer.
To buy shares the same day, MainStay
Investments must receive your wired money
by 4 pm eastern time.
ELECTRONICALLY: Call MainStay Investments toll-free at Eligible investors can purchase shares by using
1-800-MAINSTAY (1-800-624-6782) between 8 am electronic debits from a designated bank account.
and 6 pm eastern time any day the New York - The maximum ACH purchase amount is $100,000.
Stock Exchange is open to make an ACH
purchase; call before 4 pm to buy shares at
the current day's NAV; or
Visit us at www.mainstayfunds.com.
BY MAIL: Address your order to: Make your check payable to MainStay Funds.
MainStay Funds
P.O. Box 8401 Be sure to write on your check:
Boston, MA 02266-8401 - name(s) of investor(s);
- your account number; and
Send overnight orders to: - Fund name and Class of shares.
MainStay Funds
c/o Boston Financial
Data Services
66 Brooks Drive
Braintree, MA 02184
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SHAREHOLDER GUIDE
SELLING SHARES
HOW DETAILS
BY CONTACTING YOUR FINANCIAL ADVISOR: - You may sell (redeem) your shares through your
financial advisor or by any of the methods
described below.
BY PHONE: TO RECEIVE PROCEEDS BY CHECK: - MainStay Investments will only send checks to the
Call MainStay Investments toll-free at account owner at the owner's address of record and
1-800-MAINSTAY (1-800-624-6782) between generally will not send checks to addresses on
8 am and 6 pm eastern time any day the record for 30 days or less.
New York Stock Exchange is open. Call - The maximum order MainStay Investments can
before 4 pm eastern time to sell shares process by phone is $100,000.
at the current day's NAV.
TO RECEIVE PROCEEDS BY WIRE: - Generally, after receiving your sell order by
Call MainStay Investments toll-free at phone, MainStay Investments will send the proceeds
1-800-MAINSTAY (1-800-624-6782) between by bank wire to your designated bank account the
8 am and 6 pm eastern time any day the next business day, although it may take up to
New York Stock Exchange is open. seven days to do so. Your bank may charge you a
Eligible investors may sell shares and fee to receive the wire transfer.
have proceeds electronically credited - MainStay Investments must have your bank account
to a designated bank account. information on file.
- There is an $11 fee for wire redemptions.
- The minimum wire transfer amount is $1,000.
TO RECEIVE PROCEEDS ELECTRONICALLY BY - MainStay Investments must have your bank account
ACH: information on file.
Call MainStay Investments toll-free at - Proceeds may take 2-3 days to reach your bank
1-800-MAINSTAY (1-800-624-6782) between account.
8 am and 6 pm eastern time any day - There is no fee from MainStay Investments for
banks and the New York Stock Exchange this transaction.
are open. - The maximum ACH transfer amount is $100,000.
Visit us at www.mainstayfunds.com
BY MAIL: Address your order to: Write a letter of instruction that includes:
MainStay Funds * your name(s) and signature(s);
P.O. Box 8401 * your account number;
Boston, MA 02266-8401 * Fund name and Class of shares; and
* dollar or share amount you want to sell.
Send overnight orders to:
MainStay Funds Obtain a MEDALLION SIGNATURE GUARANTEE or other
c/o Boston Financial documentation, as required.
Data Services
66 Brooks Drive There is a $15 fee for checks mailed to you via
Braintree, MA 02184 overnight service.
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SHAREHOLDER GUIDE
Selling and exchanging shares may result in a gain or loss and therefore may be subject to taxes. Consult your tax adviser on the consequences.
GENERAL POLICIES
Buying Shares
- All investments must be in U.S. dollars with funds drawn on a U.S. bank. We
will not accept any payment in the following forms: travelers checks, money
orders, credit card convenience checks, cash or starter checks.
- MainStay Investments does not accept third-party checks, and it reserves the
right to limit the number of checks processed at one time.
- If your investment check or ACH purchase does not clear, your order will be canceled and your account will be responsible for any losses or fees a Fund incurs as a result. Your account will be charged a $20 fee for each returned check or ACH purchase. In addition, a Fund may also redeem shares to cover any losses it incurs as a result. If an AutoInvest payment is returned unpaid for two consecutive periods, the privilege will be suspended until you notify us to reinstate it.
- A Fund may, in its discretion, reject any order for the purchase of shares.
- To limit the Funds' expenses, we no longer issue share certificates.
Selling Shares
- If you have share certificates, you must return them with a written redemption request.
- Your shares will be sold at the next NAV calculated after MainStay Investments receives your request in good order. MainStay Investments will make the payment within seven days after receiving your request in good order.
- If you buy shares by check or by ACH purchase and quickly decide to sell them, the Fund may withhold payment for 10 days from the date the check or ACH purchase order is received.
- There will be no redemption during any period in which the right of redemption is suspended or date of payment is postponed because the New York Stock Exchange is closed or trading on the Exchange is restricted or the SEC deems an emergency to exist.
- Unless you decline telephone privileges on your application, you may be responsible for any fraudulent telephone order as long as MainStay Investments takes reasonable measures to verify the order.
- Reinvestment won't relieve you of any tax consequences on gains realized from a sale. The deductions or losses, however, may be denied.
- MainStay Investments requires a written order to sell shares if an account has submitted a change of address during the previous 30 days.
- MainStay Investments requires a written order to sell shares and a Medallion signature guarantee if:
- MainStay Investments does not have on file required bank information to wire funds;
- the proceeds from the sale will exceed $100,000;
- the proceeds of the sale are to be sent to an address other than the address of record; or
- the proceeds are to be payable to someone other than the account holder(s).
- In the interests of all shareholders, the Funds reserve the right to:
- change or discontinue their exchange privileges upon notice to shareholders, or temporarily suspend this privilege without notice under extraordinary circumstances;
- change or discontinue the systematic withdrawal plan upon notice to shareholders; and/or
- change the minimum investment amounts.
SHAREHOLDER GUIDE
Additional Information
The policies and fees described in this Prospectus govern transactions with The MainStay Funds. If you invest through a third party--bank, broker, 401(k), financial advisor or financial supermarket--there may be transaction fees for, and you may be subject to, different investment minimums or limitations on buying or selling shares. Accordingly, the net yield to investors who purchase through financial intermediaries may be less than the net yield earned by investors who invest in a Fund directly. Consult a representative of your plan or financial institution if in doubt.
From time to time any of the Funds may close and reopen to new investors or new share purchases at its discretion. Due to the nature of their portfolio investments, certain Funds may be more likely to close and reopen than others. If a Fund is closed, either to new investors or new share purchases, and you redeem your total investment in the Fund, your account will be closed and you will not be able to make any additional investments in the Fund. If a Fund is closed to new investors, you may not exchange shares from other MainStay Funds for shares of that Fund unless you are already a shareholder of such Fund.
Medallion Signature Guarantees
A Medallion signature guarantee helps protect against fraud. To protect your account, each Fund and MainStay Investments from fraud, Medallion signature guarantees are required to enable MainStay Investments to verify the identity of the person who has authorized redemption proceeds to be sent to a third party or a bank not previously established on the account. Medallion signature guarantees are also required for redemptions of $100,000 or more from an account, and for share transfer requests. Medallion signature guarantees must be obtained from certain eligible financial institutions that are participants in the Securities Transfer Association Medallion Program (STAMP), the Stock Exchange Medallion Program (SEMP), or the New York Stock Exchange Medallion Signature Program (MSP). Eligible guarantor institutions provide Medallion signature guarantees that are covered by surety bonds in various amounts. It is your responsibility to ensure that the Medallion signature guarantee that you acquire is sufficient to cover the total value of your transaction(s). If the surety bond amount is not sufficient to cover the requested transaction(s), the Medallion signature guarantee will be rejected.
Signature guarantees that are not a part of these programs will not be accepted. Please note that a notary public stamp or seal is not acceptable. Shareholders may contact MainStay Investments toll-free at 1-800-MAINSTAY (1-800-624-6782) for further details.
Investing for Retirement
You can purchase shares of the MainStay Funds for retirement plans providing tax-deferred investments for individuals and institutions. You can use MainStay Funds in established plans or the Distributor may provide the required plan documents for selected plans. A plan document must be adopted for a plan to be in existence.
Custodial services are available for IRA, Roth IRA and Coverdell Education Savings Accounts (CESA) (previously named Education IRA) as well as SEP and SIMPLE IRA plans and for 403(b)(7) TSA Custodial Accounts. Plan administration is also available for select qualified retirement plans. An investor should consult with his or her tax adviser before establishing any tax-deferred retirement plan.
CONVENIENT, YES . . . BUT NOT RISK-FREE. Telephone redemption privileges are
convenient, but you give up some security. When you sign the application to buy
shares, you agree that the Funds will not be liable for following phone
instructions that they reasonably believe are genuine. When using the MainStay
Audio Response System or the internet, you bear the risk of any loss from your
errors unless the Funds or MainStay Investments fails to use established
safeguards for your protection. These safeguards are among those currently in
place at MainStay Funds:
-all phone calls with service representatives are tape recorded; and
-written confirmation of every transaction is sent to your address of record.
MainStay Investments and the Funds reserve the right to shut down the MainStay Audio Response System or the system might shut itself down due to technical problems.
REDEMPTIONS-IN-KIND
The Funds reserve the right to pay certain large redemptions, either totally or
partially, by a distribution-in-kind of securities (instead of cash) from the
applicable Fund's portfolio, in accordance with the 1940 Act and rules and
interpretations of the SEC thereunder.
SHAREHOLDER SERVICES
Automatic Services
Buying or selling shares automatically is easy with the services described below. You select your schedule and amount, subject to certain restrictions. You can set up most of these services on your application by accessing your shareholder account on the internet at www.mainstayfunds.com, contacting your financial advisor for instructions, or by calling MainStay Investments toll-free at 1-800-MAINSTAY (1-800-624-6782) for a form.
Systematic Investing--Individual Shareholders Only
MainStay offers three automatic investment plans:
1. AutoInvest
If you obtain authorization from your bank, you can automatically debit your designated bank account to:
- make regularly scheduled investments; and/or
- purchase shares whenever you choose.
2. Dividend reinvestment
Automatically reinvest dividends and distributions from one MainStay Fund into the same Fund or the same Class of any other MainStay Fund.
3. Payroll deductions
If your employer offers this option, you can make automatic investments through payroll deduction.
Systematic Withdrawal Plan--Individual Shareholders Only
Withdrawals must be at least $100. You must have at least $10,000 in your account at the time of the initial request and shares must not be in certificate form.
The Funds will not knowingly permit systematic withdrawals if, at the same time, you are making periodic investments.
Exchanging Shares Among MainStay Funds
You exchange shares when you sell all or a portion of shares in one MainStay Fund and use the proceeds to purchase shares of the same class of another MainStay Fund at NAV. An exchange of shares of one MainStay Fund for shares of another MainStay Fund will be treated as a sale of shares of the first MainStay Fund and as a purchase of shares of the second MainStay Fund. Any gain on the transaction may be subject to taxes. You may make exchanges from one MainStay Fund to another by phone. There is also a systematic exchange program that allows you to make regularly scheduled, systematic exchanges from one MainStay Fund to the same class of another.
You also may exchange shares of a MainStay Fund for Class R3 shares of any of the following MainStay Funds, which are offered in a different prospectus:
- MainStay Balanced Fund - MainStay Mid Cap Opportunity Fund |
SHAREHOLDER GUIDE
Before making an exchange request, read the prospectus of the fund you wish to purchase by exchange. You can obtain a prospectus for any fund by contacting your broker, financial advisor or other financial institution or by calling The MainStay Funds at 1-800-MAINSTAY (1-800-624-6782).
You may not exchange shares of one MainStay Fund for shares of another MainStay Fund that is closed to new investors unless you are already a shareholder of that Fund. You may not exchange shares of one MainStay Fund for shares of another MainStay Fund that is closed to new share purchases or is not offered for sale in your state.
The exchange privilege is not intended as a vehicle for short term trading, nor are the Funds designed for professional market timing organizations or other entities or individuals that use programmed frequent exchanges in response to market fluctuations. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders (see "Excessive Purchases and Redemptions or Exchanges").
The Funds reserve the right to revise or terminate the exchange privilege, limit the amount or number of exchanges or reject any exchange consistent with the requirements of the 1940 Act and rules and interpretations of the SEC thereunder.
EXCESSIVE PURCHASES AND REDEMPTIONS OR EXCHANGES
The Funds are not intended to be used as a vehicle for excessive or short-term trading (such as market timing). The interests of a Fund's shareholders and the Fund's ability to manage its investments may be adversely affected by excessive purchases and redemptions or exchanges of Fund shares over the short term. When large dollar amounts are involved, excessive trading may disrupt efficient implementation of a Fund's investment strategies or negatively impact Fund performance. For example, the Manager or a Fund's Subadvisor might have to maintain more of a Fund's assets in cash or sell portfolio securities at inopportune times to meet unanticipated redemptions. By realizing profits through short-term trading, shareholders that engage in excessive purchases and redemptions or exchanges of Fund shares may dilute the value of shares held by long-term shareholders. Funds investing in securities that are thinly traded, trade infrequently, or are relatively illiquid (such as foreign securities, high yield debt securities and small cap securities) may attract investors seeking to profit from short-term trading strategies that exploit the special valuation issues applicable to these types of holdings to a greater degree than other types of funds, and thus, may be more vulnerable to the risks associated with such activity. Accordingly, the Funds' Board of Trustees has adopted and implemented policies and procedures designed to discourage, detect and prevent frequent purchases and redemptions or exchanges of Fund shares in order to protect long-term Fund shareholders. These policies are discussed more fully below. There is the risk that the Funds' policies and procedures will prove ineffective in whole or in part to detect or prevent excessive or short-term trading. A Fund may change its policies or procedures at any time without prior notice to shareholders.
The Funds reserve the right to restrict, reject or cancel, without prior notice, any purchase or exchange order for any reason, including any purchase or exchange order accepted by any investor's financial intermediary firm. Any such rejection or cancellation of an order placed through a financial intermediary will occur, under normal circumstances, within one business day of the financial intermediary transmitting the order to the Funds. In addition, the Funds reserve the right to reject, limit, or impose other conditions (that are more restrictive
SHAREHOLDER GUIDE
than those otherwise stated in this prospectus) on purchases or exchanges or to close or otherwise limit accounts based on a history of frequent purchases and redemptions of Fund shares that could adversely affect a Fund or its operations, including those from any individual or group who, in the Funds' judgment, is likely to harm Fund shareholders. Pursuant to the Funds' policies and procedures, a Fund may permit short-term purchases or exchanges that it believes, in the exercise of its judgment, are not disruptive or harmful to the Fund's long-term shareholders. For example, transactions conducted through systematic investment or withdrawal plans and trades within a money market fund are not subject to the surveillance procedures. Exceptions are subject to the advance approval by the Trust's Chief Compliance Officer, among others, and are subject to Board oversight. Apart from trading permitted or exceptions granted in accordance with the Trust's policies and procedures, no Fund accommodates, nor has any arrangement to permit, frequent purchases and redemptions of Fund shares.
The Funds, through MainStay Investments and the Distributor, maintain surveillance procedures to detect excessive or short-term trading in Fund shares. As part of this surveillance process, the Funds examine transactions in Fund shares that exceed certain monetary thresholds or numerical limits within a specified period of time. The Funds also may consider the history of trading activity in all accounts known to be under common ownership, control, or influence. To the extent identified under these surveillance procedures, a Fund will place a "block" on any account if, during any 60-day period, there is (1) a purchase or exchange into the account following a redemption or exchange from such account or (2) a redemption or exchange from the account following a purchase or exchange into such account. An account that is blocked will not be permitted to place future purchase or exchange requests for an additional 60 day period in that Fund. The Funds may modify their surveillance procedures and criteria from time to time without prior notice, as necessary or appropriate to improve the detection of excessive or short-term trading or to address specific circumstances. Routine allocation and rebalancing activities made by certain asset allocation programs, funds-of-funds, or other collective investment strategies may not be subject to the surveillance procedures if the managers of such strategies represent to the satisfaction of the Funds' Chief Compliance Officer that such investment programs and strategies are consistent with the foregoing, for example they either work from an asset allocation model or direct transactions to conform to a model portfolio.
In addition to these measures, the Funds may from time to time impose a redemption fee on redemptions or exchanges of Fund shares made within a certain period of time in order to deter excessive or short-term trading and to offset certain costs associated with such trading, which fee will be described in the Funds' Prospectus.
While the Funds discourage excessive or short-term trading, there is no assurance that the Funds or their procedures will be able to effectively detect such activity or participants engaging in such activity, or, if it is detected, to prevent its recurrence. The Funds' ability to reasonably detect all such trading may be limited, for example, where the Funds must rely on the cooperation of and/or information provided by financial intermediaries or retirement plans or where the costs of surveillance on certain trading exceeds the anticipated benefit of such surveillance to Fund shareholders.
SHAREHOLDER GUIDE
FAIR VALUATION AND PORTFOLIO HOLDINGS DISCLOSURE
Determining the Funds' Share Prices (NAV) and the Valuation of Securities
Each Fund generally calculates the value of its investments (also known as its net asset value, or NAV) at the close of regular trading on the New York Stock Exchange (usually 4:00 pm eastern time) every day the Exchange is open. The net asset value per share for a class of shares is determined by dividing the value of a Fund's net assets attributable to that class by the number of shares of that class outstanding on that day. The value of a Fund's investments is generally based on current market prices. If current market values are not available or, in the judgment of the Manager, do not accurately reflect the fair value of a security, investments will be valued by another method that the Board believes in good faith accurately reflects fair value. Changes in the value of a Fund's portfolio securities after the close of trading on the principal markets in which the portfolio securities trade will not be reflected in the calculation of NAV unless the Manager, in consultation with the Subadvisor, deems a particular event could materially affect NAV. In this case, an adjustment in the valuation of the securities may be made in accordance with procedures adopted by the Board. A Fund may invest in portfolio securities that are primarily listed on foreign exchanges that trade on weekends or other days when the Fund does not price its shares. The NAV of a Fund's shares may change on days when shareholders will not be able to purchase or redeem shares.
The Board has adopted valuation procedures for the Funds and has delegated day-to-day responsibility for fair value determinations to the Trust's Valuation Committee. Determinations of the Valuation Committee are subject to review and ratification by the Board at its next scheduled meeting after the fair valuations are determined. Fair value determinations may be based upon developments related to a specific security or events affecting securities markets. Fair valuation involves subjective judgments, and it is possible that the fair value determined for a security may differ materially from the value that could be realized upon the sale of the security.
The Funds expect to use fair value pricing for securities actively traded on U.S. exchanges only under very limited circumstances. The Funds may use fair value pricing more frequently for foreign securities. Where foreign securities markets close earlier than U.S. markets, the value of the securities may be affected by significant events or volatility in the U.S. markets occurring after the close of those foreign securities markets. To account for this, certain Funds', notably the International Equity Fund's, fair valuation procedures include a procedure whereby foreign securities may be valued based on third-party vendor modeling tools to the extent available.
Portfolio Holdings Information
A description of the Funds' policies and procedures with respect to the disclosure of the Funds' portfolio securities holdings is available in the Funds' Statement of Additional Information. MainStay Funds publish quarterly a list of each Fund's ten largest holdings and publish monthly a complete schedule of the Fund's portfolio holdings on the internet at www.mainstayfunds.com. You may also obtain this information by calling toll-free 1-800-MAINSTAY (1-800-624-6782). Disclosure of the Funds' portfolio holdings is provided monthly approximately 30 days after the end of the reported month. In addition, disclosure of the Funds' holdings is made quarterly approximately 15 days after the end of each calendar quarter. The Funds' quarterly holdings information is also provided in the Annual Report and Semiannual Report to Fund shareholders and in the quarterly holdings report to the SEC on Form N-Q.
BUY AFTER THE DIVIDEND PAYMENT. Avoid buying shares shortly before a dividend payment. Part of your investment may be returned in the form of a dividend, which may be taxable.
If you prefer to reinvest dividends and/or capital gains in another Fund, you must first establish an account in that class of shares of the Fund.
FUND EARNINGS
Dividends and Interest
Most funds earn either dividends from stocks, interest from bonds and other
securities, or both. A mutual fund, however, always pays this income to you as
"dividends." The dividends paid by each Fund will vary based on the income from
its investments and the expenses incurred by the Fund.
When the Funds Pay Dividends
The Funds declare and pay any dividends quarterly.
Dividends are normally paid on the first business day of each month after a dividend is declared.
Capital Gains
The Funds earn capital gains when they sell securities at a profit.
When the Funds Pay Capital Gains
The Funds will normally distribute any capital gains to shareholders in December.
How to Take Your Earnings
You may receive your portion of MainStay Fund earnings in one of seven ways. You can make your choice at the time of application, and change it as often as you like by notifying your financial advisor (if permitted by your broker-dealer) or MainStay Investments directly. The seven choices are:
1. Reinvest dividends and capital gains in:
- the same Fund; or
- another MainStay Fund of your choice (other than a Fund that is closed, either to new investors or to new share purchases).
2. Take the dividends in cash and reinvest the capital gains in the same Fund.
3. Take the capital gains in cash and reinvest the dividends in the same Fund.
4. Take a percentage of dividends or capital gains in cash and reinvest the remainder in the same Fund.
5. Take dividends and capital gains in cash.
6. Reinvest all or a percentage of the capital gains in another MainStay Fund (other than a Fund that is closed, either to new investors or to new share purchases) and reinvest the dividends in the original Fund.
7. Reinvest all or a percentage of the dividends in another MainStay Fund (other than a Fund that is closed, either to new investors or to new share purchases) and reinvest the capital gains in the original Fund.
If you do not make one of these choices on your application, your earnings will be automatically reinvested in the same class of shares of the same Fund.
SEEK PROFESSIONAL ASSISTANCE. Your financial advisor can help you keep your investment goals coordinated with your tax considerations. But for tax counsel, always rely on your tax adviser. For additional information on federal, state and local taxation, see the Statement of Additional Information.
UNDERSTAND THE TAX CONSEQUENCES
Most of Your Earnings are Taxable
Virtually all of the dividends and capital gains distributions you receive from the Funds are taxable, whether you take them as cash or automatically reinvest them. A Fund's realized earnings are taxed based on the length of time a Fund holds its investments, regardless of how long you hold Fund shares. If a Fund realizes long-term capital gains, the earnings distributions are taxed as long-term capital gains; earnings from short-term capital gains and income generated on debt investments and other sources are generally taxed as ordinary income upon distribution. Earnings related to an equity investment, if any, will generally be a result of capital gains that may be taxed as either long-term capital gains or short-term capital gains (taxed as ordinary income).
For individual shareholders, a portion of the dividends received from the Funds may be treated as "qualified dividend income," which is currently taxable to individuals at a maximum rate of 15%, to the extent that the Funds receive qualified dividend income from domestic corporations and certain qualified foreign corporations and that certain holding period and other requirements are met. The shareholder must also generally satisfy a more than 60 day holding period requirement with respect to each distribution of qualified dividends in order to qualify for the 15% rate on such distribution.
Since many of the stocks in which the Funds invest do not pay significant dividends, it is not likely that a substantial portion of the distributions by such Funds will qualify for the 15% maximum rate. For corporate shareholders, a portion of the dividends received from the Funds may qualify for the corporate dividends received deduction.
MainStay Investments will mail your tax report each year by January 31. This report will tell you which dividends and redemption proceeds should be treated as taxable ordinary income, and which, if any, as long-term capital gains.
The Funds may be required to withhold U.S. Federal income tax at the rate of 28% of all taxable distributions payable to you if you fail to provide the Funds with your correct taxpayer identification number or to make required certifications, or if you have been notified by the IRS that you are subject to backup withholding. Such withholding is not an additional tax and any amounts withheld may be credited against your U.S. Federal income tax liability.
Exchanges
An exchange of shares of one MainStay Fund for shares of another will be treated as a sale of shares of the first MainStay Fund and a purchase of shares of the second MainStay Fund. Any gain on the transaction may be subject to taxation.
KNOW WITH WHOM
YOU'RE INVESTING
WHO RUNS THE FUNDS' DAY-TO-DAY BUSINESS?
The Board of Trustees of the Trust oversees the actions of the Manager, the Subadvisors and Distributor and decides on general policies. The Board also oversees the Trust's officers, who conduct and supervise the daily business of the Trust.
New York Life Investment Management LLC ("NYLIM" or the "Manager"), 169 Lackawanna Avenue, Parsippany, New Jersey 07054, serves as the Funds' Manager. In conformity with the stated policies of the Funds, NYLIM administers each Fund's business affairs and manages the investment operations of each Fund and the composition of the portfolio of each Fund, subject to the supervision of the Board of Trustees. The Manager commenced operations in April 2000 and is an independently managed, wholly-owned subsidiary of New York Life Insurance Company ("New York Life"). The Manager provides offices, conducts clerical, record-keeping and bookkeeping services, and keeps most of the financial and accounting records required for the Funds.
The Manager has delegated its portfolio management responsibilities for certain Funds to the Subadvisors and is responsible for supervising the Subadvisors in the execution of their responsibilities.
The Manager also pays the salaries and expenses of all personnel affiliated with the Funds, and all the operational expenses that are not the responsibility of the Funds, including the fees paid to the Subadvisors. Pursuant to a management contract with each Fund, the Manager is entitled to receive fees from each Fund, accrued daily and payable monthly.
For the fiscal year ended October 31, 2005, the Trust, on behalf of each Fund, paid the Manager an aggregate fee for services performed as a percentage of the average daily net assets of each Fund as follows:
RATE PAID FOR THE
PERIOD ENDED
OCTOBER 31, 2005
International Equity Fund 0.88%
Large Cap Growth Fund 0.42%
MAP Fund 0.72%
Mid Cap Growth Fund 0.62%
|
For information regarding the basis for the Board of Trustees' approval of the investment advisory and subadvisory contracts, please refer to each Fund's annual report to shareholders for the fiscal year ended October 31, 2005.
Each Fund, pursuant to an Accounting Agreement with the Manager, will bear an allocable portion of the Manager's cost of performing certain bookkeeping and pricing services. Each Fund pays the Manager a monthly fee for services provided under the Accounting Agreement at the annual rate of 1/20 of 1% for the first $20 million of average monthly net assets, 1/30 of 1% of the next $80 million of average monthly net assets and 1/100 of 1% of any amount in excess of $100 million of average monthly net assets.
The Manager is not responsible for records maintained by the Funds' Custodian, Transfer Agent, Dividend Disbursing and Shareholder Servicing Agent, or Subadvisors, except to the extent expressly provided in the Management Agreements between the Manager and the Trust, on behalf of the Funds.
Pursuant to an agreement with NYLIM, Investors Bank & Trust Company, 200 Clarendon Street, P.O. Box 9130, Boston, Massachusetts, 02116 ("IBT") provides sub-administration and sub-accounting services for the Funds. These services include calculating daily net asset values of the Funds, maintaining general ledger and sub-ledger accounts for the calculation of the Funds' respective net asset values, and assisting NYLIM in conducting various aspects of the Funds' administrative operations. For providing these services to the Funds, IBT is compensated by NYLIM.
WHO MANAGES YOUR MONEY?
NYLIM serves as Manager of the assets of the Funds. NYLIM commenced operations in April 2000 and is a Delaware limited liability company. NYLIM is an indirect, wholly-owned subsidiary of New York Life. As of December 31, 2005, NYLIM and its affiliates managed approximately $200 billion in assets.
Under the supervision of the Manager, the following Subadvisors are responsible for making the specific decisions about buying, selling and holding securities; selecting and negotiating with brokers and brokerage firms; and maintaining accurate records for the Funds. For these services, each Subadvisor is paid a monthly fee by the Manager, not the Funds.
MACKAY SHIELDS LLC ("MacKay Shields") 9 West 57th St., New York, New York 10019, is the Subadvisor to the International Equity Fund and Mid Cap Growth Fund. The firm was incorporated in 1969 as an independent investment advisory firm and was privately held until 1984 when it became a wholly-owned but autonomously managed subsidiary of New York Life. As of December 31, 2005, MacKay Shields managed approximately $38.3 billion in assets.
JENNISON ASSOCIATES LLC ("Jennison"), 466 Lexington Avenue, New York, New York 10017, is a Subadvisor to the MAP Fund. Jennison was founded in 1969
and has served as an investment adviser to registered investment companies since 1990. As of December 31, 2005, Jennison managed in excess of $72 billion in assets on behalf of its clients, which primarily include registered investment companies and institutional accounts.
MARKSTON INTERNATIONAL LLC ("Markston International"), 40 Main Street, White Plains, New York 10606, is a Subadvisor to the MAP Fund. As of December 31, 2005, Markston managed approximately $920 million in assets.
WINSLOW CAPITAL MANAGEMENT, INC. ("Winslow Capital") 4720 IDS Tower, 80 South Eighth Street, Minneapolis, Minnesota 55402, is the Subadvisor to the Large Cap Growth Fund. Winslow Capital has been an investment adviser since 1992, and as of December 31, 2005 managed approximately $800 million in assets.
PORTFOLIO MANAGERS:
NYLIM and each Subadvisor use a team of portfolio managers and analysts acting together to manage each Fund's investments. The senior members of each Fund's portfolio management team who are jointly and primarily responsible for the Fund's day-to-day management are set forth below.
INTERNATIONAL EQUITY FUND--Rupal J. Bhansali
LARGE CAP GROWTH FUND--Clark J. Winslow, Justin H. Kelly and R. Bart Wear
MAP FUND--Michael Mullarkey, Roger Lob and Christopher Mullarkey from Markston; and Mark G. DeFranco and Brian M. Gillott from Jennison
MID CAP GROWTH FUND--Edmund C. Spelman
PORTFOLIO MANAGER BIOGRAPHIES:
The following section provides biographical information about each of the Funds' portfolio managers and certain other investment personnel. Additional information regarding the portfolio managers' compensation, other accounts managed by these portfolio managers and their ownership of shares of the Funds each manages is available in the Statement of Additional Information.
RUPAL J. BHANSALI Ms. Bhansali joined MacKay Shields as Managing Director and Head of the International Equity Division Product in 2001. Ms. Bhansali was previously the co-head of the international equity division at Oppenheimer Capital, where she managed various institutional and retail international equity portfolios from 1995 to 2000. She assumed responsibilities as Portfolio Manager for the International Equity Fund in 2001. Earlier in her career, Ms. Bhansali worked in various capacities doing investment research and advisory work at Soros Fund Management, Crosby Securities and ICICI Ltd. She has over 10 years of experience in the industry. Ms. Bhansali received her MBA in finance from the University of Rochester and an undergraduate degree in business from the University of Bombay.
MARK G. DEFRANCO Mr. DeFranco has co-managed the MAP Fund since November 2002. Mr. DeFranco is an Executive Vice President, Opportunistic Equity Portfolio Manager/Research. As a member of Jennison's Opportunistic Equity team, he co-manages approximately $3 billion in assets. Mr. DeFranco joined Jennison in December 1998 and has over 19 years of experience in the investment industry. Before joining Jennison, he was a precious metal equity analyst and portfolio manager at Pomboy Capital from 1995 until 1998. Mr. DeFranco graduated with a M.B.A. in Finance from Columbia University
Graduate School of Business in 1987 and received a B.A. in Economics from Bates College in 1983.
BRIAN M. GILLOTT Mr. Gillott has co-managed the MAP Fund since November 2002. Mr. Gillott is an Executive Vice President, Opportunistic Equity Portfolio Manager/Research. He is a seven-year veteran of Jennison's Opportunistic Equity team and co-manages approximately $3 billion in assets. Mr. Gillott joined Jennison in September 1998 from Soros Fund Management, where he was an equity analyst following a variety of industries for the company's global hedge fund. Mr. Gillott received a B.S. with honors from Penn State University in 1995.
JUSTIN H. KELLY, CFA Mr. Kelly is a Managing Director and portfolio manager of Winslow Capital with responsibility for large cap growth stocks. Previously, Mr. Kelly was a Vice President and co-head of the Technology Team at Investment Advisers, Inc. in Minneapolis from 1997-1999. For the prior four years, he was an investment banker in New York City for Prudential Securities and then Salomon Brothers. Mr. Kelly received a B.S. degree Summa Cum Laude in 1993 from Babson College where he majored in Finance/Investments. He is also a Chartered Financial Analyst.
ROGER LOB Mr. Lob has an MBA from Columbia Business School, is a Member of Markston International and has been a portfolio manager for the MAP Fund, or its predecessors, since 1987.
CHRISTOPHER MULLARKEY Mr. Mullarkey has an MBA from Stern School of Business at New York University, is a Member of Markston International, has over thirteen years of experience in the investment business and has been a portfolio manager for the MAP Fund since 2002.
MICHAEL J. MULLARKEY Mr. Mullarkey has an MBA from Harvard Business School, is Managing Member of Markston International and has been a portfolio manager of the MAP Fund, or its predecessors, since 1981.
EDMUND C. SPELMAN Mr. Spelman has managed the Mid Cap Growth Fund since inception. Mr. Spelman is a Senior Managing Director of MacKay Shields and specializes in equity securities. He joined MacKay Shields in 1991 after working as a securities analyst at Oppenheimer & Co., Inc. from 1984 to 1991.
R. BART WEAR, CFA Mr. Wear is a Managing Director and portfolio manager of Winslow Capital and has been with the firm since 1997. He previously was a partner and equity manager at Baird Capital Management in Milwaukee, Wisconsin. Prior to that, he was the lead equity manager and analyst of the mid-to-large capitalization growth product at Firstar Investment Research and Management Company, where he was responsible for management of over $2 billion in separately managed institutional accounts, mutual funds and commingled trust funds. Mr. Wear graduated with honors from Arizona State University in 1982 where he majored in finance. He is also a Chartered Financial Analyst.
CLARK J. WINSLOW Mr. Winslow has served as the Chief Executive Officer and a portfolio manager of Winslow Capital since 1992. Mr. Winslow has 40 years of investment experience and has managed portfolios since 1975. He began his career as an institutional research analyst in 1966. Mr. Winslow has a B.A. from Yale University and an M.B.A. from the Harvard Business School.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the Funds' financial performance for the past five fiscal years. Certain information reflects financial results for a single Fund share. The total returns in the tables represent the rate that an investor would have earned or lost on an investment in the Funds (assuming reinvestment of all dividends and capital gain distributions and excluding all sales charges). The information for all Funds except Large Cap Growth Fund for the years ended October 31, 2005 and 2004, has been audited by KPMG LLP, whose report, along with the Funds' financial statements, is included in the annual reports, which are available upon request. For all prior periods ended on or before October 31, 2003, the information provided was audited by another auditor.
With respect to Large Cap Growth Fund, from July 1, 1995 until March 31, 2005, the Fund operated as the FMI Winslow Growth Fund ("Winslow Fund"). Upon the completion of the reorganization of the Winslow Fund with and into the Large Cap Growth Fund on March 31, 2005, the Class A shares of the Fund assumed the performance, financial and other historical information of the Winslow Fund. The information for the years ended 2000 through 2004 has been audited by the Winslow Fund's independent registered public accounting firm. Information for the fiscal periods ended October 31, 2005 and June 30, 2005, has been audited by KPMG LLP, whose report, along with the Large Cap Growth Fund's financial statements, are included in the annual report of the Fund, which is available upon request.
Because the Funds' Class R3 shares had not yet commenced operations as of the date of this Prospectus, the financial highlights shown are for the Class B shares of the International Equity and Mid Cap Growth Funds, Class A shares of the Large Cap Growth Fund and Class I shares of the MAP Fund, none of which are offered in this Prospectus.
FINANCIAL HIGHLIGHTS
LARGE CAP GROWTH FUND
Class A
------------------------------------------------------------------------
July 1,
2005*
through Year Ended June 30,
October 31, -------------------------------------------------------
2005 2005 2004 2003 2002 2001
----------- ------- ------ ------ ------ ------
Net asset value at beginning of period............... $ 5.06 $ 4.69 $ 3.96 $ 3.92 $ 5.07 $11.62
------- ------- ------ ------ ------ ------
Net investment loss (a)............................. (0.01) (0.03) (0.03) (0.03) (0.03) (0.05)
Net realized and unrealized gain (loss) on
investments....................................... 0.26 0.40 0.76 0.07 (1.12) (1.94)
------- ------- ------ ------ ------ ------
Total from investment operations..................... 0.25 0.37 0.73 0.04 (1.15) (1.99)
------- ------- ------ ------ ------ ------
Less distributions:
From net realized gain on investments............... -- -- -- -- -- (4.56)
------- ------- ------ ------ ------ ------
Net asset value at end of period..................... $ 5.31 $ 5.06 $ 4.69 $ 3.96 $ 3.92 $ 5.07
======= ======= ====== ====== ====== ======
Total investment return (b).......................... 4.94%(c) 7.89% 18.43% 1.02% (22.53)% (20.54)%
Ratios (to average net assets)/
Supplemental Data:
Net investment income (loss)...................... (0.77)%+ (0.29)% (0.77)% (0.74)% (0.73)% (0.70)%
Net expenses...................................... 1.40%+ 1.35% 1.30% 1.30% 1.30% 1.30%
Expenses (before waiver/reimbursement)............ 1.77%+ 3.01% 2.78% 3.17% 2.71% 1.87%
Portfolio turnover rate.............................. 29% 27% 94% 108% 71% 112%
Net assets at end of period (in 000's)............... $71,859 $67,000 $4,926 $3,972 $4,144 $5,860
|
* The Fund changed its fiscal year end from June 30 to October
31.
+ Annualized.
(a) Per share data based on average shares outstanding during
the period.
(b) Total return is calculated exclusive of sales charges.
(c) Total return is not annualized.
|
FINANCIAL HIGHLIGHTS
MAP FUND
Class I
----------------------------------------------------------------------------------
January 1,
Year ended 2003*
October 31, through Year ended December 31,
------------------------ October 31, -----------------------------------
2005 2004 2003 2002 2001 2000
-------- -------- ----------- -------- -------- -------
Net asset value at beginning of
period................................ $ 32.37 $ 28.19 $ 22.03 $ 27.75 $ 27.31 $ 26.25
-------- -------- -------- -------- -------- -------
Net investment income (loss)........... 0.24(a)(d) 0.09(a) 0.00(a)(c) 0.19 0.07 0.12
Net realized and unrealized gain (loss)
on investments........................ 4.20 4.09 6.16 (5.69) 0.58 4.13
-------- -------- -------- -------- -------- -------
Total from investment operations....... 4.44 4.18 6.16 (5.50) 0.65 4.25
-------- -------- -------- -------- -------- -------
Less distributions:
From net investment income............ -- -- -- (0.16) (0.07) (0.03)
From net realized gain on
investments......................... (1.31) -- -- (0.06) (0.14) (3.16)
-------- -------- -------- -------- -------- -------
Total dividends and distributions...... (1.31) -- -- (0.22) (0.21) (3.19)
-------- -------- -------- -------- -------- -------
Net asset value at end of period....... $ 35.50 $ 32.37 $ 28.19 $ 22.03 $ 27.75 $ 27.31
======== ======== ======== ======== ======== =======
Total investment return................ 13.96% 14.83% 27.96%(b) (19.81%) 2.36% 16.88%
Ratios (to average net assets)/
Supplemental Data:
Net investment income (loss)........ 0.69%(d) 0.31% 0.08%+ 0.88% 0.62% 0.37%
Net expenses........................ 0.95% 0.99% 1.10%+ 1.08% 1.00% 1.00%
Expenses (before reimbursement)..... 0.97% 1.02% 1.20%+ 1.19% 1.18% 1.19%
Portfolio turnover rate................ 56% 64% 61% 77% 19% 40%
Net assets at end of period (in
000's)................................ $320,099 $274,975 $183,283 $115,186 $ 96,726 $69,434
|
* The Fund changed its fiscal year end from December 31 to
October 31.
+ Annualized.
(a) Per share data based on average shares outstanding during
the period.
(b) Total return is not annualized.
(c) Less than one cent per share.
(d) Net investment income (loss) and the ratio of net investment
income (loss) includes $0.04 per share and 0.11%,
respectively
as a result of a special one time dividend from Microsoft
Corp.
|
FINANCIAL HIGHLIGHTS
MID CAP GROWTH FUND
Class B
-----------------------------------------------------------------------------
January 1, January 2,
Year ended 2003** 2001*
October 31, through Year ended through
--------------------- October 31, December 31, December 31,
2005 2004 2003 2002 2001
------- ------- ----------- ------------ ------------
Net asset value at beginning of period..... $ 8.82 $ 8.05 $ 5.77 $ 8.18 $10.00
------- ------- ------- ------ ------
Net investment loss (a).................... (0.17) (0.15) (0.11) (0.13) (0.14)
Net realized and unrealized gain (loss) on
investments............................... 2.33 0.92 2.39 (2.28) (1.68)
------- ------- ------- ------ ------
Total from investment operations........... 2.16 0.77 2.28 (2.41) (1.82)
------- ------- ------- ------ ------
Net asset value at end of period........... $ 10.98 $ 8.82 $ 8.05 $ 5.77 $ 8.18
======= ======= ======= ====== ======
Total investment return (b)................ 24.49% 9.57% 39.51%(c) (29.46%) (18.20%)
Ratios (to average net assets)/
Supplemental Data:
Net investment loss..................... (1.66%) (1.74%) (1.96%)+ (1.97%) (1.76%)
Net expenses............................ 2.25% 2.25% 2.25%+ 2.25% 2.25%
Expenses (before reimbursement)......... 2.38% 2.44% 2.70%+ 2.56% 2.62%
Portfolio turnover rate.................... 44% 52% 42% 188% 127%
Net assets at end of period (in 000's)..... $62,792 $35,710 $21,189 $7,899 $5,299
|
* Commencement of operations.
The Fund changed its fiscal year end from December 31 to
** October 31.
+ Annualized.
Per share data based on average shares outstanding during
(a) the period.
(b) Total return is calculated exclusive of sales charges.
(c) Total return is not annualized.
|
FINANCIAL HIGHLIGHTS
INTERNATIONAL EQUITY FUND
Class B
-------------------------------------------------------------------------------
January 1,
Year ended 2003*
October 31, through Year ended December 31,
------------------------- October 31, -------------------------------------
2005 2004 2003 2002 2001 2000
----------- ----------- ----------- ------- ------- -------
Net asset value at beginning of
period............................ $ 11.44 $ 10.09 $ 8.44 $ 8.88 $ 10.70 $ 14.95
------- ------- ------- ------- ------- -------
Net investment income (loss)....... 0.05(a) (0.02)(a) 0.02(a) (0.08)(a) (0.07)(a) (0.17)(a)
Net realized and unrealized gain
(loss) on investments............. 1.53 1.41 1.57 (0.41) (1.79) (2.98)
Net realized and unrealized gain
(loss) on foreign currency
transactions...................... (0.14) 0.03 0.04 0.05 0.11 (0.12)
------- ------- ------- ------- ------- -------
Total from investment operations... 1.44 1.42 1.63 (0.44) (1.75) (3.27)
------- ------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income........ -- (0.07) -- -- (0.01) --
From net realized gain on
investments..................... -- -- -- -- (0.06) (0.98)
------- ------- ------- ------- ------- -------
Total dividends and
distributions..................... -- (0.07) -- -- (0.07) (0.98)
------- ------- ------- ------- ------- -------
Redemption fee (a)................. 0.00(d) 0.00(d) 0.02 -- -- --
------- ------- ------- ------- ------- -------
Net asset value at end of period... $ 12.88 $ 11.44 $ 10.09 $ 8.44 $ 8.88 $ 10.70
======= ======= ======= ======= ======= =======
Total investment return (b)........ 12.59% 14.16% 19.55%(c) (4.95%) (16.34%) (21.71%)
Ratios (to average net assets)/
Supplemental Data:
Net investment income (loss).... 0.40% (0.15%) 0.24%+ (0.80%) (0.82%) (1.31%)
Net expenses.................... 2.49% 2.65% 3.02%+ 3.01% 2.92% 2.90%
Expenses (before
reimbursement)................. 2.51% -- -- -- -- --
Portfolio turnover rate............ 51% 54% 71% 102% 129% 30%
Net assets at end of period (in
000's)............................ $88,410 $69,882 $56,490 $46,779 $51,887 $70,182
|
* The Fund changed its fiscal year end from December 31 to
October 31.
+ Annualized.
(a) Per share date based on average shares outstanding during
the period.
(b) Total return is calculated exclusive of sales charges.
(c) Total return is not annualized.
(d) Less than one cent per share.
|
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[MAINSTAY LOGO]
[RECYCLE LOGO]
No dealer, salesman or any other person is authorized to give any information or to make any representations other than those contained in this Prospectus and in the related Statement of Additional Information, in connection with the offer contained in this Prospectus, and, if given or made, such other information or representations must not be relied upon as having been authorized by the Funds or the Distributor. This Prospectus and the related Statement of Additional Information do not constitute an offer by the Funds or by the Distributor to sell or a solicitation of any offer to buy any of the securities offered hereby in any jurisdiction or to any person to whom it is unlawful to make such offer in such jurisdiction.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about the Funds. The current SAI is incorporated by
reference into the Prospectus and has been filed with the SEC.
ANNUAL/SEMIANNUAL REPORTS
Provide additional information about the Funds' investments and include discussions of market conditions and investment strategies that significantly affected the Funds' performance during the last fiscal year.
TO OBTAIN INFORMATION:
More information about the Funds, including the SAI and the Annual/Semiannual
Reports, is available, without charge, upon request. To obtain information, or
for shareholder inquiries, call toll-free 1-800-MAINSTAY (1-800-624-6782), visit
our website at www.mainstayfunds.com, or write to NYLIFE Distributors LLC, attn:
MainStay Marketing Dept., 169 Lackawanna Avenue, Parsippany, New Jersey 07054.
You can also review and copy information about the Funds (including the SAI) by visiting the SEC's Public Reference Room in Washington, DC (phone 1-202-942-8090). This information is also available on the EDGAR database on the SEC's Internet site at http://www.sec.gov. Copies of this information may be obtained by paying a duplicating fee and sending an e-mail to publicinfo@sec.gov or writing the SEC's Public Reference Section, Washington, DC 20549-0102.
NYLIFE DISTRIBUTORS LLC
169 Lackawanna Avenue
Parsippany, New Jersey 07054
NYLIFE Distributors LLC is the Distributor of
the MainStay Funds.
The MainStay Funds
SEC File Number: 811-04550
For more information call 1-800-MAINSTAY (1-800-624-6782) or visit our website at www.mainstayfunds.com.
MS01bR3-04/06
THE MAINSTAY FUNDS
STATEMENT OF ADDITIONAL INFORMATION
FOR CLASS A, CLASS B, CLASS C,
CLASS I, CLASS R1, CLASS R2 AND CLASS R3 SHARES
MARCH 1, 2006
AS REVISED APRIL 28, 2006
Although not a prospectus, this Statement of Additional Information (the "SAI") supplements the information contained in the prospectus dated March 1, 2006 for the Class A, Class B, Class C, Class I, Class R1 and Class R2 shares, and the prospectus dated April 28, 2006 for the Class R3 shares, of certain separate investment series (collectively, the "Funds") of The MainStay Funds, a Massachusetts business trust (the "Trust"), as amended or supplemented from time to time (collectively, the "Prospectus"). This SAI is incorporated by reference in and is made a part of the Prospectus, and should be read in conjunction with the Prospectus. The Prospectus is available without charge by writing to MainStay Investments, 169 Lackawanna Avenue, Parsippany, New Jersey 07054, or by calling toll free 1-800-MAINSTAY (1-800-624-6782).
No dealer, salesman or any other person has been authorized to give any information or to make any representations, other than those contained in this SAI or in the related Prospectus, in connection with the offer contained herein, and, if given or made, such other information or representations must not be relied upon as having been authorized by the Trust or NYLIFE Distributors LLC (the "Distributor"). This SAI and the Prospectus do not constitute an offer by the Trust or the Distributor to sell or a solicitation of an offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction.
Shareholder inquiries should be made by writing directly to NYLIM Service Company LLC ("NYLIM SC" doing business as "MainStay Investments"), the Trust's transfer agent and an affiliate of New York Life Investment Management LLC, P.O. Box 8401, Boston, Massachusetts 02266-8401, or by calling toll free 1-800-MAINSTAY (1-800-624-6782). In addition, you can make inquiries through your registered representative.
The financial statements of the Funds (as defined herein), including the Financial Highlights for the fiscal year ended October 31, 2005, as presented in the 2005 Annual Reports to Shareholders and the Report to Shareholders thereon of KPMG LLP, independent registered public accounting firm, appearing therein are incorporated by reference into this SAI.
In connection with the Equity Index Fund Guarantee, an audited consolidated financial statement for NYLIFE LLC and subsidiaries, as of December 31, 2005 is included in this SAI.
MS14b-04/06
TABLE OF CONTENTS
THE MAINSTAY FUNDS........................................................ 1
ADDITIONAL INFORMATION ABOUT the FUNDS.................................... 1
CAPITAL APPRECIATION FUND.............................................. 1
COMMON STOCK FUND...................................................... 1
CONVERTIBLE FUND....................................................... 2
DIVERSIFIED INCOME FUND................................................ 2
EQUITY INDEX FUND...................................................... 3
GLOBAL HIGH INCOME FUND................................................ 3
GOVERNMENT FUND........................................................ 3
HIGH YIELD CORPORATE BOND FUND......................................... 4
INTERNATIONAL EQUITY FUND.............................................. 4
LARGE CAP GROWTH FUND.................................................. 5
MAP FUND............................................................... 5
MID CAP GROWTH FUND.................................................... 5
MID CAP VALUE FUND..................................................... 5
MONEY MARKET FUND...................................................... 6
SMALL CAP GROWTH FUND.................................................. 7
SMALL CAP VALUE FUND................................................... 8
TAX FREE BOND FUND..................................................... 8
TOTAL RETURN FUND...................................................... 8
VALUE FUND............................................................. 9
THE EQUITY INDEX FUND GUARANTEE........................................... 9
INVESTMENT PRACTICES, INSTRUMENTS AND RISKS COMMON TO MULTIPLE FUNDS...... 11
NONE OF THE FUNDS ALONE CONSTITUTES A COMPLETE INVESTMENT PROGRAM......... 11
ARBITRAGE.............................................................. 11
BANK OBLIGATIONS....................................................... 11
BORROWING.............................................................. 12
BRADY BONDS............................................................ 12
COMMERCIAL PAPER....................................................... 12
CONVERTIBLE SECURITIES................................................. 13
DEBT SECURITIES........................................................ 14
DEPOSITARY RECEIPTS.................................................... 15
EXCHANGE TRADED FUNDS.................................................. 15
FIRM OR STANDBY COMMITMENTS - OBLIGATIONS WITH PUTS ATTACHED........... 15
FLOATING AND VARIABLE RATE SECURITIES.................................. 16
FLOATING RATE LOANS.................................................... 17
FOREIGN CURRENCY TRANSACTIONS.......................................... 18
FOREIGN GOVERNMENT AND SUPRANATIONAL ENTITY SECURITIES................. 20
FOREIGN INDEX-LINKED INSTRUMENTS....................................... 21
FOREIGN SECURITIES..................................................... 21
FUTURES TRANSACTIONS................................................... 22
ILLIQUID SECURITIES.................................................... 27
INDUSTRIAL DEVELOPMENT AND POLLUTION CONTROL BONDS..................... 27
INVESTMENT COMPANIES................................................... 28
LENDING OF PORTFOLIO SECURITIES........................................ 28
LOAN PARTICIPATION INTERESTS........................................... 28
MORTAGE DOLLAR ROLLS................................................... 29
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES..................... 30
MUNICIPAL SECURITIES................................................... 35
OPTIONS ON FOREIGN CURRENCIES.......................................... 37
OPTIONS ON SECURITIES.................................................. 38
OPTIONS ON SECURITIES INDICES.......................................... 41
REAL ESTATE INVESTMENT TRUSTS ("REITs")................................ 41
REPURCHASE AGREEMENTS.................................................. 42
RESTRICTED SECURITIES -
RULE 144A SECURITIES AND SECTION 4(2) COMMERCIAL PAPER ................ 43
REVERSE REPURCHASE AGREEMENTS.......................................... 44
RISKS OF INVESTING IN HIGH YIELD SECURITIES ("JUNK BONDS")............. 44
SHORT SALES AGAINST THE BOX............................................ 45
SOURCES OF LIQUIDITY OR CREDIT SUPPORT................................. 45
STRIPPED SECURITIES.................................................... 45
SWAP AGREEMENTS........................................................ 46
TEMPORARY DEFENSIVE POSITION; CASH EQUIVALENTS......................... 47
U.S. GOVERNMENT SECURITIES............................................. 47
UNFUNDED LOAN COMMITMENTS.............................................. 47
VARIABLE RATE DEMAND NOTES ("VRDNs")................................... 48
WARRANTS............................................................... 48
WHEN-ISSUED SECURITIES................................................. 49
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ZERO COUPON BONDS...................................................... 49
ANTICIPATED USE OF INVESTMENTS............................................ 49
FUNDAMENTAL INVESTMENT RESTRICTIONS....................................... 51
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS................................... 52
NON-FUNDAMENTAL POLICIES RELATED TO FUND NAMES............................ 53
TRUSTEES AND OFFICERS..................................................... 55
MANAGEMENT............................................................. 55
BOARD OF TRUSTEES...................................................... 58
COMPENSATION........................................................... 60
CODES OF ETHICS........................................................ 61
THE MANAGER, THE SUBADVISORS AND THE DISTRIBUTOR.......................... 61
MANAGEMENT AGREEMENT................................................... 61
SUBADVISORY AGREEMENTS................................................. 62
DISTRIBUTION AGREEMENT................................................. 65
DISTRIBUTION PLANS..................................................... 66
SHAREHOLDER SERVICES PLAN; SERVICE FEES................................ 73
OTHER SERVICES......................................................... 74
EXPENSES BORNE BY THE TRUST............................................ 74
PROXY VOTING POLICIES AND PROCEDURES...................................... 75
DISCLOSURE OF PORTFOLIO HOLDINGS.......................................... 78
PORTFOLIO MANAGERS........................................................ 79
PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... 83
NET ASSET VALUE........................................................... 90
HOW PORTFOLIO SECURITIES ARE VALUED.................................... 90
SHAREHOLDER INVESTMENT ACCOUNT............................................ 92
SHAREHOLDER TRANSACTIONS.................................................. 92
PURCHASE, REDEMPTION, EXCHANGES AND REPURCHASE............................ 92
HOW TO PURCHASE SHARES OF THE FUNDS.................................... 92
GENERAL INFORMATION.................................................... 92
BY MAIL................................................................ 93
BY TELEPHONE........................................................... 93
BY WIRE................................................................ 93
ADDITIONAL INVESTMENTS................................................. 94
SYSTEMATIC INVESTMENT PLANS............................................ 94
PURCHASES IN KIND...................................................... 94
ALTERNATIVE SALES ARRANGEMENTS......................................... 94
INITIAL SALES CHARGE ALTERNATIVE CLASS A SHARES........................ 94
PURCHASES AT NET ASSET VALUE........................................... 96
REDUCED SALES CHARGES ON CLASS A SHARES................................ 97
LETTER OF INTENT (LOI)................................................. 97
CONTINGENT DEFERRED SALES CHARGE, CLASS A.............................. 97
CONTINGENT DEFERRED SALES CHARGE, CLASS B.............................. 98
CONTINGENT DEFERRED SALES CHARGE, CLASS C.............................. 99
PURCHASES AND REDEMPTIONS................................................. 100
REDEMPTION FEE......................................................... 101
SYSTEMATIC WITHDRAWAL PLAN............................................. 101
REDEMPTIONS IN KIND.................................................... 101
SUSPENSION OF REDEMPTIONS.............................................. 101
EXCHANGE PRIVILEGES.................................................... 102
REDEMPTION BY CHECK.................................................... 102
DISTRIBUTIONS AND REDEMPTIONS FOR EQUITY INDEX FUND.................... 103
TAX-DEFERRED RETIREMENT PLANS............................................. 103
INDIVIDUAL RETIREMENT ACCOUNT ("IRA").................................. 104
403(b)(7) TAX SHELTERED ACCOUNT........................................ 105
GENERAL INFORMATION.................................................... 105
TAX INFORMATION........................................................... 105
TAXATION OF THE FUNDS.................................................. 106
CHARACTER OF DISTRIBUTIONS TO SHAREHOLDERS -- GENERAL.................. 106
CHARACTER OF DISTRIBUTIONS TO SHAREHOLDERS -- THE TAX FREE BOND FUND... 107
FEDERAL INCOME TAX CAPITAL LOSS CARRYFORWARDS.......................... 108
DISPOSITIONS OF FUND SHARES............................................ 110
FOREIGN CURRENCY GAINS AND LOSSES...................................... 111
DISCOUNT............................................................... 111
TAXATION OF OPTIONS, FUTURES AND SIMILAR INSTRUMENTS................... 112
FOREIGN TAXES.......................................................... 112
PASSIVE FOREIGN INVESTMENT COMPANIES................................... 113
TAX REPORTING REQUIREMENTS AND BACKUP WITHHOLDING...................... 114
STATE AND LOCAL TAXES.................................................. 114
FOREIGN SHAREHOLDERS................................................... 114
ADDITIONAL INFORMATION REGARDING THE EQUITY INDEX FUND................. 114
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OTHER INFORMATION......................................................... 115 ORGANIZATION AND CAPITALIZATION........................................ 115 VOTING RIGHTS.......................................................... 115 SHAREHOLDER AND TRUSTEE LIABILITY...................................... 115 REGISTRATION STATEMENT................................................. 116 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.......................... 116 TRANSFER AGENT......................................................... 116 CUSTODIAN.............................................................. 116 LEGAL COUNSEL.......................................................... 117 CONTROL PERSONS AND BENEFICIAL SHARE OWNERSHIP OF THE FUNDS............ 117 APPENDIX A: DESCRIPTION OF SECURITIES RATINGS............................. A-1 APPENDIX B: CONSOLIDATED FINANCIAL STATEMENTS OF NYLIFE LLC............... B-1 |
THE MAINSTAY FUNDS
The MainStay Funds (the "Trust") is an open-end management investment company (or mutual fund), organized as a Massachusetts business trust by an Agreement and Declaration of Trust dated January 9, 1986, as amended. The Trust has an unlimited authorized number of shares of beneficial interest that may, without shareholder approval, be divided into any number of portfolio of shares, subject to the requirements of the Investment Company Act of 1940, as amended (the "1940 Act"). Shares of the Trust are currently offered in 19 separate portfolios: Capital Appreciation Fund, Common Stock Fund, Convertible Fund, Diversified Income Fund, Equity Index Fund, Global High Income Fund, Government Fund, High Yield Corporate Bond Fund, International Equity Fund, Large Cap Growth Fund, MAP Fund, Mid Cap Growth Fund, Mid Cap Value Fund, Money Market Fund, Small Cap Growth Fund, Small Cap Value Fund, Tax Free Bond Fund, Total Return Fund, and Value Fund (individually referred to as a "Fund" or, collectively, the "Funds"). Each Fund, other than Equity Index Fund and Global High Income Fund, is a diversified fund as defined by the 1940 Act. The Equity Index Fund was closed to new investors and new share purchases on January 1, 2002.
New York Life Investment Management LLC ("NYLIM" or the "Manager") serves as the investment adviser for the Funds and has entered into Subadvisory Agreements with Markston International LLC ("Markston") and Jennison Associates LLC ("Jennison"), with respect to the MAP Fund; Winslow Capital Management Inc. ("Winslow") with respect to the Large Cap Growth Fund; MacKay Shields LLC ("MacKay Shields") with respect to the Capital Appreciation Fund, Convertible Fund, Diversified Income Fund, Global High Income Fund, Government Fund, High Yield Corporate Bond Fund, International Equity Fund, Mid Cap Growth Fund, Mid Cap Value Fund, Money Market Fund, Small Cap Growth Fund, Small Cap Value Fund, Tax Free Bond Fund, Total Return Fund and Value Fund. MacKay Shields, Winslow, Markston and Jennison are sometimes jointly referred to as the "Subadvisors" and individually as a "Subadvisor." There are no subadvisors for the Common Stock Fund and the Equity Index Fund.
ADDITIONAL INFORMATION ABOUT THE FUNDS
The Prospectus discusses the investment objectives, strategies, risks and expenses of the Funds. This section contains supplemental information concerning certain securities and other instruments in which the Funds may invest, the investment policies and portfolio strategies that the Funds may utilize, and certain risks involved with those investment policies and strategies. Subject to the limitations set forth herein and in the Funds' Prospectus, the Manager or the Subadvisors may, in its discretion, at any time, employ such practice, technique or instrument for one or more Funds but not for all of the Funds. Furthermore, it is possible that certain types of financial instruments or investment techniques described herein may not be available, permissible, economically feasible, or effective for their intended purposes in all markets. Certain practices, techniques, or instruments may not be principal activities of a Fund but, to the extent employed, could from time to time have a material impact on that Fund's performance.
CAPITAL APPRECIATION FUND
The Capital Appreciation Fund seeks long-term growth of capital. The Fund normally invests in securities of U.S. companies with investment characteristics such as: (1) participation in expanding product or service markets; (2) increasing unit sales volume; (3) increasing return on investment; and (4) growth in revenues and earnings per share superior to that of the average of common stocks comprising indices such as the S&P 500(R) Index.
The Fund maintains a flexible approach towards investing in various types of companies as well as types of securities, including common stocks, preferred stocks, warrants and other equity securities, depending upon the economic environment and the relative attractiveness of the various securities markets.
COMMON STOCK FUND
The Common Stock Fund seeks long-term growth of capital, with income as a secondary consideration. The Fund normally invests at least 80% of its net assets, plus borrowings, in common stocks. The Fund normally invests in common stocks of well-established, well-managed U.S. companies that appear to have better than average potential for capital appreciation and have market capitalizations that, at the time of investment, are similar to companies in the S&P 500(R) Index and the Russell 1000(R) Index.
In order to meet the Fund's investment objective, the Manager seeks to identify companies that are considered to represent good value based on historical investment standards, including price/book value ratios and price/earnings ratios. The Manager uses a "bottom up" approach that assesses stocks based on their individual strengths, rather than focusing on the underlying sectors/industries
of those stocks or on general economic trends. A bottom up approach selects stocks based on their individual strengths, rather than focusing on the underlying sectors/industries of those stocks or on general economic trends.
CONVERTIBLE FUND
In selecting convertible securities for purchase or sale for the Convertible Fund, the Subadvisor takes into account a variety of investment considerations, including credit risk, projected interest return and the premium for the convertible security relative to the underlying common stock. The Fund may sell short against the box (see "Short Sales Against the Box"), among other reasons, to hedge against a possible market decline in the value of the security owned or to enhance liquidity.
DIVERSIFIED INCOME FUND
In managing the Diversified Income Fund, the Subadvisor conducts a continuing review of yields and other information derived from a data base which it maintains in managing fixed-income portfolios. Fundamental economic cycle analysis, credit quality and interest rate trends are among the principal factors considered by the Subadvisor in determining whether to increase or decrease the emphasis placed upon a particular type of security or bond market sector within the Fund's investment portfolio.
In making investment decisions with respect to maturity shifts, the Subadvisor takes into account a broad range of fundamental and technical indicators. The Subadvisor will alter the average maturity of the portfolio in accordance with its judgment based on the research and other methods described above.
In seeking a competitive overall return, capital appreciation may be sought by lengthening the maturities of high yield debt securities held in the Fund's portfolio during periods when the Subadvisor expects interest rates to decline. If the Subadvisor is incorrect in its expectations of changes in interest rates, or in its evaluation of the normal yield relationship between two securities, the Fund's income, net asset value ("NAV") and potential capital gains could decrease, or the potential loss could increase. This and other factors may affect the income available for distribution to shareholders.
Since available yields and yield differentials vary over time, no specific level of income or yield differential can ever be ensured.
Debt securities in which the Fund may invest include all types of debt obligations of both domestic and foreign issuers, such as bonds, debentures, notes, equipment lease certificates, equipment trust certificates, conditional sales contracts, commercial paper, foreign government securities and U.S. government securities (including obligations, such as repurchase agreements, secured by such instruments).
The Fund may invest up to 30% of its total assets in equity securities. These may include capital notes, which are securities representing beneficial interests in a trust for which the controlling common stock is owned by a bank holding company. These beneficial interests are commonly issued as preferred stock but may also be issued as other types of instruments. The trust owns debentures issued by the bank holding company and issues the preferred stock to investors.
In making investments in foreign securities the Subadvisor will determine, using good faith judgment: (1) country allocation; (2) currency exposure (asset allocation across currencies); and (3) diversified security holdings within each market. The Subadvisor may consider factors such as prospects for currency exchange and interest rates and inflation in each country, relative economic growth, government policies influencing exchange rates and business conditions, and quality of individual issuers.
To hedge the market value of securities held, proposed to be held or sold or relating to foreign currency exchange rates, the Fund may enter into or purchase securities or securities index options, foreign currency options, and futures contracts and related options with respect to securities, indices of securities, or currencies. The Fund also may buy and sell currencies on a spot or forward basis. Subject to compliance with applicable rules, futures contracts and related options may be used for any legally permissible purpose, including as a substitute for acquiring a basket of securities and to reduce transaction costs. The Fund may also purchase and sell foreign currency exchange contracts for purposes of seeking to enhance portfolio returns and manage portfolio risk more efficiently.
Generally, the average maturity of the foreign securities held by the Fund will be shorter when interest rates worldwide or in a particular country are expected to rise, and longer when interest rates are expected to fall. The Fund may use various techniques to shorten or lengthen the dollar-weighted average maturity of its portfolio, including transactions in futures and options on futures, interest rate swaps, caps, floors and short sales against the box.
The duration of the Fund's portfolio will be managed in light of current and projected economic and market conditions and other factors considered relevant by the Subadvisor.
The Subadvisor seeks to reduce risk through diversification, credit analysis and attention to current developments and trends in both the economy and financial markets.
EQUITY INDEX FUND
The Equity Index Fund is closed to new investors and new share purchases.
The Fund seeks to provide investment results that correspond to the total return performance of the S&P 500(R) Index. The Fund regularly monitors how well its performance corresponds to that Index and seeks to take corrective action whenever the correlation between the Fund's performance and the Index is less than 0.95.
When the Fund has cash reserves, the Fund may invest in S&P 500(R) Index Futures, cash equivalents, U.S. government securities and repurchase agreements with respect thereto. The Fund may also invest up to 25% of its total assets in securities of issuers in one industry (unless the Index exceeds that concentration) and lend up to 30% of its total assets to financial institutions.
GLOBAL HIGH INCOME FUND
The Fund normally invests at least 65% of its net assets, plus any
borrowings, in high-yield securities. In making investments for the foreign and
emerging markets sectors of the Global High Income Fund, the Subadvisor
considers factors such as prospects for currency exchange and interest rates,
and inflation in each country, relative economic growth, government policies
influencing exchange rates and business conditions, and credit quality of
individual issuers. The Subadvisor also determines, using good faith judgment,
(1) the percentage of the Fund's assets to be invested in each emerging market;
(2) currency exposure (asset allocation across currencies); and (3) diversified
security holdings within each market.
Investors should understand that international fixed income investments involve more risk than comparable domestic securities, due, in part, to fluctuating currency values.
The Fund may invest in participation interests in loans. Such participation interests, which may take the form of interests in, or assignments of, loans, are acquired from banks which have made loans or are members of lending syndicates. The Fund's investments in loan participation interests will be subject to its limitation on investments in securities rated below investment grade.
To hedge the market value of securities held, proposed to be held or sold or relating to foreign currency exchange rates, the Fund may enter into or purchase securities or securities index options, foreign currency options, and futures contracts and related options with respect to securities, indices of securities, or currencies. The Fund also may buy and sell currencies on a spot or forward basis. Subject to compliance with applicable rules, futures contracts and related options may be used for any legally permissible purpose, including as a substitute for acquiring a basket of securities and to reduce transaction costs. The Fund may also purchase and sell foreign exchange contracts and foreign currency options for purposes of seeking to enhance portfolio returns and manage portfolio risk more efficiently. The Fund is not obligated to use any of these instruments, but its Subadvisor may do so, when, in its discretion, it believes it advisable.
GOVERNMENT FUND
The Government Fund seeks to achieve its investment objective by investing principally in U.S. government securities, which include obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities which are supported by: (1) the full faith and credit of the U.S. government (e.g., Government National Mortgage Association ("GNMA") certificates); (2) the right of the issuer to borrow an amount limited to a specific line of credit from the U.S. government; (3) the credit of the instrumentality (e.g., bonds issued by the Federal National Mortgage Association ("FNMA")); or (4) the discretionary authority of the U.S. government to purchase certain obligations of U.S. government agencies or instrumentalities.
The agencies and instrumentalities that issue U.S. government securities include, among others: Federal Land Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal Intermediate Credit Banks, Federal Farm Credit Bank, Student Loan Marketing Association and U.S. Maritime Administration.
The Fund anticipates that a significant portion of its portfolio may consist of Treasury bonds, GNMA mortgage-backed certificates and other U.S. government securities representing ownership interests in mortgage pools, such as securities issued by FNMA and the Federal Home Loan Mortgage Corporation ("FHLMC").
Although the mortgage loans in the pool underlying a GNMA certificate will have maturities of up to 30 years, the actual average life of a GNMA certificate typically will be substantially less because the mortgages will be subject to normal principal amortization and may be prepaid prior to maturity.
The duration of the Fund's portfolio will be managed in light of current and projected economic and market conditions and other factors considered relevant by the Subadvisor.
HIGH YIELD CORPORATE BOND FUND
The High Yield Corporate Fund seeks to maximize current income through investment in a diversified portfolio of high yield debt securities. Capital appreciation is a secondary objective and will be sought only when consistent with the Fund's primary objective. For example, capital appreciation may be sought by lengthening the maturities of high yield debt securities held in the Fund's portfolio during periods when the Subadvisor expects interest rates to decline.
Since available yields and yield differentials vary over time, no specific level of income or yield differential can ever be ensured.
Debt securities in which the Fund may invest include all types of debt obligations of both domestic and foreign issuers, such as bonds, debentures, notes, equipment lease certificates, equipment trust certificates, conditional sales contracts, commercial paper and U.S. government securities (including obligations, such as repurchase agreements, secured by such instruments).
The Fund may invest in participation interests in loans. Such participation interests, which may take the form of interests in, or assignments of, loans, are acquired from banks which have made loans or are members of lending syndicates. The Fund's investments in loan participation interests will be subject to its limitation on investments in securities rated below investment grade.
The Subadvisor seeks to reduce risk through diversification, credit analysis and attention to current developments and trends in both the economy and financial markets. In addition, investments in foreign securities may serve to provide further diversification. The Subadvisor analyzes potential high yield debt investments like stocks, applying a bottom-up process using a quantitative approach that focuses on the fundamentals of the companies' earnings and operating momentum, combined with qualitative research.
INTERNATIONAL EQUITY FUND
In making investments for the International Equity Fund, the Subadvisor believes that long-term share performance reflects "value creation" in the underlying business. Value-creating businesses are defined as those companies that are able to generate sustainable returns on capital above their cost of capital. The Sub-Advisor seeks long-term capital appreciation via bottom-up stock selection and favors cash flows over earnings. The investment discipline is biased towards owning quality companies with strong track records of creating shareholder value over the long run. The portfolio management team performs fundamental analysis on individual businesses, identifies stocks offering superior risk-adjusted returns and makes investments based on stock selection as opposed to regional allocation. The Fund also may buy and sell currencies on a spot or forward basis. Subject to compliance with applicable rules, futures contracts and related options may be used for any legally permissible purpose, including as a substitute for acquiring a basket of securities and to reduce transaction costs. The Fund also may purchase securities on a when-issued or forward commitment basis and engage in portfolio securities lending. The Fund may use all of these techniques (1) in an effort to manage cash flow and remain fully invested in the stock and currency markets, instead of or in addition to buying and selling stocks and currencies, or (2) in an effort to hedge against a decline in the value of securities or currencies owned by it or an increase in the price of securities which it plans to purchase. The Fund may also purchase and sell foreign currency exchange contracts and foreign currency options for purposes of seeking to enhance portfolio returns or to manage portfolio risk more efficiently. The Fund is not obligated to use any of these instruments, but may do so when the Subadvisor, in its discretion, believes it advisable.
The International Equity Fund may invest in American Depositary Receipts ("ADRs") European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs"), International Depositary Receipts ("IDRs") or other similar securities convertible into securities of foreign issuers. An ADR is a receipt typically issued by a U.S. bank or trust company showing that you own a foreign
security. An EDR is a receipt typically issued by a European bank or trust company showing that you own a foreign security. GDRs and IDRs are receipts typically issued by global or international depositories evidencing ownership of underlying foreign securities.
LARGE CAP GROWTH FUND
The Large Cap Growth Fund seeks long-term growth of capital. Under normal circumstances, the Fund invests at least 80% of its net assets, plus borrowings, in large capitalization companies.
MAP FUND
The MAP Fund may invest in warrants. A warrant is a right that entitles its holder, for a specified period of time, to acquire a specified number of shares of common stock for a specified price per share. If the share price at the time the warrant is exercised exceeds the total of the exercise price of the warrant and its purchase price, the Fund experiences a gain to the extent this total is exceeded by the share price. However, if the share price at the time the warrant expires is less than the exercise price of the warrant, the Fund will suffer a loss of the purchase price of the warrant.
The Fund restricts its investment in foreign securities to no more than 10% of the Fund's total net assets. Securities of foreign issuers that are represented by American Depositary Receipts or that are listed on a U.S. securities exchange or traded in the U.S. over-the counter markets are not considered "foreign securities for the purpose of this limitation.
The Fund (1) may invest in closed-end investment companies that a Subadvisor believes may convert to open-end status within two years of investment and (2) may invest to seek to influence or control management and otherwise be an activist shareholder so long as the Board of Trustees ("Board") is consulted prior to any investments made for control purposes in order that the Board may consider whether it is appropriate to adopt special procedures.
In addition, the Fund may also buy "restricted" securities that cannot be sold publicly until registered under the Securities Act of 1933, as amended (the "1933 Act"). The Fund's ability to dispose of investments in "restricted" securities at reasonable price levels might be limited unless and until their registration under the 1933 Act has been completed. The Fund will endeavor to have the issuing company pay all the expenses of any such registration, but there is no assurance that the Fund will not have to pay all or some of these expenses.
MID CAP GROWTH FUND
The Mid Cap Growth Fund's investment objective is to seek long-term growth of capital. The Fund normally invests at least 80% of its assets in companies with market capitalizations similar to the market capitalization of companies in the Russell MidCap(R) Growth Index, and invests primarily in U.S. common stocks and securities related to U.S. common stocks. As of the date of the Prospectus, the market capitalizations of companies in this index range from $968 million to $22.5 billion. The Fund seeks to participate primarily in the expanding markets of technology, healthcare, communications and other dynamic high-growth industries. Securities issued by many companies in these markets are frequently considered "growth stocks." The common stocks of companies with a history of increasing earnings at a rate that is generally higher than that of average companies are considered "growth stocks." The Fund's Subadvisor will select investments based on the economic environment and the attractiveness of particular markets, as well as the financial condition and competitiveness of individual companies.
MID CAP VALUE FUND
The Mid Cap Value Fund seeks to maximize long-term total return from a combination of capital appreciation and income. The Fund emphasizes investments in U.S. common stocks, which may include but need not include securities that pay regular dividends, including preferred stocks and securities (including debt securities) that are convertible into common or preferred stocks. The Fund normally invests at least 80% of its net assets, plus borrowings, in common and preferred stock of companies with market capitalizations that, at the time of investment, are similar to the companies in the Russell Midcap(R) Value Index. As of the date of the Prospectus, the market capitalizations of companies in this index range from $591 million to $20.7 billion.
The Fund also may invest up to 20% of its net assets, plus borrowings, in debt securities, U.S. government securities and cash or cash equivalents. The Fund may also invest in convertible securities and real estate investment trusts ("REITs").
The value of the Fund's investment in REITs may be subject to many of the same risks associated with the direct ownership of real estate. This is due to the fact that the value of the REIT may be affected by the value of the real estate owned by the companies in which it invests. These risks include: declines in property values due to changes in the economy or the surrounding area or because a particular region has become less appealing to tenants; increases in property taxes, operating expenses, interest rates, or competition; overbuilding; changes in zoning laws; and losses from casualty, condemnation, zoning or natural disaster.
Convertible securities tend to be subordinate to other debt securities issued by the same company. Also, issuers of convertible securities are often not as strong financially as those issuing securities with higher credit ratings. These companies are more likely to encounter financial difficulties and are more vulnerable to changes in the economy, such as a recession or a sustained period of rising interest rates, that could affect their ability to make interest and principal payments. If an issuer stops making interest and/or principal payments, these securities may be worthless and the Fund could lose its entire investment.
In order to meet the Fund's investment objective, the Subadvisor seeks to identify investment opportunities based on the financial condition and competitiveness of individual companies and seeks to invest primarily in equities that are deemed to be undervalued.
MONEY MARKET FUND
The Money Market Fund may invest its assets in U.S. dollar-denominated securities of U.S. or foreign issuers and in securities of foreign branches of U.S. banks, such as negotiable certificates of deposit (Eurodollars). Since the Fund's portfolio may contain such securities, an investment therein involves investment risks that are different in some respects from an investment in a fund that invests only in debt obligations of U.S. domestic issuers. Such risks may include future political and economic developments, the possible imposition of foreign withholding taxes on interest income payable on the securities held in the portfolio, possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls or the adoption of other foreign governmental restrictions which might adversely affect the payment of the principal of and interest on securities in the portfolio.
All of the assets of the Fund generally will be invested in obligations which mature in 397 days or less and substantially all of these investments will be held to maturity; however, securities collateralizing repurchase agreements may have maturities in excess of 397 days. The Fund will, to the extent feasible, make portfolio investments primarily in anticipation of, or in response to, changing economic and money market conditions and trends. The dollar-weighted average maturity of the Fund's portfolio may not exceed 90 days. Consistent with the provisions of Rule 2a-7 under the 1940 Act ("Rule 2a-7"), the Fund invests only in U.S. dollar-denominated money market instruments that present minimal credit risk and, with respect to 95% of its total assets, measured at the time of investment, that are of the highest quality. The Subadvisor shall determine whether a security presents minimal credit risk under procedures adopted by the Fund's Board of Trustees. A money market instrument will be considered to be of the highest quality (1) if rated in the highest rating category for short-term debt obligations by (i) any two nationally recognized statistical rating organizations ("NRSROs") or, (ii) if rated by only one NRSRO, by that NRSRO; (2) if issued by an issuer that has received a short-term rating from an NRSRO with respect to a class of debt obligations that is comparable in priority and security, and that is rated in the highest rating category (i) by any two NRSROs or, (ii) if rated by only one NRSRO, by that NRSRO; (3) an unrated security that is of comparable quality to a security in the highest rating category as determined by the Subadvisor; (4)(i) with respect to a security that is subject to any features that entitle the holder, under certain circumstances, to receive the approximate amortized cost of the underlying security or securities plus accrued interest ("Demand Feature") or an obligation of a person other than the issuer of the security, under certain circumstances, to undertake to pay the principal amount of the underlying security plus interest ("Guarantee Obligation"), the Guarantee Obligation has received a rating from an NRSRO or the Guarantee Obligation is issued by a guarantor that has received a rating from an NRSRO with respect to a class of debt obligations that is comparable in priority and security to the Guarantee Obligation, with certain exceptions, and (ii) the issuer of the Demand Feature or Guarantee Obligation, or another institution, has undertaken promptly to notify the holder of the security in the event that the Demand Feature or Guarantee Obligation is substituted with another Demand Feature or Guarantee Obligation; (5) if it is a security issued by a money market fund registered with the Securities and Exchange Commission ("SEC") under the 1940 Act; or (6) if it is a government security as defined in Rule 2a-7. With respect to 5% of its total assets, measured at the time of investment, the Fund may also invest in money market instruments that are in the second-highest rating category for short-term debt obligations.
The Fund may not invest more than 5% of its total assets, measured at the time of investment, in securities of any one issuer that are in the highest rating category, except that the Fund may exceed this 5% limitation with respect to 25% of its total assets for up to three business days after the purchase of "First Tier" securities of any one issuer and except that this limitation shall not apply to U.S. government securities or securities subject to certain Guarantee Obligations. Immediately after the acquisition of any Demand Feature or Guarantee Obligation, the Fund, with respect to 75% of its total assets, shall not have invested more than 10% of its assets in securities issued by or subject to Demand Features or Guarantee Obligations from the institution that issued the Demand Feature or
Guarantee Obligation, with certain exceptions. In addition, immediately after the acquisition of any Demand Feature or Guarantee Obligation (or a security after giving effect to the Demand Feature or Guarantee Obligation) that is not within the highest rating category by NRSROs, the Fund shall not have invested more than 5% of its total assets in securities issued by or subject to Demand Features or Guarantee Obligations from the institution that issued the Demand Feature or Guarantee Obligation. The Fund may invest up to 5% of its total assets in securities that are "Second Tier" when acquired. The Fund may not invest more than the greater of 1% of its total assets or $1 million, measured at the time of investment, in "Second Tier" securities of any one issuer, except that this limitation shall not apply to U.S. government securities or securities subject to certain Guarantee Obligations. In the event that an instrument acquired by the Fund is downgraded or otherwise ceases to be of the quality that is eligible for the Fund, the Subadvisor, under procedures approved by the Board of Trustees, shall promptly reassess whether such security presents minimal credit risk and shall recommend to the Valuation Committee of the Board (the "Valuation Committee") that the Fund take such action as it determines is in the best interest of the Fund and its shareholders. The Valuation Committee, after consideration of the recommendation of the Subadvisor and such other information as it deems appropriate, shall cause the Fund to take such action as it deems appropriate, and shall report promptly to the Board the action it has taken and the reasons for such action.
Pursuant to Rule 2a-7, the Fund uses the amortized cost method of valuing its investments, which facilitates the maintenance of the Fund's NAV per share at $1.00. The amortized cost method, which is normally used to value all of the Fund's portfolio securities, involves initially valuing a security at its cost and thereafter amortizing to maturity any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument.
The Board has also established procedures designed to stabilize, to the extent reasonably possible, the Fund's price per share as computed for the purpose of sales and redemptions at $1.00. Such procedures include review of the Fund's portfolio by the Board, at such intervals as they deem appropriate, to determine whether the Fund's NAV calculated by using available market quotations or market equivalents (the determination of value by reference to interest rate levels, quotations of comparable securities and other factors) deviates from $1.00 per share based on amortized cost.
The extent of deviation between the Fund's NAV based upon available market quotations or market equivalents and $1.00 per share based on amortized cost will be periodically examined by the Board. If such deviation exceeds 1/2 of 1%, the Board will promptly consider what action, if any, will be initiated. In the event the Board determines that a deviation exists which may result in material dilution or other unfair results to investors or existing shareholders, they will take such corrective action as they regard to be necessary and appropriate, including the sale of portfolio instruments prior to maturity to realize capital gains or losses or to shorten average portfolio maturity; withholding part or all of dividends or payment of distributions from capital or capital gains; redemptions of shares in kind; or establishing a NAV per share by using available market quotations or equivalents. In addition, in order to stabilize the NAV per share at $1.00, the Board has the authority (1) to reduce or increase the number of shares outstanding on a pro rata basis, and (2) to offset each shareholder's pro rata portion of the deviation between the NAV per share and $1.00 from the shareholder's accrued dividend account or from future dividends.
The Fund may hold cash for the purpose of stabilizing its NAV per share. Holdings of cash, on which no return is earned, would tend to lower the yield on the Fund's shares.
The Fund may also, consistent with the provisions of Rule 2a-7, invest in securities with a face maturity of more than 397 days, provided that the security is a variable or floating rate security that meets the guidelines of Rule 2a-7 with respect to maturity.
SMALL CAP GROWTH FUND
The Small Cap Growth Fund seeks long-term capital appreciation by investing primarily in securities of small-cap companies. The Fund normally invests at least 80% of its assets in companies with market capitalizations comparable to companies in the Russell 2000(R) Index, a widely used benchmark for small cap stock performance, and invests primarily in common stocks, preferred stocks, warrants and other equity securities. To that end, as of the date of the Prospectus the Fund generally invests in securities of companies with market capitalizations between $25 million and $4.8 billion.
The Fund's Subadvisor selects investments according to the economic environment and the attractiveness of particular markets and the financial condition and competitiveness of individual companies. The Subadvisor looks for securities of companies with above average revenue and earnings per share growth, participation in growing markets, potential for positive earnings surprises, and strong management ideally with high insider ownership.
The Fund also invests in the securities of companies that are deemed by the Subadvisor to be attractive due to special factors, such as new management, new products, changes in consumer demand, and changes in the economy.
SMALL CAP VALUE FUND
The Small Cap Value Fund's investment objective is to seek long-term capital appreciation by investing primarily in securities of small-cap companies. The Fund normally invests its assets in companies with market capitalizations at the time of investment comparable to companies in the Russell 2000(R) Value Index and invests primarily in common stocks and securities convertible into common stock. To that end, as of the date of the Prospectus the Fund generally invests in securities of companies with market capitalizations between $33 million and $3.7 billion.
It is expected that stock price performance for those firms that generate cash flow substantially exceeding normal capital spending requirements generally betters that of the equity market as a whole. At any given time, a large percentage of the Fund's portfolio may consist of substantial free cash flow generators. Generally, stocks will be sold either when they meet the Subadvisor's price objective or when the Subadvisor believes that there is a negative change in the fundamental performance of the issuer. The Fund may invest up to 15% of net assets in REITs.
TAX FREE BOND FUND
The Tax Free Bond Fund invests in obligations of states and their political subdivisions and agencies, the interest from which is, in the opinion of the issuer's bond counsel, exempt from regular federal income tax ("Municipal Bonds" or "tax-exempt securities"). Neither the Fund, the Subadvisor nor counsel to the Fund reviews such opinions or otherwise determines independently that the interest on a security will be classified as tax-exempt interest.
Municipal Bonds are issued to obtain funds for various public purposes. The interest on these obligations is generally exempt from regular federal income tax in the hands of most investors. Because the Fund may hold high-grade Municipal Bonds, the income earned on shares of the Fund may tend to be less than it might be on a portfolio emphasizing lower quality securities. Conversely, to the extent that the Fund holds lower quality securities, the risk of default in the payment of principal or interest by the issuer of a portfolio security is greater than if the Fund held only higher quality securities. Although higher quality tax-exempt securities may produce lower yields, they are generally more marketable. To protect the Fund's capital under adverse market conditions, the Fund may from time to time purchase higher quality securities or taxable short-term investments with a resultant decrease in yield or increase in the proportion of taxable income.
The Fund may sell a security at any time in order to improve the yield on the Fund's portfolio. In buying and selling portfolio securities, the Fund seeks to take advantage of market developments, yield disparities and variations in the creditworthiness of issuers. The Fund will not engage in arbitrage transactions.
The Fund may invest in Industrial Development and Pollution Control Bonds and municipal lease obligations.
From time to time, the Fund may invest 25% or more of the value of its total assets in Municipal Bonds that are related in such a way that an economic, business, or political development or change affecting one such security could also affect the other securities (for example, securities whose issuers are located in the same state). The Fund may also invest up to 25% of the value of its total assets in Industrial Development Bonds. Further, the Fund may acquire all or part of privately negotiated loans made to tax-exempt borrowers. To the extent that these private placements are not readily marketable, the Fund will limit its investment in such securities (along with all other illiquid securities) to no more than 10% of the value of its net assets. Because an active trading market may not exist for such securities, the price that the Fund may pay for these securities or receive on their resale may be lower than that for similar securities with a more liquid market.
The duration of the Fund's portfolio will be managed in light of current and projected economic and market conditions and other factors considered relevant by the Subadvisor.
TOTAL RETURN FUND
The Total Return Fund may invest in common stocks, convertible securities, warrants and fixed-income securities, such as bonds, preferred stocks and other debt obligations, including money market instruments. The Fund will also invest in stocks and other equity securities that it believes to be undervalued based upon factors such as ratios of market price to book value, estimated liquidating
value and projected cash flow. Approximately one-half of the Fund's equity securities will normally consist of stocks of companies with growth in revenues and earnings per share superior to that of the average of common stocks comprising the S&P 500(R) Index at the time of purchase. The remainder of the Fund's equity securities will normally be invested in stocks that the Fund believes to be undervalued.
The duration of the Fund's portfolio will be managed in light of current and projected economic and market conditions and other factors considered relevant by the Subadvisor.
Although the Total Return Fund does not intend to seek short-term profits, securities in its portfolio will be sold whenever the Subadvisor believes it is appropriate to do so without regard to the length of time the particular security may have been held, subject to certain tax requirements for qualification as a regulated investment company under the Internal Revenue Code of 1986, as amended (the "Code"). A high turnover rate involves greater expenses to the Fund and may increase the possibility of shareholders realizing taxable capital gains. The Fund engages in portfolio trading if it believes a transaction, net of costs (including custodian charges), will help in achieving its investment objective.
VALUE FUND
The Value Fund seeks to maximize long-term total return from a combination of capital growth and income. In order to achieve this objective the Fund normally invests at least 65% of its total assets in U.S. common stocks that the Fund's Subadvisor believes are "undervalued" (selling below their value) when purchased, typically pay dividends (although there may be non-dividend paying stocks if they meet the "undervalued" criteria), and are listed on a national securities exchange or are traded in the over-the-counter market. Usually, stocks deemed by the Subadvisor to be at full value will be replaced with new, "undervalued" stocks. The Fund is not designed or managed primarily to produce current income.
THE EQUITY INDEX FUND GUARANTEE
NYLIFE LLC ("NYLIFE"), a wholly-owned subsidiary of New York Life Insurance Company ("New York Life"), will guarantee unconditionally and irrevocably pursuant to a Guaranty Agreement between NYLIFE and the Equity Index Fund (the "Guarantee") that if, on the business day immediately after ten years from the date of purchase of a Fund share (the "Guarantee Date"), the NAV of a Fund share, plus the value of all dividends and distributions paid with respect to that share, including cumulative reinvested dividends and distributions attributable to such share paid during that ten-year period ("Guaranteed Share"), is less than the public offering price initially paid for the share ("Guaranteed Amount"), NYLIFE will pay shareholders an amount equal to the difference between the Guaranteed Amount for each such share and the NAV of each such Guaranteed Share outstanding and held by shareholders as of the close of business on the Guarantee Date. For the services that NYLIM and its affiliates provide to the Fund, they receive the fees described in the prospectus. Neither NYLIM nor its affiliates receive a separate fee for providing the Guarantee, although the Guarantee has been considered in connection with the annual renewal of the management fee.
If, on a particular Guarantee Date, payments must be made under the terms of the Guarantee, the terms of the Guarantee will obligate NYLIFE unconditionally and irrevocably to pay to the Equity Index Fund's transfer and dividend disbursing agent for the benefit of shareholders with that Guarantee Date an amount equal to the difference between the Guaranteed Amount and NAV per each Guaranteed Share (as defined in the Prospectus) outstanding. The Equity Index Fund's transfer and dividend disbursing agent will forward the difference between the Guaranteed Amount and the NAV directly to each individual shareholder.
A Guaranteed Share (the unit to which the Guaranteed Amount will apply) is not the same as a share of the Fund. Shareholders who redeem shares, or who elect to receive dividends and distributions in cash, will own fewer units to which the Guaranteed Amount applies (i.e., they will own fewer Guaranteed Shares) and therefore will lose a portion of the benefit of the Guarantee with respect to any such redemption or dividends or distributions received in cash. When a shareholder redeems shares, shares will be redeemed on a first in, first out basis, meaning that the oldest shares, including shares no longer subject to the Guarantee, would be redeemed first.
Payment obligations under the Guarantee will be solely the obligations of NYLIFE. NYLIFE will pay any amounts owing under the Guarantee to the Fund's transfer and dividend disbursing agent on the fifth business day following a Guarantee Date. A pro rata portion of any amounts so paid will then be forwarded to each shareholder holding, as of the close of business on such date, Guaranteed Shares with that Guarantee Date. In the case of IRAs and certain other retirement plans, the amount due under the Guarantee may be transferred to a Money Market Fund account within the plan, instead of being paid to the shareholder in cash. The Guarantee is intended to assure each owner of Guaranteed Shares on a Guarantee Date that he or she will be able to recover, as of the Guarantee Date, at a minimum, the Guaranteed Amount (with no adjustment for inflation or the time value of money). The Guarantee
will benefit any holder of such Guaranteed Shares on the relevant Guarantee Date, who need not be the original purchaser, and who, for example, may own such shares by gift or inheritance.
Although the Equity Index Fund does not intend to pay dividends and distributions in cash to shareholders (unless a shareholder elects to receive payments in cash), such dividends and distributions which are reinvested will be taxable to shareholders. See "Tax Information." The Guaranteed Amount does not reflect any adjustment for the payment of taxes by a shareholder on dividends and distributions received from the Equity Index Fund.
The obligations, if any, of NYLIFE under the Guarantee shall be discharged when all required payments are made in full to the transfer and dividend disbursing agent for the benefit of the shareholders or if the Equity Index Fund's NAV on a Guarantee Date is such that no amounts are payable to shareholders under the terms of the Guarantee. Payment obligations under the Guarantee will be solely the obligations of NYLIFE. Neither the Equity Index Fund, New York Life, NYLIM, NYLIFE Distributors, any of their affiliates nor any other party is undertaking any obligation to the Equity Index Fund or its shareholders with respect to the Guarantee. New York Life is not obligated to pay any claim under the Guarantee or to make additional capital contributions to NYLIFE.
Although the Guarantee has been arranged for by the Equity Index Fund and is created under contract between the Equity Index Fund and NYLIFE, the Equity Index Fund has no interest in, and specifically disclaims any interest in, the proceeds payable under the Guarantee, which are payable solely to the shareholders with a particular Guarantee Date. The designation of such shareholders as the sole beneficiaries of the Guarantee may not be changed by either the Equity Index Fund or such shareholders. The Guarantee is neither transferable nor assignable by the Equity Index Fund or the shareholders it benefits, nor may the Equity Index Fund or its shareholders cancel or waive rights under the Guarantee. The Guarantee cannot be surrendered by either the Fund or its shareholders for cash, except in the event that payment is made pursuant to its terms. Neither the Equity Index Fund nor its shareholders may use the Guarantee as a pledge for a loan, nor may the Equity Index Fund or its shareholders obtain any loan from NYLIFE with respect to amounts that may be payable pursuant to the Guarantee.
The foregoing is only a summary, and not a complete statement of the principal terms of the Guarantee. Reference is made to the Guarantee, a specimen copy of which has been filed as an exhibit to the Registration Statement. This summary is subject thereto and qualified in its entirety by such reference.
If the Fund pays a dividend or distribution in cash to all Fund shareholders, the amount of the distribution will reduce the Guaranteed Amount with respect to each Guaranteed Share in the amount of such cash distribution. Fund shares may be redeemed or exchanged by shareholders prior to their Guarantee Date. However, any such redeemed or exchanged shares will lose the benefit of the Guarantee.
Following their particular Guarantee Date, the shares of the Equity Index Fund will be subject to those risks normally associated with an investment in shares of a mutual fund that invests in securities represented in the S&P 500(R) Index.
NYLIFE LLC was formed in Delaware on September 30, 1999 as a Delaware limited liability company. Audited financial statements for NYLIFE, for its most recent fiscal year ended December 31, 2005, they appear at Appendix B to this SAI. New York Life is a mutual life insurance company.
Even though the Equity Index Fund is closed to new share purchases, NYLIFE will continue to honor the Guarantee.
HOW THE INDEXING WORKS
The weightings of stocks in the S&P 500(R) Index are based on each stock's relative total market capitalization (the stock's market price per share times the number of shares outstanding). The Manager seeks to provide investment results that mirror the performance of the Index. The Manager attempts to achieve this objective by investing in all stocks in the Index in the same proportion as their representation in the Index.
It is a reasonable expectation that there will be a close correlation between the Equity Index Fund's performance and that of the Index in both rising and falling markets. The correlation between the performance of the Equity Index Fund and the Index is expected to be at least 0.95. A correlation of 1.00 would indicate perfect correlation, which would be achieved when the Equity Index Fund's NAV, including the value of its dividend and capital gains distributions, increases or decreases in exact proportion to changes in the Index. The Equity Index Fund's correlation, however, may be affected by, among other things, transaction costs, changes in either the
composition of the Index or number of shares outstanding for the components of the Index, and the timing and amount of shareholder redemptions, if any.
"Standard & Poor's", "S&P 500(R)", "S&P" and "Standard & Poor's 500(R)" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use. The Equity Index Fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes no representation or warranty, express or implied, to the shareholders of the Equity Index Fund or any member of the public regarding the advisability of investing in securities generally or in the Equity Index Fund particularly or the ability of the S&P 500(R) Index to track general stock market performance. The S&P 500(R) Index is determined, composed and calculated by S&P without regard to the Equity Index Fund. S&P has no obligation to take the needs of NYLIM or the shareholders of the Equity Index Fund into consideration in determining, composing or calculating the S&P 500(R) Index. S&P is not responsible for and has not participated in the determination of the prices and amount of the Equity Index Fund or the timing of the issuance or sale of the Equity Index Fund or in the determination or calculation of the equation by which the Equity Index Fund is to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of the Equity Index Fund.
S&P does not guarantee the accuracy and/or the completeness of the S&P
500(R) Index or any data included therein and S&P shall have no liability for
any errors, omissions, or interruptions therein. S&P makes no warranty, express
or implied, as to results to be obtained by NYLIM, shareholders of the Equity
Index Fund, or any other person or entity from the use of the S&P 500(R) Index
or any data included therein. S&P makes no express or implied warranties, and
expressly disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the S&P 500(R) Index or any data
included therein. Without limiting any of the foregoing, in no event shall S&P
have any liability for any special, punitive, indirect, or consequential damages
(including lost profits), even if notified of the possibility of such damages.
INVESTMENT PRACTICES, INSTRUMENTS AND RISKS
COMMON TO MULTIPLE FUNDS
All Funds may engage in the following investment practices or techniques, subject to the specific limits described in the Prospectus or elsewhere in this SAI. Unless otherwise stated in the Prospectus, many investment techniques are discretionary. That means the Manager or Subadvisors may elect to engage or not engage in the various techniques at its sole discretion. Investors should not assume that any particular discretionary investment technique or strategy will be employed at all times, or ever employed. With respect to some of the investment practices and techniques, Funds that are most likely to engage in a particular investment practice or technique are indicated in the relevant descriptions as Funds that may engage in such practices or techniques.
NONE OF THE FUNDS ALONE CONSTITUTES A COMPLETE INVESTMENT PROGRAM
The loss of money is a risk of investing in the Funds. None of the Funds, individually or collectively, is intended to constitute a balanced or complete investment program and each Fund's NAV per share will fluctuate based on the value of the securities held by that Fund. Each of the Funds is subject to the general risks and considerations associated with investing in mutual funds generally as well as additional risks and restrictions discussed herein.
ARBITRAGE
Funds may sell a security that it owns in one market and simultaneously purchase the same security in another market, or it may buy a security in one market and simultaneously sell it in another market, in order to take advantage of differences in the price of the security in the different markets. The Funds do not actively engage in arbitrage. Such transactions may be entered into only with respect to debt securities and will occur only in a dealer's market where the buying and selling dealers involved confirm their prices to the Fund at the time of the transaction, thus eliminating any risk to the assets of a Fund. Such transactions, which involve costs to a Fund, may be limited by the policy of each Fund to qualify as a "regulated investment company" under the Code.
BANK OBLIGATIONS
Funds may invest in CDs, time deposits, bankers' acceptances, and other short-term debt obligations issued by commercial banks; and each Fund may invest in CDs, time deposits, and other short-term obligations issued by Savings and Loan Institutions ("S&Ls").
CDs are certificates evidencing the obligation of a bank or S&L to repay funds deposited with it for a specified period of time at a specified rate of return. Time deposits in banking institutions are generally similar to CDs, but are uncertificated. Time deposits that may be held by the Funds will not benefit from insurance from the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation. Bankers' acceptances are credit instruments evidencing the obligation of a bank or S&L to pay a draft drawn on it by a customer, usually in connection with international commercial transactions. These instruments reflect the obligation both of the bank and of the drawer to pay the full amount of the instrument upon maturity. No Fund may invest in time deposits maturing in more than seven days and that are subject to withdrawal penalties. A Fund will limit its investment in time deposits for which there is a penalty for early withdrawal to 10% of its net assets.
Investments in the obligations of banks are deemed to be "cash equivalents" if, at the date of investment, the banks have capital, surplus, and undivided profits (as of the date of their most recently published financials) in excess of $100 million, or the equivalent in other currencies, if, with respect to the obligations of other banks and S&Ls, such obligations are federally insured. The Equity Index Fund will not be subject to the above restriction to the extent it invests in bank obligations of United States banks (including foreign branches) which have more than $1 billion in total assets at the time of investment and are members of the Federal Reserve System or are examined by the Comptroller of the Currency or whose deposits are insured by the Federal Deposit Insurance Corporation. The Equity Index Fund also may invest in CDs of S&Ls (federally or state chartered and federally insured) having total assets in excess of $1 billion.
BORROWING
A Fund may borrow from a bank, but only for temporary or emergency purposes. This borrowing may be unsecured. The 1940 Act requires a Fund to maintain continuous asset coverage (that is, total assets including borrowings, less liabilities exclusive of borrowings) of 300% of the amount borrowed. If the 300% asset coverage should decline as a result of market fluctuations or other reasons, a Fund may be required to sell some of its portfolio holdings within three days to reduce the debt and restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to sell securities at that time, and could cause the Fund to be unable to meet certain requirements for qualification as a regulated investment company under the Code. To avoid the potential leveraging effects of a Fund's borrowings, the Fund will repay any money borrowed in excess of 5% of its total assets prior to purchasing additional securities. Borrowing may exaggerate the effect on a Fund's NAV per share of any increase or decrease in the market value of the Fund's portfolio securities. Money borrowed will be subject to interest costs that may or may not be recovered by appreciation of the securities purchased. A Fund also may be required to maintain minimum average balances in connection with such borrowing or to pay a commitment or other fee to maintain a line of credit; either of these requirements would increase the cost of borrowing over the stated interest rate. The use of borrowing tends to result in a faster than average movement, up or down, in the NAV of a Fund's shares.
BRADY BONDS
Funds may invest a portion of its assets in Brady Bonds, which are securities created through the exchange of existing commercial bank loans to sovereign entities for new obligations in connection with debt restructuring. Brady Bonds are not considered U.S. government securities.
Brady Bonds may be collateralized or uncollateralized and are issued in various currencies (primarily the U.S. dollar). U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate par bonds or floating rate discount bonds, are generally collateralized in full as to principal by U.S. Treasury zero coupon bonds having the same maturity as the Brady Bonds. Interest payments on these Brady Bonds generally are collateralized on a one-year or longer rolling-forward basis by cash or securities in an amount that, in the case of fixed rate bonds, is equal to at least one year of interest payments or, in the case of floating rate bonds, initially is equal to at least one year's interest payments based on the applicable interest rate at that time and is adjusted at regular intervals thereafter. Certain Brady Bonds are entitled to "value recovery payments" in certain circumstances, which in effect constitute supplemental interest payments but generally are not collateralized. Brady Bonds are often viewed as having three or four valuation components: (1) the collateralized repayment of principal at final maturity; (2) the collateralized interest payments; (3) the uncollateralized interest payments; and (4) any uncollateralized repayment of principal at maturity (these uncollateralized amounts constitute the "residual risk").
Brady Bonds involve various risk factors, including the history of defaults with respect to commercial bank loans by public and private entities of countries issuing Brady Bonds. Investments in Brady Bonds are to be viewed as speculative. There can be no assurance that Brady Bonds in which a Fund may invest will not be subject to restructuring arrangements or to requests for new credit, which may cause a Fund to suffer a loss of interest or principal on any of its holdings.
COMMERCIAL PAPER
A Fund may invest in commercial paper if it is rated at the time of investment Prime-1 by Moody's or A-1 by S&P, or, if not rated by Moody's or S&P, if the Fund's Manager or Subadvisors determines that the commercial paper is of comparable quality. In addition, each Fund may invest up to 5% of its total assets in non-investment grade commercial paper if it is rated in the second highest ratings category by an NRSRO, such as S&P or Moody's, or, if unrated, if the Fund's Manager or Subadvisor determines that the commercial paper is of comparable quality. Commercial paper represents short-term (nine months or less) unsecured promissory notes issued in bearer form by banks or bank holding companies, corporations and finance companies.
CONVERTIBLE SECURITIES
A Fund may invest in securities convertible into common stock or the cash value of a single equity security or a basket or index of equity securities. Such investments may be made, for example, if the Subadvisor believes that a company's convertible securities are undervalued in the market. Convertible securities eligible for inclusion in the Funds' portfolios include convertible bonds, convertible preferred stocks, warrants or notes or other instruments that may be exchanged for cash payable in an amount that is linked to the value of a particular security, basket of securities, index or indices of securities or currencies.
Convertible securities, until converted, have the same general characteristics as other fixed income securities insofar as they generally provide a stable stream of income with generally higher yields than those of equity securities of the same or similar issuers. By permitting the holder to exchange his investment for common stock or the cash value of a security or a basket or index of securities, convertible securities may also enable the investor to benefit from increases in the market price of the underlying securities. Therefore, convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality.
As with all fixed income securities, the market value of convertible securities tends to decline as interest rates increase and, conversely, tends to increase as interest rates decline. The unique feature of the convertible security is that as the market price of the underlying common stock declines, a convertible security tends to trade increasingly on a yield basis, and so may not experience market value declines to the same extent as the underlying common stock. When the market price of the underlying common stock increases, the price of a convertible security increasingly reflects the value of the underlying common stock and may rise accordingly. While no securities investment is without some risk, investments in convertible securities generally entail less risk than investments in the common stock of the same issuer.
Holders of fixed income securities (including convertible securities) have a claim on the assets of the issuer prior to the holders of common stock in case of liquidation. However, convertible securities are typically subordinated to similar non-convertible securities of the same issuer. Accordingly, convertible securities have unique investment characteristics because: (1) they have relatively high yields as compared to common stocks; (2) they have defensive characteristics since they provide a fixed return even if the market price of the underlying common stock declines; and (3) they provide the potential for capital appreciation if the market price of the underlying common stock increases.
A convertible security may be subject to redemption at the option of the issuer at a price established in the charter provision or indenture pursuant to which the convertible security is issued. If a convertible security held by a Fund is called for redemption, the Fund will be required to surrender the security for redemption, convert it into the underlying common stock or cash or sell it to a third party.
The Fund may invest in "synthetic" convertible securities. A synthetic convertible security is a derivative position composed of two or more securities whose investment characteristics, taken together, resemble those of traditional convertible securities. Synthetic convertibles are typically offered by financial institutions or investment banks in private placement transactions and are typically sold back to the offering institution. Unlike traditional convertible securities whose conversion values are based on the common stock of the issuer of the convertible security, "synthetic" and "exchangeable" convertible securities are preferred stocks or debt obligations of an issuer which are structured with an embedded equity component whose conversion value is based on the value of the common stocks of two or more different issuers or a particular benchmark (which may include indices, baskets of domestic stocks, commodities, a foreign issuer or basket of foreign stocks, or a company whose stock is not yet publicly traded). The value of a synthetic convertible is the sum of the values of its preferred stock or debt obligation component and its convertible component. Therefore, the values of a synthetic convertible and a true convertible security may respond differently to market fluctuations. In addition, a Portfolio purchasing a synthetic convertible security may have counterparty (including credit) risk with respect to the financial institution or investment bank that offers the instrument. Purchasing a synthetic convertible security may provide greater flexibility than purchasing a traditional convertible security. Synthetic convertible securities are considered convertible securities for compliance testing purposes.
DEBT SECURITIES
Debt securities may have fixed, variable or floating (including inverse floating) rates of interest. To the extent that a Fund invests in debt securities, it will be subject to certain risks. The value of the debt securities held by a Fund, and thus the NAV of the shares of a Fund, generally will fluctuate depending on a number of factors, including, among others, changes in the perceived creditworthiness of the issuers of those securities, movements in interest rates, the maturity of a Fund's investments, changes in relative values of the currencies in which a Fund's investments are denominated relative to the U.S. dollar, and the extent to which a Fund hedges its interest rate, credit and currency exchange rate risks. Generally, a rise in interest rates will reduce the value of fixed income securities held by a Fund, and a decline in interest rates will increase the value of fixed income securities held by a Fund. Longer term debt securities generally pay higher interest rates than do shorter term debt securities but also may experience greater price volatility as interest rates change.
A Fund's investments in U.S. dollar- or foreign currency-denominated corporate debt securities of domestic or foreign issuers are limited to corporate debt securities (corporate bonds, debentures, notes and other similar corporate debt instruments) which meet the credit quality and maturity criteria set forth for the particular Fund. The rate of return or return of principal on some debt obligations may be linked to indices or stock prices or indexed to the level of exchange rates between the U.S. dollar and foreign currency or currencies. Differing yields on corporate fixed-income securities of the same maturity are a function of several factors, including the relative financial strength of the issuers. Higher yields are generally available from securities in the lower rating categories.
Since shares of the Funds represent an investment in securities with fluctuating market prices, the value of shares of each Fund will vary as the aggregate value of the Fund's portfolio securities increases or decreases. Moreover, the value of lower rated debt securities that a Fund purchases may fluctuate more than the value of higher rated debt securities. Lower rated debt securities generally carry greater risk that the issuer will default on the payment of interest and principal. Lower rated fixed income securities generally tend to reflect short term corporate and market developments to a greater extent than higher rated securities that react primarily to fluctuations in the general level of interest rates. Changes in the value of securities subsequent to their acquisition will not affect cash income or yields to maturity to the Funds but will be reflected in the NAV of the Funds' shares.
Corporate debt securities may bear fixed, contingent, or variable rates of interest and may involve equity features, such as conversion or exchange rights or warrants for the acquisition of stock of the same or a different issuer, participations based on revenues, sales or profits, or the purchase of common stock in a unit transaction (where corporate debt securities and common stock are offered as a unit).
When and if available, debt securities may be purchased at a discount from face value. From time to time, each Fund may purchase securities not paying interest or dividends at the time acquired if, in the opinion of the Manager or Subadvisors, such securities have the potential for future income (or capital appreciation, if any).
Investment grade securities are securities rated at the time of purchase Baa or better by Moody's or BBB or better by S&P comparable non-rated securities. Non-rated securities will be considered for investment by the Funds when the Manager or Subadvisors believe that the financial condition of the issuers of such obligations and the protection afforded by the terms of the obligations themselves limit the risk to the Funds to a degree comparable to that of rated securities which are consistent with the Funds' objective and policies.
Corporate debt securities with a rating lower than BBB by S&P, and corporate debt securities rated Baa or lower by Moody's, have speculative characteristics, and changes in economic conditions or individual corporate developments are more likely to lead to a weakened capacity to make principal and interest payments than in the case of high grade bonds. (See Appendix A attached hereto for a description of corporate debt ratings.) If a credit rating agency changes the rating of a portfolio security held by a Fund, the Fund may retain the portfolio security if the Manager or Subadvisor, where applicable, deems it in the best interest of the Fund's shareholders.
The ratings of fixed-income securities by Moody's and S&P are a generally accepted barometer of credit risk. They are, however, subject to certain limitations from an investor's standpoint. The rating of an issuer is heavily weighted by past developments and does not necessarily reflect future conditions. There is frequently a lag between the time a rating is assigned and the time it is updated. In addition, there may be varying degrees of difference in credit risk of securities in each rating category. The Manager or Subadvisors
will attempt to reduce the overall portfolio credit risk through diversification and selection of portfolio securities based on considerations mentioned above.
DEPOSITARY RECEIPTS
A Fund may invest in ADRs. ADRs (sponsored or unsponsored) are receipts typically issued by a U.S. bank or trust company evidencing ownership of underlying foreign securities. Most ADRs are traded on major U.S. stock exchanges. Issuers of unsponsored ADRs are not contractually obligated to disclose material information in the U.S. and, therefore, there may not be a correlation between such information and the market value of the unsponsored ADRs. EDRs and IDRs are receipts typically issued by a European bank or trust company evidencing ownership of underlying foreign securities. GDRs are receipts issued by either a U.S. or non-U.S. banking institution evidencing ownership of underlying foreign securities.
EXCHANGE TRADED FUNDS
To the extent a Fund may invest in securities of other investment companies, the Fund may invest in shares of exchange traded funds ("ETFs"). ETFs are investment companies that trade like stocks. (See also "Securities of Other Investment Companies.") 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 price of an ETF is derived from and based upon the securities held by the ETF. Accordingly, 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 stocks. Thus, the risks of owning an ETF generally reflect the risks of owning the underlying securities they are designed to track, although lack of liquidity in an ETF could result in it being more volatile than the underlying portfolio of securities. Disruptions in the markets for the securities underlying ETFs purchased or sold by the Fund could result in losses on the Fund's investment in ETFs. ETFs also have management fees that increase their costs versus the costs of owning the underlying securities directly. A portfolio manager may from time to time invest in ETFs, primarily as a means of gaining exposure for the portfolio to the equity market without investing in individual common stocks, particularly in the context of managing cash flows into the Fund. (See also "Securities of Other Investment Companies.")
Among other types of ETFs, a Fund also may invest in Standard & Poor's
Depositary Receipts ("SPDRs"). SPDRs are units of beneficial interest in an
investment trust sponsored by a wholly-owned subsidiary of the American Stock
Exchange, Inc. (the "AMEX") that represent proportionate undivided interests in
a portfolio of securities consisting of substantially all of the common stocks,
in substantially the same weighting, as the component common stocks of the S&P
500(R) Index. SPDRs are listed on the AMEX and traded in the secondary market on
a per-SPDR basis.
SPDRs are designed to provide investment results that generally correspond
to the price and yield performance of the component common stocks of the S&P
500(R) Index. The value of SPDRs is subject to change as the values of their
respective component common stocks fluctuate according to the volatility of the
market. Investments in SPDRs involves certain inherent risks generally
associated with investments in a broadly based portfolio of common stocks,
including the risk that the general level of stock prices may decline, thereby
adversely affecting the value of each unit of SPDRs invested in by a Fund.
Moreover, a Fund's investment in SPDRs may not exactly match the performance of
a direct investment in the index to which SPDRs are intended to correspond. For
example, replicating and maintaining price and yield performance of an index may
be problematic for a Fund due to transaction costs and other Fund expenses.
FIRM OR STANDBY COMMITMENTS -- OBLIGATIONS WITH PUTS ATTACHED
A Fund may from time to time purchase securities on a "firm commitment" or "standby commitment" basis.
Securities purchased on a firm commitment basis are purchased for delivery beyond the normal settlement date at a stated price and yield. No income accrues to the purchaser of a security on a firm commitment basis prior to delivery. Such securities are recorded as an asset and are subject to changes in value based upon changes in the general level of interest rates. Purchasing a security on a firm commitment basis can involve a risk that the market price at the time of delivery may be lower than the agreed upon purchase price, in which case there could be an unrealized loss at the time of delivery. A Fund will generally make commitments to purchase securities on a firm commitment basis with the intention of actually acquiring the securities, but may sell them before the settlement date if it is deemed advisable. A Fund will maintain liquid assets in an amount at least equal in value to the Fund's commitments to purchase securities on a firm commitment basis and will designate which assets are being so maintained on its books and records. The Fund will make appropriate changes to the liquid assets designated (1) on a daily basis to reflect changes in the value of the liquid assets
designated and (2) as of the time a firm commitment is entered into or closed to reflect a change in the Fund's aggregate obligations to firm commitments.
A Fund may purchase securities together with the right to resell the securities to the seller at an agreed-upon price or yield within a specified period prior to the maturity date of the securities. Although it is not a put option in the usual sense, such a right to resell is commonly known as a "put" and is also referred to as a "standby commitment." Funds may pay for a standby commitment either separately, in cash, or in the form of a higher price for the securities that are acquired subject to the standby commitment, thus increasing the cost of securities and reducing the yield otherwise available from the same security. The Manager and the Subadvisors understand that the Internal Revenue Service (the "IRS") has issued a revenue ruling to the effect that, under specified circumstances, a regulated investment company will be the owner of tax-exempt municipal obligations acquired subject to a put option. The IRS has also issued private letter rulings to certain taxpayers (which do not serve as precedent for other taxpayers) to the effect that tax-exempt interest received by a regulated investment company with respect to such obligations will be tax-exempt in the hands of the company and may be distributed to its shareholders as exempt-interest dividends. The IRS has subsequently announced that it will not ordinarily issue advance ruling letters as to the identity of the true owner of property in cases involving the sale of securities or participation interests therein if the purchaser has the right to cause the security, or the participation interest therein, to be purchased by either the seller or a third party. Each Fund intends to take the position that it is the owner of any debt securities acquired subject to a standby commitment and that tax-exempt interest earned with respect to such debt securities will be tax-exempt in its possession; however, no assurance can be given that this position would prevail if challenged. In addition, there is no assurance that firm or standby commitments will be available to a Fund, nor will a Fund assume that such commitments would continue to be available under all market conditions.
A standby commitment may not be used to affect a Fund's valuation of the security underlying the commitment. Any consideration paid by a Fund for the standby commitment, whether paid in cash or by paying a premium for the underlying security, which increases the cost of the security and reduces the yield otherwise available from the same security, will be accounted for by the Fund as unrealized depreciation until the standby commitment is exercised or has expired.
Firm and standby transactions are entered into in order to secure what is considered to be an advantageous price and yield to a Fund and not for purposes of leveraging the Fund's assets. However, a Fund will not accrue any income on these securities prior to delivery. The value of firm and standby commitment agreements may vary prior to and after delivery depending on market conditions and changes in interest rate levels. There is a risk that a party with whom a Fund has entered into such transactions will not perform its commitment, which could result in a gain or loss to the Fund.
The Funds do not believe that a Fund's NAV per share or income will be exposed to additional risk by the purchase of securities on a firm or standby commitment basis. At the time the Trust makes the commitment on behalf of a Fund to purchase a security on a firm or standby commitment basis, it will record the transaction and reflect the amount due and the value of the security in determining the Fund's NAV per share. The market value of the firm or standby commitment securities may be more or less than the purchase price payable at the settlement date. The Board does not believe that a Fund's NAV or income will be exposed to additional risk by the purchase of securities on a firm or standby commitment basis. Each Fund will maintain liquid assets at least equal in value to any commitments to purchase securities on a firm or standby commitment basis. Such liquid assets either will mature or, if necessary, be sold on or before the settlement date.
FLOATING AND VARIABLE RATE SECURITIES
Each Fund may invest in floating and variable rate debt instruments. Floating and variable rate securities provide for a periodic adjustment in the interest rate paid on the obligations. The terms of such obligations must provide that interest rates are adjusted periodically based upon an interest rate adjustment index as provided in the respective obligations. The adjustment intervals may be regular, and range from daily up to annually, or may be based on an event, such as a change in the prime rate.
The interest rate on a floating rate debt instrument ("floater") is a variable rate that is tied to another interest rate, such as a money-market index or Treasury bill rate. The interest rate on a floater resets periodically, typically every six months. While, because of the interest rate reset feature, floaters provide a Fund with a certain degree of protection against rises in interest rates, a Fund will participate in any declines in interest rates as well. To be an eligible investment for the Money Market Fund, there must be a reasonable expectation that, at any time until the final maturity for the floater or the period remaining until the principal amount can be recovered through demand, the market value of a floater will approximate its amortized cost.
Certain Funds may invest in leveraged inverse floating rate debt instruments ("inverse floaters"). The interest rate on an inverse floater resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate of interest. The higher degree of leverage inherent in inverse floaters is associated with greater volatility in their market values. Accordingly, the duration of an inverse floater may exceed its stated final maturity. Certain inverse floaters may be determined to be illiquid securities for purposes of a Fund's limitation on investments in such securities.
FLOATING RATE LOANS
Floating rate loans are provided by banks and other financial institutions to large corporate customers. Companies undertake these loans to finance acquisitions, buy-outs, recapitalizations or other leveraged transactions. Typically, these loans are the most senior source of capital in a borrower's capital structure and have certain of the borrower's assets pledged as collateral. The corporation pays interest and principal to the lenders.
A senior loan in which a Fund may invest typically is structured by a group of lenders. This means that the lenders participate in the negotiations with the borrower and in the drafting of the terms of the loan. The group of lenders often consists of commercial and investment banks, thrift institutions, insurance companies, finance companies, mutual funds and other institutional investment vehicles or other financial institutions. One or more of the lenders, referred to as the agent bank, usually administers the loan on behalf of all the lenders.
A Fund may invest in a floating rate loan in one of three ways. (1) It may make a direct investment in the loan by participating as one of the lenders; (2) it may purchase a participation interest; or (3) it may purchase an assignment. Participation interests are interests issued by a lender or other financial institution, which represent a fractional interest in a loan. A Fund may acquire participation interests from a lender or other holders of participation interests. Holders of participation interests are referred to as participants. An assignment represents a portion of a loan previously attributable to a different lender. Unlike a participation interest, a Fund will become a lender for the purposes of the relevant loan agreement by purchasing an assignment.
A Fund may make a direct investment in a floating rate loans pursuant to a primary syndication and initial allocation process (i.e. buying an unseasoned loan issue). A purchase can be effected by signing as a direct lender under the loan document or by the purchase of an assignment interest from the underwriting agent shortly after the initial funding on a basis which is consistent with the initial allocation under the syndication process. This is known as buying in the "primary" market. Such an investment is typically made at or about a floating rate loan's "par" value, which is its face value. From time to time, lenders in the primary market will receive an up-front fee for committing to purchase a floating rate loan that is being originated. In such instances, the fee received is reflected on the books of the Fund as a discount to the loan's par value. The discount is then amortized over the life of the loan, which would effectively increase the yield a Fund receives on the investment. If a Fund purchases an existing assignment of a floating rate loan, or purchases a participation interest in a floating rate loan, it is said to be purchasing in the "secondary" market. Purchases of floating rate loans in the secondary market may take place at, above, or below the par value of a floating rate loan. Purchases above par will effectively reduce the amount of interest being received by the Fund through the amortization of the purchase price premium, whereas purchases below par will effectively increase the amount of interest being received by the Fund through the amortization of the purchase price discount. A Fund may be able to invest in floating rate loans only through participation interests or assignments at certain times when reduced primary investment opportunities in floating rate loans may exist.
If a Fund purchases an assignment from a lender, the Fund will generally have direct contractual rights against the borrower in favor of the lenders. On the other hand, if a Fund purchases a participation interest either from a lender or a participant, the Fund typically will have established a direct contractual relationship with the seller of the participation interest, but not with the borrower. Consequently, the Fund is subject to the credit risk of the lender or participant who sold the participation interest to the Fund, in addition to the usual credit risk of the borrower. Therefore, when a Fund invests in floating rate loans through the purchase of participation interests, the Manager must consider the creditworthiness of the agent bank and any lenders and participants interposed between the Fund and a borrower.
Typically, floating rate loans are secured by collateral. However, the value of the collateral may not be sufficient to repay the loan. The collateral may consist of various types of assets or interests including intangible assets. It may include working capital assets, such as accounts receivable or inventory, or tangible fixed assets, such as real property, buildings and equipment. It may include intangible assets, such as trademarks, copyrights and patent rights, or security interests in securities of subsidiaries or affiliates. The borrower's owners may provide additional collateral, typically by pledging their ownership interest in the Borrower as collateral for the loan. The borrower under a floating rate loan must comply with various restrictive covenants contained in any floating rate loan
agreement between the borrower and the syndicate of lenders. A restrictive covenant is a promise by the borrower to not take certain action that may impair the rights of lenders. These covenants, in addition to requiring the scheduled payment of interest and principal, may include restrictions on dividend payments and other distributions to shareholders, provisions requiring the borrower to maintain specific financial ratios or relationships and limits on total debt. In addition, a covenant may require the borrower to prepay the floating rate loan with any excess cash flow. Excess cash flow generally includes net cash flow after scheduled debt service payments and permitted capital expenditures, among other things, as well as the proceeds from asset dispositions or sales of securities. A breach of a covenant (after giving effect to any cure period) in a floating rate loan agreement, which is not waived by the agent bank and the lending syndicate normally, is an event of acceleration. This means that the agent bank has the right to demand immediate repayment in full of the outstanding floating rate loan.
The Manager must determine that the investment is suitable for each Fund based on the Manager's independent credit analysis and industry research. Generally, this means that the Manager has determined that the likelihood that the corporation will meet its obligations is acceptable. In considering investment opportunities, the Manager will conduct extensive due diligence, which may include, without limitation, management meetings; financial analysis; industry research and reference verification from customers, suppliers and rating agencies.
Floating rate loans feature rates that reset regularly, maintaining a fixed spread over the London-Interbank Offered Rate (LIBOR) or the prime rates of large money-center banks. The interest rate on the Fund's investment securities generally reset quarterly. During periods in which short-term rates rapidly increase, the Fund's NAV may be affected. Investment in floating rate loans with longer interest rate reset periods or loans with fixed interest rates may also increase fluctuations in a Fund's NAV as a result of changes in interest rates. However, the Fund may attempt to hedge its fixed rate loans against interest rate fluctuations by entering into interest rate swap or other derivative transactions.
FOREIGN CURRENCY TRANSACTIONS
A Fund may invest in foreign securities denominated in foreign currencies. Changes in foreign exchange rates will affect the value of securities denominated or quoted in foreign currencies. Exchange rate movements can be large and can endure for extended periods of time, affecting either favorably or unfavorably the value of the Funds' assets. However, a Fund may seek to increase its return by trading in foreign currencies. In addition, to the extent that a Fund invests in foreign securities, it may enter into foreign currency forward contracts in order to protect against uncertainty in the level of future foreign currency exchange rates. A Fund may enter into contracts to purchase foreign currencies to protect against an anticipated rise in the U.S. dollar price of securities it intends to purchase and may enter into contracts to sell foreign currencies to protect against the decline in value of its foreign currency-denominated portfolio securities due to a decline in the value of the foreign currencies against the U.S. dollar. In addition, a Fund may use one currency (or a basket of currencies) to hedge against adverse changes in the value of another currency (or a basket of currencies) when exchange rates between the two currencies are correlated.
Foreign currency transactions in which a Fund may engage include foreign currency forward contracts, currency exchange transactions on a spot (i.e., cash) basis, put and call options on foreign currencies, and foreign exchange futures contracts. A foreign currency forward exchange contract (a "forward contract") involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days (usually less than one year) from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts may be used to gain exposure to a particular currency or to hedge against the risk of loss due to changing currency exchange rates. A forward contract generally has no deposit requirement, and no commissions are charged at any stage for trades. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (the spread) between the price at which they are buying and selling various currencies. Although these contracts are intended, when hedging, to minimize the risk of loss due to a decline in the value of the hedged currencies, they also tend to limit any potential gain which might result should the value of such currencies increase.
While a Fund may enter into forward contracts to reduce currency exchange risks, changes in currency exchange rates may result in poorer overall performance for the Fund than if it had not engaged in such transactions. Moreover, there may be an imperfect correlation between a Fund's portfolio holdings of securities denominated in a particular currency and forward contracts entered into by the Fund. Such imperfect correlation may prevent the Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss.
A Fund will maintain liquid assets in an amount at least equal in value to the Fund's commitments under these contracts and will designate which assets are being so maintained on its books and records. The Fund will make appropriate changes to the liquid assets designated (1) on a daily basis to reflect changes in the value of the liquid assets designated and (2) as of the time these contracts are
entered into or closed to reflect a change in the Fund's aggregate obligations under these contracts. At the maturity of a forward contract, a Fund may either accept or make delivery of the currency specified in the contract, or prior to maturity, enter into a closing purchase transaction involving the purchase or sale of an offsetting contract. Closing purchase transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. A Fund will only enter into such a forward contract if it is expected that there will be a liquid market in which to close out the contract. However, there can be no assurance that a liquid market will exist in which to close a forward contract, in which case the Fund may suffer a loss.
Normally, consideration of fair value exchange rates will be incorporated in a longer term investment decision made with regard to overall diversification strategies. However, the Manager and each Subadvisor believe that it is important to have the flexibility to enter into such forward contracts when they determine that the best interest of a Fund will be served by entering into such a contract. Set forth below are examples of some circumstances in which a Fund might employ a foreign currency transaction. When a Fund enters into, or anticipates entering into, a contract for the purchase or sale of a security denominated in a foreign currency, it may desire to "lock in" the U.S. dollar price of the security. By entering into a forward contract for the purchase or sale, for a fixed amount of U.S. dollars, of the amount of foreign currency involved in the underlying security transaction, a Fund will be able to insulate itself from a possible loss resulting from a change in the relationship between the U.S. dollar and the subject foreign currency during the period between the date on which the security is purchased or sold and the date on which payment is made or received, although a Fund would also forego any gain it might have realized had rates moved in the opposite direction. This technique is sometimes referred to as a "settlement" hedge or "transaction" hedge.
Another example is when the Manager or Subadvisors believes that the currency of a particular foreign country may suffer a substantial decline against the U.S. dollar, it may enter into a forward contract to sell, for a fixed amount of dollars, the amount of foreign currency approximating the value of some or all of a Fund's portfolio securities denominated in such foreign currency. Such a hedge (sometimes referred to as a "position" hedge) will tend to offset both positive and negative currency fluctuations, but will not offset changes in security values caused by other factors. The Fund also may hedge the same position by using another currency (or a basket of currencies) expected to perform in a manner substantially similar to the hedged currency ("proxy" hedge). The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date the forward contract is entered into and the date it matures. With respect to positions that constitute "transaction" or "position" hedges (including "proxy" hedges), a Fund will not enter into forward contracts to sell currency or maintain a net exposure to such contracts if the consummation of such contracts would obligate the Fund to deliver an amount of foreign currency in excess of the value of the Fund's portfolio securities or other assets denominated in that currency (or the related currency, in the case of a "proxy" hedge).
A Fund also may enter into forward contracts to shift its investment exposure from one currency into another currency that is expected to perform inversely with respect to the hedged currency relative to the U.S. dollar. This type of strategy, sometimes known as a "cross-currency" hedge, will tend to reduce or eliminate exposure to the currency that is sold, and increase exposure to the currency that is purchased, much as if the Fund had sold a security denominated in one currency and purchased an equivalent security denominated in another. "Cross-currency" hedges protect against losses resulting from a decline in the hedged currency, but will cause the Fund to assume the risk of fluctuations in the value of the currency it purchases.
A Fund may also enter into currency transactions to profit from changing exchange rates based upon the Manager's or Subadvisor's assessment of likely exchange rate movements. These transactions will not necessarily hedge existing or anticipated holdings of foreign securities and may result in a loss if the Manager's or Subadvisor's currency assessment is incorrect.
At the consummation of the forward contract, a Fund may either make delivery of the foreign currency or terminate its contractual obligation to deliver the foreign currency by purchasing an offsetting contract obligating it to purchase at the same maturity date the same amount of such foreign currency. If a Fund chooses to make delivery of the foreign currency, it may be required to obtain such currency for delivery through the sale of portfolio securities denominated in such currency or through conversion of other assets of the Fund into such currency. If a Fund engages in an offsetting transaction, the Fund will realize a gain or a loss to the extent that there has been a change in forward contract prices. Closing purchase transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract.
When a Fund has sold a foreign currency, a similar process would be followed at the consummation of the forward contract. Of course, a Fund is not required to enter into such transactions with regard to its foreign currency-denominated securities and will not do so unless deemed appropriate by the Manager or Subadvisors. A Fund generally will not enter into a forward contract with a term of greater than one year.
In cases of transactions which constitute "transaction" or "settlement" hedges or "position" hedges (including "proxy" hedges) or "cross-currency" hedges that involve the purchase and sale of two different foreign currencies directly through the same foreign currency contract, a Fund may deem its forward currency hedge position to be covered by underlying portfolio securities or may maintain liquid assets in an amount at least equal in value to the Fund's commitments under these contracts and will designate which assets are being so maintained on its books and records. The Fund will make appropriate changes to the liquid assets designated (1) on a daily basis to reflect changes in the value of the liquid assets designated and (2) as of the time these contracts are entered into or closed to reflect a change in the Portfolio's aggregate obligations under these contracts. In the case of "anticipatory" hedges and "cross-currency" hedges that involve the purchase and sale of two different foreign currencies indirectly through separate forward currency contracts, the Fund will maintain liquid assets as described above.
It should be realized that the use of forward contracts to protect the value of a Fund's portfolio securities against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange that can be achieved at some future point in time. It also reduces any potential gain which may have otherwise occurred had the currency value increased above the settlement price of the contract.
The Manager and Subadvisors believe that active currency management can be employed as an overall portfolio risk management tool. For example, in their view, foreign currency management can provide overall portfolio risk diversification when combined with a portfolio of foreign securities, and the market risks of investing in specific foreign markets can at times be reduced by currency strategies that may not involve the currency in which the foreign security is denominated.
The Funds cannot assure that their use of forward contracts will always be successful. Successful use of forward contracts depends on the Manager's or Subadvisor's skill in analyzing and predicting relative currency values. Forward contracts alter a Fund's exposure to currencies and could result in losses to the Fund if currencies do not perform as the Manager or Subadvisor anticipates. A Fund may also incur significant costs when converting assets from one currency to another. Contracts to sell a foreign currency would limit any potential gain that might be realized by a Fund if the value of the hedged currency increases.
A Fund's foreign currency transactions may be limited by the requirements of Subchapter M of the Code for qualification as a regulated investment company.
FOREIGN GOVERNMENT AND SUPRANATIONAL ENTITY SECURITIES
A Fund may invest in debt securities or obligations of foreign governments, agencies, and supranational organizations ("Sovereign Debt"). A Fund's portfolios may include government securities of a number of foreign countries or, depending upon market conditions, those of a single country. Investments in Sovereign Debt can involve greater risks than investing in U.S. government securities. The issuer of the debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due in accordance with the terms of such debt, and a Fund may have limited legal recourse in the event of default.
The Manager's or Subadvisors' determination that a particular country should be considered stable depends on its evaluation of political and economic developments affecting the country as well as recent experience in the markets for government securities of the country. Examples of foreign governments which the Manager or Subadvisors currently consider to be stable, among others, are the governments of Canada, Germany, Japan, Sweden and the United Kingdom. The Manager or Subadvisors do not believe that the credit risk inherent in the obligations of such stable foreign governments is significantly greater than that of U.S. government securities. The percentage of the Fund's assets invested in foreign government securities will vary depending on the relative yields of such securities, the economies of the countries in which the investments are made and such countries' financial markets, the interest rate climate of such countries and the relationship of such countries' currencies to the U.S. dollar. Currency is judged on the basis of fundamental economic criteria (e.g., relative inflation levels and trends, growth rate forecasts, balance of payments status and economic policies) as well as technical and political data.
Debt securities of "quasi-governmental entities" are issued by entities owned by either a national, state or equivalent government or are obligations of a political unit that is not backed by the national government's full faith and credit and general taxing powers. Examples of quasi-governmental issuers include, among others, the Province of Ontario and the City of Stockholm. A Fund's portfolio may also include debt securities denominated in European Currency Units of an issuer in a country in which the Fund may invest. A European Currency Unit represents specified amounts of the currencies of certain member states of the European Union.
A "supranational entity" is an entity constituted by the national governments of several countries to promote economic development. Examples of such supranational entities include, among others, the World Bank (International Bank for Reconstruction and Development), the European Investment Bank, the Asian Development Bank and the European Coal and Steel Community. The governmental members, or "stockholders," usually make initial capital contributions to the supranational entity and, in many cases, are committed to make additional contributions if the supranational entity is unable to repay its borrowings. Each supranational entity's lending activities are limited to a percentage of its total capital (including "callable capital" contributed by members at the entity's call), reserves and net income.
The occurrence of political, social or diplomatic changes in one or more of the countries issuing Sovereign Debt could adversely affect a Fund's investments. Political changes or a deterioration of a country's domestic economy or balance of trade may affect the willingness of countries to service their Sovereign Debt. While the Manager and Subadvisors intend to manage the Funds' portfolios in a manner that will minimize the exposure to such risks, there can be no assurance that adverse political changes will not cause a Fund to suffer a loss of interest or principal on any of its holdings.
FOREIGN INDEX-LINKED INSTRUMENTS
A Fund may invest, subject to compliance with each Fund's limitations applicable to its investment in debt securities, in instruments which have the investment characteristics of particular securities, securities indices, futures contracts or currencies. Such instruments may take a variety of forms, such as debt instruments with interest or principal payments determined by reference to the value of a currency or commodity at a future point in time. For example, a Fund may, subject to compliance with its respective limitations applicable to its investment in debt securities, invest in instruments issued by the U.S. or a foreign government or by private issuers that return principal and/or pay interest to investors in amounts which are linked to the level of a particular foreign index ("foreign index-linked instruments"). Foreign index-linked instruments have the investment characteristics of particular securities, securities indices, futures contracts or currencies. Such instruments may take a variety of forms, such as debt instruments with interest or principal payments determined by reference to the value of a currency or commodity at a future point in time.
A foreign index may be based upon the exchange rate of a particular currency or currencies or the differential between two currencies, or the level of interest rates in a particular country or countries, or the differential in interest rates between particular countries. In the case of foreign index-linked instruments linking the interest component to a foreign index, the amount of interest payable will adjust periodically in response to changes in the level of the foreign index during the term of the foreign index-linked instrument. The risks of such investments would reflect the risks of investing in the index or other instrument the performance of which determines the return for the instrument. Tax considerations may limit the Funds" ability to invest in foreign index-linked instruments
FOREIGN SECURITIES
A Fund may invest in U.S. dollar-denominated and non-U.S.-dollar-denominated foreign debt and equity securities and in CDs issued by foreign banks and foreign branches of U.S. banks. Under current SEC rules relating to the use of the amortized cost method of portfolio securities valuation, the Money Market Fund is restricted to purchasing U.S. dollar-denominated securities, but it is not otherwise precluded from purchasing securities of foreign issuers. Securities of issuers within a given country may be denominated in the currency of another country. Each Fund may define "foreign securities" differently but, unless otherwise defined, foreign securities are those securities issued by companies domiciled outside the U.S. and that trade in markets outside the U.S. These foreign securities can be subject to most, if not all, of the risks of foreign investing.
Investors should carefully consider the appropriateness of foreign investing in light of their financial objectives and goals. While foreign markets may present unique investment opportunities, foreign investing involves risks not associated with domestic investing. Foreign investments could be more difficult to sell than U.S. investments. Securities denominated in foreign currencies may gain or lose value as a result of fluctuating currency exchange rates. Securities markets in other countries are not always as efficient as those in the U.S. and are sometimes less liquid and more volatile. In many foreign countries, there is less government supervision and regulation of business and industry practices, stock exchanges, brokers and listed companies than in the United States. If foreign securities are determined to be illiquid, then a Fund will limit its investment in these securities subject to its limitation on investments in illiquid securities. Foreign securities transactions may be subject to higher brokerage and custodial costs than domestic securities transactions. Other risks involved in investing in the securities of foreign issuers include differences in accounting, auditing and financial reporting standards; limited publicly available information; the difficulty of assessing economic trends in foreign countries; generally higher commission rates on foreign portfolio transactions; the possibility of nationalization, expropriation or confiscatory taxation; adverse changes in investment or exchange control regulations (which may include suspension of the ability to transfer currency from a country); government interference, including government ownership of companies in certain sectors, wage and price
controls, or imposition of trade barriers and other protectionist measures; difficulties in invoking legal process abroad and enforcing contractual obligations; political, social or economic instability which could affect U.S. investments in foreign countries; and potential restrictions on the flow of international capital. Additionally, foreign securities and dividends and interest payable on those securities may be subject to foreign taxes, including foreign withholding taxes, and other foreign taxes may apply with respect to securities transactions. Additional costs associated with an investment in foreign securities may include higher transaction, custody and foreign currency conversion costs. In the event of litigation relating to a portfolio investment, the Funds may encounter substantial difficulties in obtaining and enforcing judgments against non-U.S. resident individuals and companies.
Some securities are issued by companies organized outside the United States but are traded in U.S. securities markets and are denominated in U.S. dollars. For example, ADRs and shares of some large foreign-based companies are traded on principal U.S. stock exchanges. Other securities are not traded in the United States but are denominated in U.S. dollars. These securities are not subject to all the risks of foreign investing. For example, foreign trading market or currency risks will not apply to U.S.-dollar-denominated securities traded in U.S. securities markets.
Investment in countries with emerging markets presents risks in greater degree than, and in addition to, those presented by investment in foreign issuers in general. Countries with developing markets have economic structures that are less mature. Furthermore, countries with developing markets have less stable political systems and may have high inflation, rapidly changing interest and currency exchange rates, and their securities markets are substantially less developed. The economies of countries with developing markets generally are heavily dependent upon international trade, and, accordingly, have been and may continue to be adversely affected by barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures in the countries with which they trade. These economies also have been and may continue to be adversely affected by economic conditions in the countries with which they trade.
FUTURES TRANSACTIONS
A Fund may purchase and sell futures contracts on debt securities and on indices of debt securities in order to hedge against anticipated changes in interest rates that might otherwise have an adverse effect upon the value of a Fund's securities. A Fund may also enter into such futures contracts in order to lengthen or shorten the average maturity or duration of the Fund's portfolio and for other appropriate risk management and investment purposes. For example, a Fund may purchase futures contracts as a substitute for the purchase of longer-term debt securities to lengthen the average duration of a Fund's portfolio of fixed-income securities.
A Fund may purchase and sell stock index futures to hedge the equity portion of its investment portfolio with regard to market (systematic) risk (involving the market's assessment of overall economic prospects), as distinguished from stock-specific risk (involving the market's evaluation of the merits of the issuer of a particular security) or to gain market exposure to that portion of the market represented by the futures contracts. A Fund may also purchase and sell other futures when deemed appropriate, in order to hedge the equity or non-equity portions of its portfolio. In addition, to the extent that it invests in foreign securities, and subject to any applicable restriction on the Fund's ability to invest in foreign currencies, each Fund may enter into contracts for the future delivery of foreign currencies to hedge against changes in currency exchange rates. A Fund may also purchase and write put and call options on futures contracts of the type into which such Fund is authorized to enter and may engage in related closing transactions. In the United States, all such futures on debt securities, debt index futures, stock index futures, foreign currency futures and related options will be traded on exchanges that are regulated by the Commodity Futures Trading Commission ("CFTC"). Subject to compliance with applicable CFTC rules, the Funds also may enter into futures contracts traded on foreign futures exchanges such as those located in Frankfurt, Tokyo, London or Paris as long as trading on foreign futures exchanges does not subject a Fund to risks that are materially greater than the risks associated with trading on U.S. exchanges.
A futures contract is an agreement to buy or sell a security or currency (or to deliver a final cash settlement price in the case of a contract relating to an index or otherwise not calling for physical delivery at the end of trading in the contract), for a set price at a future date. When interest rates are changing and portfolio values are falling, futures contracts can offset a decline in the value of a Fund's current portfolio securities. When interest rates are changing and portfolio values are rising, the purchase of futures contracts can secure better effective rates or purchase prices for the Fund than might later be available in the market when the Fund makes anticipated purchases. In the United States, futures contracts are traded on boards of trade that have been designated as "contract markets" or registered as derivatives transaction execution facilities by the CFTC. Futures contracts generally trade on these markets through an "open outcry" auction on the exchange floor or through competitive trading on an electronic trading system. Currently, there are futures contracts based on a variety of instruments, indices and currencies, including long-term U.S. Treasury bonds, Treasury notes, GNMA certificates, three-month U.S. Treasury bills, three-month domestic bank CDs, a municipal bond index, individual equity securities and various stock indices.
When a purchase or sale of a futures contract is made by a Fund, the Fund is required to deposit with its custodian (or broker, if legally permitted) a specified amount of liquid assets ("initial margin") as a partial guarantee of its performance under the contract. The margin required for a futures contract is set by the exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract that is returned to the Fund upon termination of the contract assuming all contractual obligations have been satisfied. Each Fund expects to earn interest income on its initial margin deposits. A futures contract held by a Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day, as the value of the security, currency or index fluctuates, the Fund pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking-to-market." Variation margin does not represent a borrowing or loan by a Fund but is instead a settlement between the Fund and the broker of the amount one would owe the other if the futures contract expired. In computing daily NAV per share, each Fund will mark-to-market its open futures positions. Moreover, each Fund will maintain sufficient liquid assets to cover its obligations under open futures contracts.
A Fund is also required to deposit and maintain margin with respect to put and call options on futures contracts written by it. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option, and other futures positions held by the Fund.
Positions taken in the futures markets are not normally held until delivery or final cash settlement is required, but are instead liquidated through offsetting transactions, which may result in a gain or a loss. While futures positions taken by a Fund will usually be liquidated in this manner, the Fund may instead make or take delivery of underlying securities or currencies whenever it appears economically advantageous to the Fund to do so. A clearing organization associated with the exchange on which futures are traded assumes responsibility for closing-out transactions and guarantees that as between the clearing members of an exchange, the sale and purchase obligations will be performed with regard to all positions that remain open at the termination of the contract.
Consistent with applicable law, Funds that are permitted to invest in futures contracts also will be permitted to invest in futures contracts on individual equity securities, known as single stock futures.
Futures on Debt Securities. A futures contract on a debt security is a binding contractual commitment that, if held to maturity, will result in an obligation to make or accept delivery, during a particular future month, of securities having a standardized face value and rate of return. By purchasing futures on debt securities--assuming a "long" position--a Fund will legally obligate itself to accept the future delivery of the underlying security and pay the agreed-upon price. By selling futures on debt securities--assuming a "short" position--it will legally obligate itself to make the future delivery of the security against payment of the agreed-upon price. Open futures positions on debt securities will be valued at the most recent settlement price, unless such price does not appear to the Manager or Subadvisors to reflect the fair value of the contract, in which case the positions will be valued by or under the direction of the Board Members.
Hedging by use of futures on debt securities seeks to establish more certainly than would otherwise be possible the effective rate of return on portfolio securities. A Fund may, for example, take a "short" position in the futures market by selling contracts for the future delivery of debt securities held by the Fund (or securities having characteristics similar to those held by the Fund) in order to hedge against an anticipated rise in interest rates that would adversely affect the value of the Fund's portfolio securities. When hedging of this character is successful, any depreciation in the value of portfolio securities will be substantially offset by appreciation in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing futures on debt securities. This would be done, for example, when the Fund intends to purchase particular securities and it has the necessary cash, but expects the rate of return available in the securities markets at that time to be less favorable than rates currently available in the futures markets. If the anticipated rise in the price of the securities should occur (with its concomitant reduction in yield), the increased cost to the Fund of purchasing the securities will be offset, at least to some extent, by the rise in the value of the futures position taken in anticipation of the subsequent securities purchase. A Fund may also purchase futures contracts as a substitute for the purchase of longer-term securities to lengthen the average duration of the Fund's portfolio.
A Fund could accomplish similar results by selling securities with long maturities and investing in securities with short maturities when interest rates are expected to increase or by buying securities with long maturities and selling securities with short maturities when interest rates are expected to decline. However, by using futures contracts as a risk management technique, given the greater liquidity in the futures market than in the cash market, it may be possible to accomplish the same result more easily and more quickly. Depending upon the types of futures contracts that are available to hedge a Fund's portfolio of securities or portion of a portfolio,
perfect correlation between that Fund's futures positions and portfolio positions may be difficult to achieve. Futures contracts do not exist for all types of securities and markets for futures contracts that do exist may, for a variety of reasons, be illiquid at particular times when a Fund might wish to buy or sell a futures contract.
Securities Index Futures. A securities index futures contract does not require the physical delivery of securities, but merely provides for profits and losses resulting from changes in the market value of the contract to be credited or debited at the close of each trading day to the respective accounts of the parties to the contract. On the contract's expiration date a final cash settlement occurs and the futures positions are simply closed out. Changes in the market value of a particular stock index futures contract reflect changes in the specified index of equity securities on which the contract is based. A stock index is designed to reflect overall price trends in the market for equity securities.
Stock index futures may be used to hedge the equity portion of a Fund's securities portfolio with regard to market (systematic) risk, as distinguished from stock-specific risk. The Funds may enter into stock index futures to the extent that they have equity securities in their portfolios. Similarly, the Funds may enter into futures on debt securities indices (including the municipal bond index) to the extent they have debt securities in their portfolios. By establishing an appropriate "short" position in securities index futures, a Fund may seek to protect the value of its portfolio against an overall decline in the market for securities. Alternatively, in anticipation of a generally rising market, a Fund can seek to avoid losing the benefit of apparently low current prices by establishing a "long" position in securities index futures and later liquidating that position as particular securities are in fact acquired. To the extent that these hedging strategies are successful, the Fund will be affected to a lesser degree by adverse overall market price movements, unrelated to the merits of specific portfolio securities, than would otherwise be the case. A Fund may also purchase futures on debt securities or indices as a substitute for the purchase of longer-term debt securities to lengthen the dollar-weighted average maturity of the Fund's debt portfolio or to gain exposure to particular markets represented by the index.
Currency Futures. A sale of a currency futures contract creates an obligation by a Fund, as seller, to deliver the amount of currency called for in the contract at a specified future time for a specified price. A purchase of a currency futures contract creates an obligation by a Fund, as purchaser, to take delivery of an amount of currency at a specified future time at a specified price. A Fund may sell a currency futures contract if the Manager or Subadvisor anticipates that exchange rates for a particular currency will fall, as a hedge against a decline in the value of the Fund's securities denominated in such currency. If the Manager or Subadvisor anticipates that exchange rates will rise, the Fund may purchase a currency futures contract to protect against an increase in the price of securities denominated in a particular currency the Fund intends to purchase. Although the terms of currency futures contracts specify actual delivery or receipt, in most instances the contracts are closed out before the settlement date without the making or taking of delivery of the currency. Closing out of a currency futures contract is effected by entering into an offsetting purchase or sale transaction. To offset a currency futures contract sold by a Fund, the Fund purchases a currency futures contract for the same aggregate amount of currency and delivery date. If the price in the sale exceeds the price in the offsetting purchase, the Fund is immediately paid the difference. Similarly, to close out a currency futures contract purchased by the Fund, the Fund sells a currency futures contract. If the offsetting sale price exceeds the purchase price, the Fund realizes a gain, and if the offsetting sale price is less than the purchase price, the Fund realizes a loss.
A risk in employing currency futures contracts to protect against the price volatility of portfolio securities denominated in a particular currency is that changes in currency exchange rates or in the value of the futures position may correlate imperfectly with changes in the cash prices of a Fund's securities. The degree of correlation may be distorted by the fact that the currency futures market may be dominated by short-term traders seeking to profit from changes in exchange rates. This would reduce the value of such contracts for hedging purposes over a short-term period. Such distortions are generally minor and would diminish as the contract approached maturity.
Another risk is that the Manager or Subadvisor could be incorrect in its expectation as to the direction or extent of various exchange rate movements or the time span within which the movements take place.
Options on Futures. For bona fide hedging and other appropriate risk management purposes, the Funds also may purchase and write call and put options on futures contracts that are traded on exchanges that are licensed and regulated by the CFTC for the purpose of options trading, or, subject to applicable CFTC rules, on foreign exchanges. A "call" option on a futures contract gives the purchaser the right, in return for the premium paid, to purchase a futures contract (assume a "long" position) at a specified exercise price at any time before the option expires. A "put" option gives the purchaser the right, in return for the premium paid, to sell a futures contract (assume a "short" position), for a specified exercise price at any time before the option expires.
Upon the exercise of a "call," the writer of the option is obligated to sell the futures contract (to deliver a "long" position to the option holder) at the option exercise price, which will presumably be lower than the current market price of the contract in the futures market. Upon exercise of a "put," the writer of the option is obligated to purchase the futures contract (deliver a "short" position to the option holder) at the option exercise price, which will presumably be higher than the current market price of the contract in the futures market. When an entity exercises an option and assumes a "long" futures position, in the case of a "call," or a "short" futures position, in the case of a "put," its gain will be credited to its futures margin account, while the loss suffered by the writer of the option will be debited to its account. However, as with the trading of futures, most participants in the options markets do not seek to realize their gains or losses by exercise of their option rights. Instead, the writer or holder of an option will usually realize a gain or loss by buying or selling an offsetting option at a market price that will reflect an increase or a decrease from the premium originally paid.
Options on futures contracts can be used by a Fund to hedge substantially the same risks and for the same duration and risk management purposes as might be addressed or served by the direct purchase or sale of the underlying futures contracts. If the Fund purchases an option on a futures contract, it may obtain benefits similar to those that would result if it held the futures position itself.
The purchase of put options on futures contracts is a means of hedging a Fund's portfolio against the risk of rising interest rates, declining securities prices or declining exchange rates for a particular currency. The purchase of a call option on a futures contract represents a means of hedging against a market advance affecting securities prices or currency exchange rates when the Fund is not fully invested or of lengthening the average maturity or duration of a Fund's portfolio. Depending on the pricing of the option compared to either the futures contract upon which it is based or upon the price of the underlying securities or currencies, it may or may not be less risky than ownership of the futures contract or underlying securities or currencies.
In contrast to a futures transaction, in which only transaction costs are involved, benefits received in an option transaction will be reduced by the amount of the premium paid as well as by transaction costs. In the event of an adverse market movement, however, the Fund will not be subject to a risk of loss on the option transaction beyond the price of the premium it paid plus its transaction costs, and may consequently benefit from a favorable movement in the value of its portfolio securities or the currencies in which such securities are denominated that would have been more completely offset if the hedge had been effected through the use of futures.
If a Fund writes options on futures contracts, the Fund will receive a premium but will assume a risk of adverse movement in the price of the underlying futures contract comparable to that involved in holding a futures position. If the option is not exercised, the Fund will realize a gain in the amount of the premium, which may partially offset unfavorable changes in the value of securities held by or to be acquired for the Fund. If the option is exercised, the Fund will incur a loss on the option transaction, which will be reduced by the amount of the premium it has received, but which may partially offset favorable changes in the value of its portfolio securities or the currencies in which such securities are denominated.
The writing of a call option on a futures contract constitutes a partial hedge against declining prices of the underlying securities or the currencies in which such securities are denominated. If the futures price at expiration is below the exercise price, the Fund will retain the full amount of the option premium, which provides a partial hedge against any decline that may have occurred in the Fund's holdings of securities or the currencies in which such securities are denominated.
The writing of a put option on a futures contract is analogous to the purchase of a futures contract. For example, if the Fund writes a put option on a futures contract on debt securities related to securities that the Fund expects to acquire and the market price of such securities increases, the net cost to a Fund of the debt securities acquired by it will be reduced by the amount of the option premium received. Of course, if market prices have declined, the Fund's purchase price upon exercise may be greater than the price at which the debt securities might be purchased in the securities market.
While the holder or writer of an option on a futures contract may normally terminate its position by selling or purchasing an offsetting option of the same series, a Fund's ability to establish and close out options positions at fairly established prices will be subject to the maintenance of a liquid market. The Funds will not purchase or write options on futures contracts unless the market for such options has sufficient liquidity such that the risks associated with such options transactions are not at unacceptable levels.
Limitations on Purchase and Sale of Futures Contracts and Options on Futures Contracts. A Fund will only enter into futures contracts or related options that are standardized and traded on a U.S. or foreign exchange or board of trade, or similar entity, or quoted on an automatic quotation system. The Funds will not enter into futures contracts for which the aggregate contract amounts exceed 100% of the Fund's net assets.
A call option is "in-the-money" if the value of the futures contract that is the subject of the option exceeds the exercise price. A put option is "in-the-money" if the exercise price exceeds the value of the futures contract that is the subject of the option. When purchasing a futures contract, a Fund will maintain with its custodian (and mark-to-market on a daily basis) liquid assets that, when added to the amounts deposited with a futures commission merchant as margin, are equal to the market value of the futures contract. Alternatively, the Fund may "cover" its position by purchasing a put option on the same futures contract with a strike price as high or higher than the price of the contract held by the Fund.
When selling a futures contract, a Fund will maintain with its custodian (and mark-to-market on a daily basis) liquid assets that, when added to the amount deposited with a futures commission merchant as margin, are equal to the market value of the instruments underlying the contract. Alternatively, the Fund may "cover" its position by owning the instruments underlying the contract (or, in the case of an index futures contract, a portfolio with a volatility substantially similar to that of the index on which the futures contract is based), or by holding a call option permitting the Fund to purchase the same futures contract at a price no higher than the price of the contract written by the Fund (or at a higher price if the difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, a Fund will maintain with its custodian (and mark-to-market on a daily basis) liquid assets that, when added to the amounts deposited with a futures commission merchant as margin, equal the total market value of the futures contract underlying the call option. Alternatively, the Fund may cover its position by entering into a long position in the same futures contract at a price no higher than the strike price of the call option, by owning the instruments underlying the futures contract, or by holding a separate call option permitting the Fund to purchase the same futures contract at a price not higher than the strike price of the call option sold by the Fund.
When selling a put option on a futures contract, a Fund will maintain with its custodian (and mark-to-market on a daily basis) liquid assets that equal the purchase price of the futures contract, less any margin on deposit. Alternatively, the Fund may cover the position either by entering into a short position in the same futures contract, or by owning a separate put option permitting it to sell the same futures contract so long as the strike price of the purchased put option is the same or higher than the strike price of the put option sold by the Fund.
The requirements for qualification as a regulated investment company also may limit the extent to which a Fund may enter into futures, options on futures or forward contracts. See "Tax Information."
Risks Associated with Futures and Options on Futures Contracts. There are several risks associated with the use of futures contracts and options on futures contracts as hedging techniques. There can be no assurance that hedging strategies using futures will be successful. A purchase or sale of a futures contract may result in losses in excess of the amount invested in the futures contract, which in some cases may be unlimited. There can be no guarantee that there will be a correlation between price movements in the hedging vehicle and in the Fund's securities being hedged, even if the hedging vehicle closely correlates with a Fund's investments, such as with single stock futures contracts. If the price of a futures contract changes more than the price of the securities or currencies, the Fund will experience either a loss or a gain on the futures contracts that will not be completely offset by changes in the price of the securities or currencies that are the subject of the hedge. An incorrect correlation could result in a loss on both the hedged securities or currencies and the hedging vehicle so that the portfolio return might have been better had hedging not been attempted. In addition, it is not possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in foreign currencies because the value of such securities is likely to fluctuate as a result of independent factors not related to currency fluctuations. In addition, there are significant differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given hedge not to achieve its objectives. The degree of imperfection of correlation depends on circumstances such as variations in speculative market demand for futures and options on securities, including technical influences in futures trading and options, and differences between the financial instruments being hedged and the instruments underlying the standard contracts available for trading in such respects as interest rate levels, maturities, and creditworthiness of issuers. A decision as to whether, when and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate trends. It is also possible that, when a Fund has sold single stock futures or stock index futures to hedge its portfolio against a decline in the market, the market may advance while the value of the particular securities held in the Fund's portfolio might decline. If this were to occur, the Fund would incur a loss on the futures contracts and also experience a decline in the value of its portfolio securities. This risk may be magnified for single stock futures transactions, as the Fund's portfolio manager must predict the direction of the price of an individual stock, as opposed to securities prices generally.
Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's
settlement price at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when a Fund seeks to close out a futures contract or a futures option position. If no liquid market exists, the Fund would remain obligated to meet margin requirements until the position is closed. In addition, many of the contracts discussed above are relatively new instruments without a significant trading history. As a result, there can be no assurance that an active secondary market will develop or continue to exist. Lack of a liquid market for any reason may prevent the Fund from liquidating an unfavorable position and the Fund would remain obligated to meet margin requirements until the position is closed.
In addition to the risks that apply to all options transactions, there are several special risks relating to options on futures contracts. The ability to establish and close out positions in such options will be subject to the development and maintenance of a liquid market in the options. It is not certain that such a market will develop. Although the Funds generally will purchase only those options and futures contracts for which there appears to be an active market, there is no assurance that a liquid market on an exchange will exist for any particular option or futures contract at any particular time. In the event no such market exists for particular options, it might not be possible to effect closing transactions in such options with the result that a Fund would have to exercise options it has purchased in order to realize any profit and would be less able to limit its exposure to losses on options it has written.
Additional Risks of Options on Securities, Futures Contracts, Options on Futures Contracts, and Foreign Currency. Options on securities, futures contracts, options on futures contracts, currencies and options on currencies may be traded on foreign exchanges. Such transactions may not be regulated as effectively as similar transactions in the United States; may not involve a clearing mechanism and related guarantees; and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities. The value of such positions also could be adversely affected by (1) other complex foreign political, legal and economic factors, (2) lesser availability than in the United States of data on which to make trading decisions, (3) delays in a Fund's ability to act upon economic events occurring in foreign markets during non-business hours in the United States, (4) the imposition of different exercise and settlement terms and procedures and margin requirements than in the United States, and (5) lesser trading volume.
ILLIQUID SECURITIES
A Fund may invest in illiquid securities, if such purchases at the time thereof would not cause more than 15% of the value of the Fund's net assets (10% of the Money Market Fund) to be invested in all such illiquid or not readily marketable assets. Illiquid securities cannot be sold or disposed of in the ordinary course of business at approximately the prices at which they are valued. This includes repurchase agreements maturing in more than seven days. Difficulty in selling securities may result in a loss or may be costly to a Fund.
Under the supervision of the Board, the Manager or Subadvisor determines the liquidity of a Fund's investments; in doing so, the Manager or Subadvisor may consider various factors, including (1) the frequency of trades and quotations, (2) the number of dealers and prospective purchasers, (3) the dealer undertakings to make a market, and (4) the nature of the security and the market in which it trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). Illiquid securities will be valued in such manner as the Board in good faith deems appropriate to reflect their fair market value.
INDUSTRIAL DEVELOPMENT AND POLLUTION CONTROL BONDS
Industrial Development Bonds that pay tax-exempt interest are, in most cases, revenue bonds and are issued by, or on behalf of, public authorities to raise money to finance various privately operated facilities for business, manufacturing, housing, sports, and pollution control. These bonds are also used to finance public facilities such as airports, mass transit systems, ports, and parking. The payment of the principal and interest on such bonds is solely dependent on the ability of the facility's user to meet its financial obligations and the pledge, if any, of the real and personal property so financed as security for such payments. These bonds are generally not secured by the taxing power of the municipality but are secured by the revenues of the authority derived from payments by the industrial user.
Industrial Development and Pollution Control Bonds, although nominally issued by municipal authorities, are generally not secured by the taxing power of the municipality but are secured by the revenues of the authority derived from payments by the industrial user. Industrial Development Bonds issued after the effective date of the TRA, as well as certain other bonds, are now classified as "private activity bonds." Some, but not all, private activity bonds issued after that date qualify to pay tax-exempt interest.
INVESTMENT COMPANIES
A Fund may invest in securities of other investment companies, subject to limitations prescribed by the 1940 Act and any applicable investment restrictions described in the Fund's prospectus and SAI. Among other things, the 1940 Act limitations prohibit a fund from (1) acquiring more than 3% of the voting shares of an investment company, (2) investing more than 5% of the Fund's total assets in securities of any one investment company, and (3) investing more than 10% of the Fund's total assets in securities of all investment companies. Each Fund indirectly will bear its proportionate share of any management fees and other expenses paid by the investment companies in which the Fund invests in addition to the fees and expenses the Fund bears directly in connection with its own operations. These securities represent interests in professionally managed portfolios that may invest in various types of instruments pursuant to a wide range of investment styles, investing in other investment companies involves substantially the same risks as investing directly in the underlying instruments, but may involve duplicative management and advisory fees and operating expenses. Certain types of investment companies, such as closed-end investment companies, issue a fixed number of shares that trade on a stock exchange or over-the-counter at a premium or a discount to their NAV per share. Others are continuously offered at NAV per share but may also be traded in the secondary market. In addition, no Fund may acquire the securities of registered open-end investment companies or registered unit investment trusts in reliance on Section 12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act.
LENDING OF PORTFOLIO SECURITIES
A Fund may seek to increase its income by lending portfolio securities to certain broker-dealers and institutions, in accordance with procedures adopted by the Board. Under present regulatory policies, such loans would be required to be secured continuously by collateral in cash or U.S. government securities maintained on a current basis at an amount at least equal to 100% of the current market value of the securities loaned. The total market value of securities loaned will not exceed one-third or 33 1/3% of the total assets of a Fund (30% of the total assets in the case of the Equity Index Fund). The Fund would have the right to call a loan and obtain the securities loaned at any time generally on less than five days' notice. For the duration of a loan, the Fund would continue to receive the equivalent of the interest or dividends paid by the issuer on the securities loaned and would also receive compensation from the investment of the collateral. The Fund would not, however, have the right to vote any securities having voting rights during the existence of the loan, but the Fund would call the loan in anticipation of an important vote to be taken among holders of the securities or of the giving or withholding of their consent on a material matter affecting the investment. The Trust and the Company, on behalf of certain of the Funds, has entered into an agency agreement with Investors Bank & Trust Company, which act as the Funds' agent in making loans of portfolio securities, and short-term money market investments of the cash collateral received, subject to the supervision and control of the Manager or Subadvisor, as the case may be.
As with other extensions of credit, there are risks of delay in recovery of, or even loss of rights in, the collateral should the borrower of the securities fail financially or breach its agreement with a Fund. However, the loans would be made only to firms deemed by the Manager or Subadvisor to be creditworthy and approved by the Board, and when, in the judgment of the Manager or Subadvisor, the consideration that can be earned currently from securities loans of this type, justifies the attendant risk. If the Manager or Subadvisor, as the case may be, determines to make securities loans, it is intended that the value of the securities loaned will not exceed 33 1/3% (30% of the total assets in the case of the Equity Index Fund) of the value of the total assets of the lending Fund. Under the guidelines adopted by the Board, the agent is not permitted to lend more than 5% of a Fund's total assets to any one counterparty.
Subject to the exemptive relief granted to the Funds from certain provisions of the 1940 Act, the Funds, subject to certain conditions and limitations, are permitted to invest cash collateral and uninvested cash in one or more money market funds that are affiliated with the Funds.
LOAN PARTICIPATION INTERESTS
A Fund may invest in participation interests in loans. A Fund's investment in loan participation interests may take the form of participation interests in, assignments of or novations of a corporate loan ("Participation Interests"). The Participation Interests may be acquired from an agent bank, co-lenders or other holders of Participation Interests ("Participants"). In a novation, a Fund would
assume all of the rights of the lender in a corporate loan, including the right to receive payments of principal and interest and other amounts directly from the borrower and to enforce its rights as a lender directly against the borrower. As an alternative, a Fund may purchase an assignment of all or a portion of a lender's interest in a corporate loan, in which case, the Fund may be required generally to rely on the assigning lender to demand payment and enforce its rights against the borrower, but would otherwise be entitled to all of such lender's rights in the corporate loan.
A Fund also may purchase Participation Interests in a portion of the rights of a lender in a corporate loan. In such a case, the Fund will be entitled to receive payments of principal, interest and fees, if any, but generally will not be entitled to enforce its rights directly against the agent bank or the borrower; rather the Fund must rely on the lending institution for that purpose. A Fund will not act as an agent bank, guarantor or sole negotiator of a structure with respect to a corporate loan.
In a typical corporate loan involving the sale of Participation Interests, the agent bank administers the terms of the corporate loan agreement and is responsible for the collection of principal and interest and fee payments to the credit of all lenders that are parties to the corporate loan agreement. The agent bank in such cases will be qualified under the 1940 Act to serve as a custodian for a registered investment company such as the Trust. A Fund generally will rely on the agent bank or an intermediate Participant to collect its portion of the payments on the corporate loan. The agent bank may monitor the value of the collateral and, if the value of the collateral declines, may take certain action, including accelerating the corporate loan, giving the borrower an opportunity to provide additional collateral or seeking other protection for the benefit of the Participants in the corporate loan, depending on the terms of the corporate loan agreement. Furthermore, unless under the terms of a participation agreement a Fund has direct recourse against the borrower (which is unlikely), a Fund will rely on the agent bank to use appropriate creditor remedies against the borrower. The agent bank also is responsible for monitoring compliance with covenants contained in the corporate loan agreement and for notifying holders of corporate loans of any failures of compliance. Typically, under corporate loan agreements, the agent bank is given discretion in enforcing the corporate loan agreement, and is obligated to follow the terms of the loan agreements and use only the same care it would use in the management of its own property. For these services, the borrower compensates the agent bank. Such compensation may include special fees paid on structuring and funding the corporate loan and other fees paid on a continuing basis.
A financial institution's employment as an agent bank may be terminated in the event that it fails to observe the requisite standard of care or becomes insolvent, or has a receiver, conservator, or similar official appointed for it by the appropriate bank regulatory authority or becomes a debtor in a bankruptcy proceeding. A successor agent bank generally will be appointed to replace the terminated bank, and assets held by the agent bank under the corporate loan agreement should remain available to holders of corporate loans. If, however, assets held by the agent bank for the benefit of a Fund were determined by an appropriate regulatory authority or court to be subject to the claims of the agent bank's general or secured creditors, the Fund might incur certain costs and delays in realizing payment on a corporate loan, or suffer a loss of principal and/or interest. In situations involving intermediate Participants similar risks may arise.
When a Fund acts as co-lender in connection with Participation Interests or when a Fund acquires a Participation Interest the terms of which provide that the Fund will be in privity of contract with the corporate borrower, the Fund will have direct recourse against the borrower in the event the borrower fails to pay scheduled principal and interest. In all other cases, the Fund will look to the agent bank to enforce appropriate credit remedies against the borrower. In acquiring Participation Interests a Fund's Manager or Subadvisor will conduct analysis and evaluation of the financial condition of each such co-lender and participant to ensure that the Participation Interest meets the Fund's qualitative standards. There is a risk that there may not be a readily available market for Participation Interests and, in some cases, this could result in a Fund disposing of such securities at a substantial discount from face value or holding such security until maturity. When a Fund is required to rely upon a lending institution to pay the Fund principal, interest, and other amounts received by the lending institution for the loan participation, the Fund will treat both the borrower and the lending institution as an "issuer" of the loan participation for purposes of certain investment restrictions pertaining to the diversification and concentration of the Fund's portfolio.
The principal credit risk associated with acquiring Participation Interests from a co-lender or another Participant is the credit risk associated with the underlying corporate borrower. A Fund may incur additional credit risk, however, when it is in the position of Participant rather than a co-lender because the Fund must assume the risk of insolvency of the co-lender from which the Participation Interest was acquired and that of any person interpositioned between the Fund and the co-lender.
MORTGAGE DOLLAR ROLLS
A mortgage dollar roll ("MDR") is a transaction in which a Fund sells mortgage-related securities ("MBS") from its portfolio to a counter party from whom it simultaneously agrees to buy a similar security on a delayed delivery basis. A Fund will maintain liquid
assets having a value not less than the repurchase price, and will designate which assets are being so maintained on its books and records. MDR transactions involve certain risks, including the risk that the MBS returned to the Fund at the end of the roll, while substantially similar, could be inferior to what was initially sold to the counter party.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES
Each Fund may buy mortgage-related and asset-backed securities. Mortgage-related and asset-backed securities are securities that derive their value from underlying pools of loans that may include interests in pools of lower rated debt securities, consumer loans or mortgages, or complex instruments such as collateralized mortgage obligations and stripped mortgage-backed securities.
Like other fixed-income securities, when interest rates rise, the value of a mortgage-related security generally will decline; however, when interest rates are declining, the value of a mortgage-related security with prepayment features may not increase as much as other fixed-income securities. The value of these securities may be significantly affected by changes in interest rates, the market's perception of issuers and the creditworthiness of the parties involved. The ability of a Fund to successfully utilize these instruments may depend in part upon the ability of the Fund's Manager or Subadvisor to forecast interest rates and other economic factors correctly. Some securities may have a structure that makes their reaction to interest rate changes and other factors difficult to predict, making their value highly volatile. These securities may also be subject to prepayment risk and if the security has been purchased at a premium the amount of the premium would be lost in the event of prepayment. Mortgage-related securities are interests in pools of residential or commercial mortgage loans or leases, including mortgage loans made by S&Ls, mortgage bankers, commercial banks and others. Pools of mortgage loans are assembled as securities for sale to investors by various governmental, government-related and private organizations (see "Mortgage Pass-Through Securities"). The Funds, to the extent permitted in the Prospectus, may also invest in debt securities that are secured with collateral consisting of mortgage-related securities (see "Collateralized Mortgage Obligations"), and in other types of mortgage-related securities. While principal and interest payments on some mortgage-related securities may be guaranteed by the U.S. government, government agencies or other guarantors, the market value of such securities is not guaranteed.
A Fund will invest in mortgage-related (or other asset-backed) securities either (1) issued by U.S. government-sponsored corporations such as the GNMA, FHLMC, and FNMA, or (2) privately issued securities rated Baa or better by Moody's or BBB or better by S&P or, if not rated, of comparable investment quality as determined by the Fund's investment adviser. In addition, if any such security is determined to be illiquid, a Fund will limit its investments in these and other illiquid instruments subject to a Fund's limitation on investments in illiquid securities.
Mortgage Pass-Through Securities. The Funds may invest in mortgage pass-through securities. Mortgage pass-through securities are interests in pools of mortgage-related securities. Such interests differ from other forms of debt securities, which normally provide for periodic payment of interest in fixed amounts with principal payments at maturity or specified call dates. Instead, these securities provide a monthly payment that consists of both interest and principal payments. In effect, these payments are a "pass-through" of the monthly payments made by the individual borrowers on their residential mortgage loans, net of any fees paid to the issuer or guarantor of such securities. Additional payments are caused by repayments of principal resulting from the sale of the underlying residential property, refinancing or foreclosure, net of fees or costs that may be incurred. Some mortgage-related securities (such as securities issued by GNMA) are described as "modified pass-through." These securities entitle the holder to receive all interest and principal payments owed on the mortgage pool, net of certain fees, at the scheduled payment dates regardless of whether or not the mortgagor actually makes the payment. Some mortgage pass-through certificates may include securities backed by adjustable-rate mortgages that bear interest at a rate that will be adjusted periodically.
Early repayment of principal on mortgage pass-through securities (arising from prepayments of principal due to sale of the underlying property, refinancing, or foreclosure, net of fees and costs that may be incurred) may expose a Fund to a lower rate of return upon reinvestment of principal. Also, if a security subject to prepayment has been purchased at a premium, in the event of prepayment, the value of the premium would be lost.
Payment of principal and interest on some mortgage pass-through securities (but not the market value of the securities themselves) may be guaranteed by the full faith and credit of the U.S. government (in the case of securities guaranteed by GNMA); or guaranteed by agencies or instrumentalities of the U.S. government (in the case of securities guaranteed by FNMA or FHLMC), which are supported only by the discretionary authority of the U.S. government to purchase the agency's obligations.
GNMA CERTIFICATES. The principal governmental guarantor of mortgage-related securities is the GNMA. GNMA is a wholly owned U.S. government corporation within the U.S. Department of Housing and Urban Development ("HUD"). GNMA is authorized to guarantee, with the full faith and credit of the U.S. government, the timely payment of principal and interest on securities issued by institutions approved by GNMA (such as S&Ls, commercial banks and mortgage bankers) and backed by pools of FHA-insured or Veterans Administration-guaranteed mortgages. In order to meet its obligations under such guarantee, GNMA is authorized to borrow from the U.S. Treasury with no limitations as to amount.
Government-related guarantors (i.e., not backed by the full faith and credit of the U.S. government) include the FNMA and FHLMC. FNMA is a government-sponsored corporation owned entirely by private stockholders. It is subject to general regulation by HUD and acts as a government instrumentality under authority granted by Congress. FNMA purchases conventional (i.e., not insured or guaranteed by any government agency) residential mortgages from a list of approved seller/servicers that includes state and federally chartered S&Ls, mutual savings banks, commercial banks, credit unions and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA but are not backed by the full faith and credit of the U.S. government. FNMA is authorized to borrow from the U.S. Treasury to meet its obligations.
FHLMC was created by Congress in 1970 for the purpose of increasing the availability of mortgage credit for residential housing. It is a government-sponsored corporation formerly owned by the twelve Federal Home Loan Banks and is now owned entirely by private stockholders. FHLMC issues Participation Certificates ("PCs") that represent interests in conventional mortgages from FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and collection of principal, but PCs are not backed by the full faith and credit of the U.S. government.
If either fixed or variable rate pass-through securities issued by the U.S. government or its agencies or instrumentalities are developed in the future, the Funds reserve the right to invest in them.
Commercial banks, S&Ls, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through pools of conventional residential mortgage loans. Such issuers may, in addition, be the originators and/or servicers of the underlying mortgage loans as well as the guarantors of the mortgage-related securities. Pools created by such non-governmental issuers generally offer a higher rate of interest than government and government-related pools because there are no direct or indirect government or agency guarantees of payments in the non-governmental pools. However, timely payment of interest and principal of these pools may be supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance and letters of credit. The insurance and guarantees are issued by governmental entities, private insurers and the mortgage poolers. Such insurance and guarantees and the creditworthiness of the issuers thereof will be considered in determining whether a mortgage-related security meets a Fund's investment quality standards. There can be no assurance that the private insurers or guarantors can meet their obligations under the insurance policies or guarantee arrangements. A Fund may buy mortgage-related securities without insurance or guarantees if, through an examination of the loan experience and practices of the originator/servicers and poolers, the Fund's Manager or Subadvisor determines that the securities meet the Fund's quality standards.
Private Mortgage Pass-Through Securities. Commercial banks, S&Ls, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through pools of conventional residential mortgage loans. Such issuers may, in addition, be the originators and/or servicers of the underlying mortgage loans as well as the guarantors of the mortgage-related securities. Pools created by such non-governmental issuers generally offer a higher rate of interest than government and government-related pools because there are no direct or indirect government or agency guarantees of payments in the former pools. However, timely payment of interest and principal of these pools may be supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance and letters of credit. The insurance and guarantees are issued by governmental entities, private insurers and the mortgage poolers. Such insurance and guarantees and the creditworthiness of the issuers thereof will be considered in determining whether a mortgage-related security meets a Fund's investment quality standards. There can be no assurance that the private insurers or guarantors can meet their obligations under the insurance policies or guarantee arrangements. A Fund may buy mortgage-related securities without insurance or guarantees if, through an examination of the loan experience and practices of the originator/servicers and poolers, the Fund's Manager or Subadvisor determines that the securities meet the Fund's quality standards. Although the market for such securities is becoming increasingly liquid, securities issued by certain private organizations may not be readily marketable. A Fund may purchase mortgage-related securities or any other assets that, in the opinion of the Fund's Manager or Subadvisor, are illiquid, subject to a Fund's limitation on investments in illiquid securities.
Collateralized Mortgage Obligations ("CMOs"). A CMO is a hybrid between a mortgage-backed bond and a mortgage pass-through security. Similar to a bond, interest and prepaid principal is paid, in most cases, semiannually. CMOs may be collateralized by
whole mortgage loans, but are more typically collateralized by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC or FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated maturity. Actual maturity and average life will depend upon the prepayment experience of the collateral. CMOs provide for a modified form of call protection through a de facto breakdown of the underlying pool of mortgages according to how quickly the loans are repaid. Monthly payment of principal received from the pool of underlying mortgages, including prepayments, is first returned to investors holding the shortest maturity class. Investors holding the longer maturity classes receive principal only after the first class has been retired. An investor is partially guarded against a sooner than desired return of principal because of the sequential payments.
For example, if it is probable that the issuer of an instrument will take advantage of a maturity-shortening device, such as a call, refunding, or redemption provision, the date on which the instrument will probably be called, refunded, or redeemed may be considered to be its maturity date. Also, the maturities of mortgage securities, including collateralized mortgage obligations, and some asset-backed securities are determined on a weighted average life basis, which is the average time for principal to be repaid. For a mortgage security, this average time is calculated by estimating the timing of principal payments, including unscheduled prepayments, during the life of the mortgage. The weighted average life of these securities is likely to be substantially shorter than their stated final maturity.
An obligation's maturity is typically determined on a stated final maturity basis, although there are some exceptions to this rule. Dollar-weighted average maturity is derived by multiplying the value of each investment by the time remaining to its maturity, adding these calculations, and then dividing the total by the value of a Fund's portfolio.
In a typical CMO transaction, a corporation ("issuer") issues multiple series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to purchase mortgages or mortgage pass-through certificates ("Collateral"). The Collateral is pledged to a third-party trustee as security for the Bonds. Principal and interest payments from the Collateral are used to pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds all bear current interest. Interest on the Series Z Bond is accrued and added to principal and a like amount is paid as principal on the Series A, B, or C Bonds currently being paid off. When the Series A, B, and C Bonds are paid in full, interest and principal on the Series Z Bond begins to be paid currently. With some CMOs, the issuer serves as a conduit to allow loan originators (primarily builders or S&Ls) to borrow against their loan portfolios.
The eligible Funds will not invest in any privately issued CMOs that do not meet the requirements of Rule 3a-7 under the 1940 Act if, as a result of such investment, more than 5% of a Fund's net assets would be invested in any one such CMO, more than 10% of the Fund's net assets would be invested in such CMOs and other investment company securities in the aggregate, or the Fund would hold more than 3% of any outstanding issue of such CMOs.
FHLMC Collateralized Mortgage Obligations ("FHLMC CMOs"). FHLMC CMOs are debt obligations of FHLMC issued in multiple classes having different maturity dates that are secured by the pledge of a pool of conventional mortgage loans purchased by FHLMC. Unlike FHLMC PCs, payments of principal and interest on the FHLMC CMOs are made semiannually, as opposed to monthly. The amount of principal payable on each semiannual payment date is determined in accordance with FHLMC's mandatory sinking fund schedule, which, in turn, is equal to approximately 100% of FHA prepayment experience applied to the mortgage collateral pool. All sinking fund payments in the CMOs are allocated to the retirement of the individual classes of bonds in the order of their stated maturities. Payment of principal on the mortgage loans in the collateral pool in excess of the amount of FHLMC's minimum sinking fund obligation for any payment date are paid to the holders of the CMOs as additional sinking fund payments. Because of the "pass-through" nature of all principal payments received on the collateral pool in excess of FHLMC's minimum sinking fund requirement, the rate at which principal of the CMOs is actually repaid is likely to be such that each class of bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans during any semi-annual payment period is not sufficient to meet FHLMC's minimum sinking fund obligation on the next sinking fund payment date, FHLMC agrees to make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the CMOs are identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in the event of delinquencies and/or defaults.
Other Mortgage-Related Securities. Other mortgage-related securities include securities other than those described above that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property, including CMO
residuals or stripped mortgage-backed securities, and may be structured in classes with rights to receive varying proportions of principal and interest. Other mortgage-related securities may be equity or debt securities issued by agencies or instrumentalities of the U.S. government or by private originators of, or investors in, mortgage loans, including S&Ls, homebuilders, mortgage banks, commercial banks, investment banks, partnerships, trusts and special purpose entities of the foregoing.
The Funds' Manager or Subadvisors expect that governmental, government-related or private entities may create mortgage loan pools and other mortgage-related securities offering mortgage pass-through and mortgage-collateralized investments in addition to those described above. The mortgages underlying these securities may include alternative mortgage instruments, that is, mortgage instruments whose principal or interest payments may vary or whose terms to maturity may differ from customary long-term fixed rate mortgages. As new types of mortgage-related securities are developed and offered to investors, a Fund's Manager or Subadvisor will, consistent with the Fund's investment objectives, policies and quality standards, consider making investments in such new types of mortgage-related securities.
CMO Residuals. CMO residuals are derivative mortgage securities issued by agencies or instrumentalities of the U.S. government or by private originators of, or investors in, mortgage loans, including S&Ls, homebuilders, mortgage banks, commercial banks, investment banks and special purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of CMOs is applied first to make required payments of principal and interest on the CMOs and second to pay the related administrative expenses of the issuer. The residual in a CMO structure generally represents the interest in any excess cash flow remaining after making the foregoing payments. Each payment of such excess cash flow to a holder of the related CMO residual represents income and/or a return of capital. The amount of residual cash flow resulting from a CMO will depend on, among other things, the characteristics of the mortgage assets, the coupon rate of each class of CMO, prevailing interest rates, the amount of administrative expenses and the prepayment experience on the mortgage assets. In particular, the yield to maturity on CMO residuals is extremely sensitive to prepayments on the related underlying mortgage assets, in the same manner as an interest-only class of stripped mortgage-backed securities. See "Stripped Mortgage-Backed Securities." In addition, if a series of a CMO includes a class that bears interest at an adjustable rate, the yield to maturity on the related CMO residual will also be extremely sensitive to changes in the level of the index upon which interest rate adjustments are based. As described below with respect to stripped mortgage-backed securities, in certain circumstances, a portfolio may fail to recoup fully its initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional investors through several investment banking firms acting as brokers or dealers. The CMO residual market has only very recently developed and CMO residuals currently may not have the liquidity of other more established securities trading in other markets. Transactions in CMO residuals are generally completed only after careful review of the characteristics of the securities in question. In addition, CMO residuals may or, pursuant to an exemption therefrom, may not have been registered under the 1933 Act. CMO residuals, whether or not registered under the 1933 Act, may be subject to certain restrictions on transferability, and may be deemed "illiquid" and subject to a Fund's limitations on investment in illiquid securities. Each of the Funds limits its investment in CMO residuals to less than 5% of its net assets.
CMOs may offer a higher yield than U.S. government securities, but they may also be subject to greater price fluctuation and credit risk. In addition, CMOs typically will be issued in a variety of classes or series, which have different maturities and are retired in sequence. Privately issued CMOs are not government securities nor are they supported in any way by any governmental agency or instrumentality. In the event of a default by an issuer of a CMO, there is no assurance that the collateral securing such CMO will be sufficient to pay principal and interest. It is possible that there will be limited opportunities for trading CMOs in the over-the-counter market, the depth and liquidity of which will vary from time to time.
Under certain circumstances, a Fund's investment in residual interests in "real estate mortgage investment conduits" ("REMICs") may cause shareholders of that Fund to be deemed to have taxable income in addition to their Fund dividends and distributions and such income may not be eligible to be reduced for tax purposes by certain deductible amounts, including net operating loss deductions. In addition, in some cases, the Fund may be required to pay taxes on certain amounts deemed to be earned from a REMIC residual. Prospective investors may wish to consult their tax advisors regarding REMIC residual investments by a Fund.
CMOs and REMICs may offer a higher yield than U.S. government securities, but they may also be subject to greater price fluctuation and credit risk. In addition, CMOs and REMICs typically will be issued in a variety of classes or series, which have different maturities and are retired in sequence. Privately issued CMOs and REMICs are not government securities nor are they supported in any way by any governmental agency or instrumentality. In the event of a default by an issuer of a CMO or a REMIC, there is no assurance that the collateral securing such CMO or REMIC will be sufficient to pay principal and interest. It is possible that
there will be limited opportunities for trading CMOs and REMICs in the over-the-counter market, the depth and liquidity of which will vary from time to time. Holders of "residual" interests in REMICs (including the Fund) could be required to recognize potential phantom income, as could shareholders (including unrelated business taxable income for tax-exempt shareholders) of funds that hold such interests. The Funds will consider this rule in determining whether to invest in residual interests.
Stripped Mortgage-Backed Securities ("SMBS"). SMBS are derivative multi-class mortgage securities. SMBS may be issued by agencies or instrumentalities of the U.S. government, or by private originators of, or investors in, mortgage loans, including S&Ls, mortgage banks, commercial banks, investment banks and special purpose entities of the foregoing.
SMBS are usually structured with two classes that receive different proportions of the interest and principal distributions on a pool of mortgage assets. A common type of SMBS will have one class receiving some of the interest and most of the principal from the mortgage assets, while the other class will receive most of the interest and the remainder of the principal. In the most extreme case, one class will receive all of the interest (the interest-only or "IO" class), while the other class will receive all of the principal (the principal-only or "PO" class). The yield to maturity on an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on a Fund's yield to maturity from these securities. If the underlying mortgage assets experience greater than anticipated prepayments of principal, a Fund may fail to fully recoup its initial investment in these securities even if the security is in one of the highest rating categories.
Although SMBS are purchased and sold by institutional investors through several investment banking firms acting as brokers or dealers, these securities were only recently developed. As a result, established trading markets have not yet developed and, accordingly, these securities may be deemed "illiquid" and subject to a Fund's limitations on investment in illiquid securities.
Risks Associated with Mortgage-Backed Securities. As in the case with other fixed income securities, when interest rates rise, the value of a mortgage-backed security generally will decline; however, when interest rates are declining, the value of mortgage-backed securities with prepayment features may not increase as much as other fixed income securities. The value of some mortgage-backed securities in which the Funds may invest may be particularly sensitive to changes in prevailing interest rates, and, like the other investments of the Funds, the ability of a Fund to successfully utilize these instruments may depend in part upon the ability of the Manager or Subadvisor to forecast interest rates and other economic factors correctly. If the Manager or Subadvisor incorrectly forecasts such factors and has taken a position in mortgage-backed securities that is or becomes contrary to prevailing market trends, the Funds could be exposed to the risk of a loss.
Investment in mortgage-backed securities poses several risks, including prepayment, market, and credit risk. Prepayment risk reflects the chance that borrowers may prepay their mortgages faster than expected, thereby affecting the investment's average life and perhaps its yield. Whether or not a mortgage loan is prepaid is almost entirely controlled by the borrower. Borrowers are most likely to exercise their prepayment options at a time when it is least advantageous to investors, generally prepaying mortgages as interest rates fall, and slowing payments as interest rates rise. Besides the effect of prevailing interest rates, the rate of prepayment and refinancing of mortgages may also be affected by home value appreciation, ease of the refinancing process and local economic conditions.
Market risk reflects the chance that the price of the security may fluctuate over time. The price of mortgage-backed securities may be particularly sensitive to prevailing interest rates, the length of time the security is expected to be outstanding, and the liquidity of the issue. In a period of unstable interest rates, there may be decreased demand for certain types of mortgage-backed securities, and a Fund invested in such securities and wishing to sell them may find it difficult to find a buyer, which may in turn decrease the price at which they may be sold.
Credit risk reflects the chance that a Fund may not receive all or part of its principal because the issuer or credit enhancer has defaulted on its obligations. Obligations issued by U.S. government-related entities are guaranteed as to the payment of principal and interest, but are not backed by the full faith and credit of the U.S. government. The performance of private label mortgage-backed securities, issued by private institutions, is based on the financial health of those institutions.
Other Asset-Backed Securities. The Funds' Manager and Subadvisors expect that other asset-backed securities (unrelated to mortgage loans) will be offered to investors in the future. Several types of asset-backed securities have already been offered to investors, including credit card receivables and Certificates for Automobile Receivables(SM) ("CARs(SM)"). CARs(SM) represent undivided fractional interests in a trust ("trust") whose assets consist of a pool of motor vehicle retail installment sales contracts and security interests in the vehicles securing the contracts. Payments of principal and interest on CARs(SM) are passed-through monthly
to certificate holders, and are guaranteed up to certain amounts and for a certain time period by a letter of credit issued by a financial institution unaffiliated with the trustee or originator of the trust.
An investor's return on CARs(SM) may be affected by early prepayment of principal on the underlying vehicle sales contracts. If the letter of credit is exhausted, the trust may be prevented from realizing the full amount due on a sales contract because of state law requirements and restrictions relating to foreclosure sales of vehicles and the obtaining of deficiency judgments following such sales or because of depreciation, damage or loss of a vehicle, the application of Federal and state bankruptcy and insolvency laws, or other factors. As a result, certificate holders may experience delays in payments or losses if the letter of credit is exhausted.
If consistent with a Fund's investment objective and policies, and in the case of the MainStay Money Market Fund, the requirements of Rule 2a-7, a Fund also may invest in other types of asset-backed securities. Certain asset-backed securities may present the same types of risks that may be associated with mortgage-backed securities.
MUNICIPAL SECURITIES
A Fund may purchase municipal securities. Municipal securities generally are understood to include debt obligations of state and local governments, agencies and authorities. Municipal securities, which may be issued in various forms, including notes and bonds, are issued to obtain funds for various public purposes. Two principal classifications of municipal bonds are "general obligation" and "revenue" bonds.
General obligation bonds are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. 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 or specific revenue source. Industrial development bonds or private activity bonds are issued by or on behalf of public authorities to obtain funds for privately operated facilities and are, in most cases, revenue bonds that do not generally carry the pledge of the full faith and credit of the issuer of such bonds, but depend for payment on the ability of the industrial user to meet its obligations (or any property pledged as security).
The yields on municipal securities depend upon a variety of factors, including general economic and monetary conditions, general money market conditions, general conditions of the municipal securities market, the financial condition of the issuer, the size of a particular offering, the maturity of the obligations offered and the rating of the issue or issues.
Tax Anticipation Notes are used to finance working capital needs of municipalities and are issued in anticipation of various seasonal tax revenues, to be payable from these specific future taxes. They are usually general obligations of the issuer, secured by the taxing power for the payment of principal and interest.
Revenue Anticipation Notes are issued in expectation of receipt of other kinds of revenue, such as federal revenues. They, also, are usually general obligations of the issuer.
Bond Anticipation Notes are normally issued to provide interim financial assistance until long-term financing can be arranged. The long-term bonds then provide funds for the repayment of the notes.
Construction Loan Notes are sold to provide construction financing for specific projects. After successful completion and acceptance, many projects receive permanent financing through the Federal Housing Administration ("FHA") under the FNMA or GNMA.
Project Notes are instruments sold by HUD but issued by a state or local housing agency to provide financing for a variety of programs. They are backed by the full faith and credit of the U.S. government, and generally carry a term of one year or less.
Short-Term Discount Notes (tax-exempt commercial paper) are short-term (365 days or less) promissory notes issued by municipalities to supplement their cash flow.
Municipal bonds, which meet longer-term capital needs and generally have maturities of more than one year when issued, have two principal classifications: general obligation bonds and revenue bonds.
Issuers of general obligation bonds include states, counties, cities, towns and regional districts. The proceeds of these obligations are used to fund a wide range of public projects, including construction or improvement of schools, highways and roads, and water
and sewer systems. The basic security behind general obligation bonds is the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. The taxes that can be levied for the payment of debt service may be limited or unlimited as to the rate or amount of special assessments.
A revenue bond is not secured by the full faith, credit and taxing power of an issuer. Rather, the principal security for a revenue bond is generally the net revenue derived from a particular facility, group of facilities or, in some cases, the proceeds of a special excise or other specific revenue source. Revenue bonds are issued to finance a wide variety of capital projects, including: electric, gas, water, and sewer systems; highways, bridges, and tunnels; port and airport facilities; colleges and universities; and hospitals. Although the principal security behind these bonds may vary, many provide additional security in the form of a debt service reserve fund that may be used to make principal and interest payments on the issuer's obligations. Housing finance authorities have a wide range of security and credit enhancement guarantees available to them, including partially or fully insured mortgages, rent subsidized and/or collateralized mortgages, and/or the net revenues from housing or other public projects. Some authorities are provided further security in the form of a state's assurance (although without obligation) to make up deficiencies in the debt service reserve fund.
An entire issue of municipal securities may be purchased by one or a small number of institutional investors such as the Funds. Thus, the issue may not be said to be publicly offered. Unlike securities that must be registered under the 1933 Act prior to offer and sale, unless an exemption from such registration is available, municipal securities that are not publicly offered may nevertheless be readily marketable. A secondary market may exist for municipal securities that were not publicly offered initially.
There may be other types of municipal securities that become available that are similar to the foregoing described municipal securities in which each Fund may invest.
There are, in addition, a variety of hybrid and special types of municipal obligations, such as municipal lease obligations, as well as numerous differences in the security of municipal securities both within and between the two principal classifications described above. Municipal lease obligations are municipal securities that may be supported by a lease or an installment purchase contract issued by state and local government authorities to acquire funds to obtain the use of a wide variety of equipment and facilities such as fire and sanitation vehicles, computer equipment and other capital assets. These obligations, which may be secured or unsecured, are not general obligations and have evolved to make it possible for state and local governments to obtain the use of property and equipment without meeting constitutional and statutory requirements for the issuance of debt. Thus, municipal lease obligations have special risks not normally associated with municipal securities. These obligations frequently contain "non-appropriation" clauses that provide that the governmental issuer of the obligation has no obligation to make future payments under the lease or contract unless money is appropriated for such purposes by the legislative body on a yearly or other periodic basis. In addition to the "nonappropriation" risk, many municipal lease obligations have not yet developed the depth of marketability associated with municipal bonds; moreover, although the obligations may be secured by the leased equipment, the disposition of the equipment in the event of foreclosure might prove difficult. For the purpose of each Fund's investment restrictions, the identification of the "issuer" of municipal securities that are not general obligation bonds is made by the Subadvisor on the basis of the characteristics of the municipal securities as described above, the most significant of which is the source of funds for the payment of principal of and interest on such securities.
The liquidity of municipal lease obligations purchased by the Funds will be determined pursuant to guidelines approved by the Board of Trustees. Factors considered in making such determinations may include: the frequency of trades and quotes for the obligation; the number of dealers willing to purchase or sell the security and the number of other potential buyers; the willingness of dealers to undertake to make a market in the security; the nature of marketplace trades; the obligation's rating; and, if the security is unrated, the factors generally considered by a rating agency. If municipal lease obligations are determined to be illiquid, then a Fund will limit its investment in these securities subject to its limitation on investments in illiquid securities.
Income Level and Credit Risk. Municipal obligations are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be enacted by Congress or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations or upon municipalities to levy taxes. There is also the possibility that as a result of litigation or other conditions, the power or ability of any one or more issuers to pay, when due, principal or interest on its or their municipal obligations may be materially affected. Although the Funds' quality standards are designed to minimize the credit risk of investing in municipal securities, that risk cannot be entirely eliminated.
Tax Considerations. With respect to the Tax Free Bond Fund, income derived by the Fund from taxable investments, including but not limited to securities lending transactions, repurchase transactions, options and futures transactions, and investments in commercial paper, bankers' acceptances and CDs will be taxable for federal, state and local income tax purposes when distributed to
shareholders. Income derived by the Fund from interest on direct obligations of the U.S. government will be taxable for federal income tax purposes when distributed to shareholders but, provided that the Fund meets the requirements of state law and properly designates distributions to shareholders, such distributions may be excludable from income for state personal income tax purposes. A portion of original issue discount relating to stripped municipal securities and their coupons may also be treated as taxable income under certain circumstances. Acquisitions of municipal securities at a market discount may also result in ordinary income and/or capital gains.
The Tax Reform Act of 1986 ("TRA") limited the types and volume of municipal securities qualifying for the federal income tax exemption for interest, and the Code treats tax-exempt interest on certain municipal securities as a tax preference item included in the alternative minimum tax base for corporate and noncorporate shareholders. In addition, all tax-exempt interest may result in or increase a corporation's liability under the corporate alternative minimum tax, because a portion of the difference between corporate "adjusted current earnings" and alternative minimum taxable income is treated as a tax preference item. Further, an issuer's failure to comply with the detailed and numerous requirements imposed by the Code after bonds have been issued may cause the retroactive revocation of the tax-exempt status of certain municipal securities after their issuance. The Funds intend to monitor developments in the municipal bond market to determine whether any defensive action should be taken.
OPTIONS ON FOREIGN CURRENCIES
To the extent that it invests in foreign currencies, a Fund may purchase and write options on foreign currencies. A Fund may use foreign currency options contracts for various reasons, including: to manage its exposure to changes in currency exchange rates; as an efficient means of adjusting its overall exposure to certain currencies; or in an effort to enhance its return through exposure to a foreign currency. A Fund may, for example, purchase and write put and call options on foreign currencies for the purpose of protecting against declines in the dollar value of foreign portfolio securities and against increases in the U.S. dollar cost of foreign securities to be acquired. A Fund may also use foreign currency options to protect against potential losses in positions denominated in one foreign currency against another foreign currency in which the Fund's assets are or may be denominated. For example, a decline in the dollar value of a foreign currency in which portfolio securities are denominated will reduce the dollar value of such securities, even if their value in the foreign currency remains constant. In order to protect against such declines in the value of portfolio securities, a Fund may purchase put options on the foreign currency. If the value of the currency does decline, that Fund will have the right to sell such currency for a fixed amount of dollars that exceeds the market value of such currency, resulting in a gain that may offset, in whole or in part, the negative effect of currency depreciation on the value of the Fund's securities denominated in that currency.
Conversely, if a rise in the dollar value of a currency in which securities to be acquired are denominated is projected, thereby increasing the cost of such securities, a Fund may purchase call options on such currency. If the value of such currency does increase, the purchase of such call options would enable the Fund to purchase currency for a fixed amount of dollars that is less than the market value of such currency, resulting in a gain that may offset, at least partially, the effect of any currency-related increase in the price of securities the Fund intends to acquire. As in the case of other types of options transactions, however, the benefit a Fund derives from purchasing foreign currency options will be reduced by the amount of the premium and related transaction costs. In addition, if currency exchange rates do not move in the direction or to the extent anticipated, a Fund could sustain losses on transactions in foreign currency options that would deprive it of a portion or all of the benefits of advantageous changes in such rates.
A Fund may also write options on foreign currencies for hedging purposes. For example, if a Fund anticipates a decline in the dollar value of foreign currency-denominated securities due to declining exchange rates, it could, instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs, the option will most likely not be exercised, and the diminution in value of portfolio securities will be offset by the amount of the premium received by the Fund.
Similarly, instead of purchasing a call option to hedge against an anticipated increase in the dollar cost of securities to be acquired, a Fund could write a put option on the relevant currency. If rates move in the manner projected, the put option will expire unexercised and allow the Fund to offset such increased cost up to the amount of the premium. As in the case of other types of options transactions, however, the writing of a foreign currency option will constitute only a partial hedge up to the amount of the premium, and only if rates move in the expected direction. If unanticipated exchange rate fluctuations occur, the option may be exercised and a Fund would be required to purchase or sell the underlying currency at a loss that may not be fully offset by the amount of the premium. As a result of writing options on foreign currencies, a Fund also may be required to forego all or a portion of the benefits that might otherwise have been obtained from favorable movements in currency exchange rates.
A call option written on foreign currency by a Fund is "covered" if that Fund owns the underlying foreign currency subject to the call or securities denominated in that currency or has an absolute and immediate right to acquire that foreign currency without additional cash consideration (or for additional cash consideration designated by the Fund and being maintained on its books and records) upon conversion or exchange of other foreign currency held in its portfolio. A call option is also covered if a Fund holds a call on the same foreign currency for the same principal amount as the call written where the exercise price of the call held (1) is equal to or less than the exercise price of the call written or (2) is greater than the exercise price of the call written if the Fund maintains and designates on its books and records the difference in liquid assets.
Options on foreign currencies to be written or purchased by a Fund will be traded on U.S. and foreign exchanges or over-the-counter. Exchange-traded options generally settle in cash, whereas options traded over-the-counter may settle in cash or result in delivery of the underlying currency upon exercise of the option. As with other kinds of option transactions, however, the writing of an option on foreign currency will constitute only a partial hedge up to the amount of the premium received and a Fund could be required to purchase or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on foreign currency may constitute an effective hedge against exchange rate fluctuations, although, in the event of rate movements adverse to a Fund's position, a Fund may forfeit the entire amount of the premium plus related transaction costs.
A Fund also may use foreign currency options to protect against potential losses in positions denominated in one foreign currency against another foreign currency in which the Fund's assets are or may be denominated. There can be no assurance that a liquid market will exist when a Fund seeks to close out an option position. Furthermore, if trading restrictions or suspensions are imposed on the options markets, a Fund may be unable to close out a position. If foreign currency options are determined to be illiquid, then a Fund will limit its investment in these securities subject to its limitation on investments in illiquid securities.
Currency options traded on U.S. or other exchanges may be subject to position limits that may limit the ability of a Fund to reduce foreign currency risk using such options. Over-the-counter options differ from traded options in that they are two-party contracts with price and other terms negotiated between buyer and seller and generally do not have as much market liquidity as exchanged-traded options. Foreign currency exchange-traded options generally settle in cash, whereas options traded over-the-counter may settle in cash or result in delivery of the underlying currency upon exercise of the option.
OPTIONS ON SECURITIES
A Fund may use various techniques to increase or decrease its exposure to changing security prices, interest rates, currency exchange rates, commodity prices or other factors that affect security values. These techniques may involve derivative transactions such as buying and selling futures contracts and options on futures contracts, entering into foreign currency transactions (such as forward contracts and options on foreign currencies) and purchasing or writing put or call options on securities and securities indices.
The Funds may use these practices in an attempt to adjust the risk and return characteristics of their portfolios of investments. When a Fund uses such techniques in an attempt to reduce risk it is known as "hedging". If a Fund's Manager or Subadvisor judges market conditions incorrectly or employs a strategy that does not correlate well with the Fund's investments, these techniques could result in a loss, regardless of whether the intent was to reduce risk or increase return. These techniques may increase the volatility of a Fund's NAV per share and may involve a small investment of cash relative to the magnitude of the risk assumed. In addition, these techniques could result in a loss if the counter party to the transaction does not perform as promised.
Writing Call Options. A Fund may sell ("write") covered call options on its portfolio securities in an attempt to enhance investment performance. A call option sold by a Fund is a short-term contract, having a duration of nine months or less, which gives the purchaser of the option the right to buy, and imposes on the writer of the option (in return for a premium received) the obligation to sell, the underlying security at the exercise price upon the exercise of the option at any time prior to the expiration date, regardless of the market price of the security during the option period. A call option may be covered by, among other things, the writer's owning the underlying security throughout the option period, or by holding, on a share-for-share basis, a call on the same security as the call written, where the exercise price of the call held is equal to or less than the price of the call written, or greater than the exercise price of a call written if the Fund maintains and designates on its books and records the difference in liquid assets.
A Fund may write covered call options both to reduce the risks associated with certain of its investments and to increase total investment return through the receipt of premiums. In return for the premium income, the Fund will give up the opportunity to profit from an increase in the market price of the underlying security above the exercise price so long as its obligations under the contract continue, except insofar as the premium represents a profit. Moreover, in writing the call option, the Fund will retain the risk of loss should the price of the security decline, which loss the premium is intended to offset in whole or in part. A Fund, in writing "American
Style" call options, must assume that the call may be exercised at any time prior to the expiration of its obligations as a writer, and that in such circumstances the net proceeds realized from the sale of the underlying securities pursuant to the call may be substantially below the prevailing market price. In contrast, "European Style" options may only be exercised on the expiration date of the option. Covered call options and the securities underlying such options will be listed on national securities exchanges, except for certain transactions in options on debt securities and foreign securities.
During the option period, the covered call writer has, in return for the premium received on the option, given up the opportunity to profit from a price increase in the underlying securities above the exercise price, but as long as its obligation as a writer continues, has retained the risk of loss should the price of the underlying security decline.
A Fund may protect itself from further losses due to a decline in value of the underlying security or from the loss of ability to profit from appreciation by buying an identical option, in which case the purchase cost may offset the premium. In order to do this, the Fund makes a "closing purchase transaction"--the purchase of a call option on the same security with the same exercise price and expiration date as the covered call option that it has previously written on any particular security. The Fund will realize a gain or loss from a closing purchase transaction if the amount paid to purchase a call option in a closing transaction is less or more than the amount received from the sale of the covered call option. Also, because increases in the market price of a call option will generally reflect increases in the market price of the underlying security, any loss resulting from the closing out of a call option is likely to be offset in whole or in part by unrealized appreciation of the underlying security owned by the Fund. When a security is to be sold from the Fund's portfolio, the Fund will first effect a closing purchase transaction so as to close out any existing covered call option on that security or otherwise cover the existing call option.
A closing purchase transaction may be made only on a national or foreign securities exchange that provides a secondary market for an option with the same exercise price and expiration date, except as discussed below. There is no assurance that a liquid secondary market on an exchange or otherwise will exist for any particular option, or at any particular time, and for some options no secondary market on an exchange or otherwise may exist. If a Fund is unable to effect a closing purchase transaction involving an exchange-traded option, the Fund will not sell the underlying security until the option expires, or the Fund otherwise covers the existing option portion or the Fund delivers the underlying security upon exercise. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver or purchase the underlying securities at the exercise price. Over-the-counter options differ from exchange-traded options in that they are two-party contracts with price and other terms negotiated between buyer and seller, and generally do not have as much market liquidity as exchange-traded options. Therefore, a closing purchase transaction for an over-the-counter option may in many cases only be made with the other party to the option. If such securities are determined to be illiquid, then a Fund will limit its investment in these securities subject to its limitation on investments in illiquid securities.
Each Fund pays brokerage commissions and dealer spreads in connection with writing covered call options and effecting closing purchase transactions, as well as for purchases and sales of underlying securities. The writing of covered call options could result in significant increases in a Fund's portfolio turnover rate, especially during periods when market prices of the underlying securities appreciate. Subject to the limitation that all call option writing transactions be covered, the Funds may, to the extent determined appropriate by the Manager or Subadvisor, engage without limitation in the writing of options on U.S. government securities.
Writing Put Options. A Fund may also write covered put options. A put option is a short-term contract that gives the purchaser of the put option, in return for a premium, the right to sell the underlying security to the seller of the option at a specified price during the term of the option. Put options written by a Fund are agreements by a Fund, for a premium received by the Fund, to purchase specified securities at a specified price if the option is exercised during the option period. A put option written by a Fund is "covered" if the Fund maintains and designates on its books and records, liquid assets with a value equal to the exercise price. A put option is also "covered" if the Fund holds on a share-for-share basis a put on the same security as the put written, where the exercise price of the put held is equal to or greater than the exercise price of the put written, or less than the exercise price of the put written if the Fund maintains and designates on its books and records the difference in liquid assets.
The premium that the Funds receive from writing a put option will reflect, among other things, the current market price of the underlying security, the relationship of the exercise price to such market price, the historical price volatility of the underlying security, the option period, supply and demand and interest rates.
A covered put writer assumes the risk that the market price for the underlying security will fall below the exercise price, in which case the writer would be required to purchase the security at a higher price than the then-current market price of the security. In both cases, the writer has no control over the time when it may be required to fulfill its obligation as a writer of the option.
The Funds may effect a closing purchase transaction to realize a profit on an outstanding put option or to prevent an outstanding put option from being exercised. The Funds also may effect a closing purchase transaction, in the case of a put option, to permit the Funds to maintain their holdings of the deposited U.S. Treasury obligations, to write another put option to the extent that the exercise price thereof is secured by the deposited U.S. Treasury obligations, or to utilize the proceeds from the sale of such obligations to make other investments.
If a Fund is able to enter into a closing purchase transaction, the Fund will realize a profit or loss from such transaction if the cost of such transaction is less or more, respectively, than the premium received from the writing of the option. After writing a put option, the Fund may incur a loss equal to the difference between the exercise price of the option and the sum of the market value of the underlying security plus the premium received from the sale of the option.
In addition, the Funds may also write straddles (combinations of covered puts and calls on the same underlying security). The extent to which the Funds may write covered put and call options and enter into so-called "straddle" transactions involving put or call options may be limited by the requirements of the Code for qualification as a regulated investment company and the Funds' intention that each Fund qualify as such. Subject to the limitation that all put option writing transactions be covered, the Funds may, to the extent determined appropriate by the Manager or Subadvisor, engage without limitation in the writing of options on U.S. government securities.
Purchasing Options. Each Fund, as specified for the Fund in the Prospectus, may purchase put or call options that are traded on an exchange or in the over-the-counter market. Options traded in the over-the-counter market may not be as actively traded as those listed on an exchange and generally involve greater credit risk than exchange-traded options, which are guaranteed by the clearing organization of the exchange where they are traded. Accordingly, it may be more difficult to value such options and to be assured that they can be closed out at any time. The Funds will engage in such transactions only with firms the Manager or Subadvisors deem to be of sufficient creditworthiness so as to minimize these risks. If such securities are determined to be illiquid, then a Fund will limit its investment in these securities subject to its limitation on investments in illiquid securities.
The Funds may purchase put options on securities to protect their holdings in an underlying or related security against a substantial decline in market value. Securities are considered related if their price movements generally correlate with one another. The purchase of put options on securities held in the portfolio or related to such securities will enable a Fund to preserve, at least partially, unrealized gains occurring prior to the purchase of the option on a portfolio security without actually selling the security.
In addition, the Fund will continue to receive interest or dividend income on the security. The put options purchased by the Fund may include, but are not limited to, "protective puts," in which the security to be sold is identical or substantially identical to a security already held by the Fund or to a security that the Fund has the right to purchase. In the case of a purchased call option, the Fund would ordinarily recognize a gain if the value of the securities decreased during the option period below the exercise price sufficiently to cover the premium. The Fund would recognize a loss if the value of the securities remained above the difference between the exercise price and the premium.
The Funds may also purchase call options on securities the Funds intend to purchase to protect against substantial increases in prices of such securities pending their ability to invest in an orderly manner in such securities. The purchase of a call option would entitle the Fund, in exchange for the premium paid, to purchase a security at a specified price upon exercise of the option during the option period. The Fund would ordinarily realize a gain if the value of the securities increased during the option period above the exercise price sufficiently to cover the premium. The Fund would have a loss if the value of the securities remained below the sum of the premium and the exercise price during the option period. In order to terminate an option position, the Funds may sell put or call options identical to those previously purchased, which could result in a net gain or loss depending on whether the amount received on the sale is more or less than the premium and other transaction costs paid on the put or call option when it was purchased.
Married Puts. A Fund may engage in a strategy known as "married puts." This strategy is most typically used when the Fund owns a particular common stock or security convertible into common stock and wishes to effect a short sale "against the box" (see "Short Sales Against the Box") but for various reasons is unable to do so. The Fund may then enter into a series of stock and related option transactions to achieve the economic equivalent of a short sale against the box. To implement this trading strategy, the Fund will simultaneously execute with the same broker a purchase of shares of the common stock and an "in the money" over-the-counter put option to sell the common stock to the broker and generally will write an over-the-counter "out of the money" call option in the same stock with the same exercise price as the put option. The options are linked and may not be exercised, transferred or terminated independently of the other.
Holding the put option places the Fund in a position to profit on the decline in price of the security just as it would by effecting a short sale and to, thereby, hedge against possible losses in the value of a security or convertible security held by the Fund. The writer of the put option may require that the Fund write a call option, which would enable the broker to profit in the event the price of the stock rises above the exercise price of the call option (see "Writing Call Options" above). In the event the stock price were to increase above the strike or exercise price of the option, the Fund would suffer a loss unless it first terminated the call by exercising the put.
Special Risks Associated With Options On Securities. A Fund's purpose in selling covered options is to realize greater income than would be realized on portfolio securities transactions alone. A Fund may forego the benefits of appreciation on securities sold pursuant to call options, or pay a higher price for securities acquired pursuant to put options written by the Fund. If a put or call option purchased by a Fund is not sold when it has remaining value, and if the market price of the underlying security, in the case of a put, remains equal to or greater than the exercise price, or, in the case of a call, remains less than or equal to the exercise price, the Fund will not be able to exercise profitably the option and will lose its entire investment in the option. Also, the price of a put or call option purchased to hedge against price movements in a related security may move more or less than the price of the related security.
A Fund would ordinarily realize a gain if the value of the securities increased during the option period above the exercise price sufficiently to cover the premium. The Fund would have a loss if the value of the securities remained below the sum of the premium paid and the exercise price during the option period. In addition, exchange markets in some securities options are a relatively new and untested concept, and it is impossible to predict the amount of trading interest that may exist in such options. The same types of risks apply to over-the-counter trading in options. There can be no assurance that viable markets will develop or continue in the United States or abroad.
The ability of a Fund to successfully utilize options may depend in part upon the ability of the Manager or Subadvisor to forecast interest rates and other economic factors correctly.
The hours of trading for options on securities may not conform to the hours during which the underlying securities are traded. To the extent that the options markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying markets that cannot be reflected in the options markets.
OPTIONS ON SECURITIES INDICES
A Fund may purchase call and put options on securities indices for the purpose of hedging against the risk of unfavorable price movements that may adversely affect the value of a Fund's securities. Unlike a securities option, which gives the holder the right to purchase or sell specified securities at a specified price, an option on a securities index gives the holder the right to receive a cash "exercise settlement amount" equal to (1) the difference between the value of the underlying securities index on the exercise date and the exercise price of the option, multiplied by (2) a fixed "index multiplier." In exchange for undertaking the obligation to make such a cash payment, the writer of the securities index option receives a premium.
A securities index fluctuates with changes in the market values of the securities included in the index. For example, some securities index options are based on a broad market index such as the S&P 500(R) Composite Price Index or the NYSE Composite Index, or a narrower market index such as the S&P 100(R) Index. Indices may also be based on an industry or market segment such as the AMEX Oil and Gas Index or the Computer and Business Equipment Index. Options on stock indices are traded on the following exchanges, among others: The Chicago Board Options Exchange, New York Stock Exchange, and American Stock Exchange.
The effectiveness of hedging through the purchase of securities index options will depend upon the extent to which price movements in the portion of the securities portfolio being hedged correlate with price movements in the selected securities index. Perfect correlation is not possible because the securities held or to be acquired by a Fund will not exactly match the securities represented in the securities indices on which options are based. The principal risk involved in the purchase of securities index options is that the premium and transaction costs paid by a Fund in purchasing an option will be lost as a result of unanticipated movements in prices of the securities comprising the securities index on which the option is based. Gains or losses on a Fund's transactions in securities index options depend on price movements in the securities market generally (or, for narrow market indices, in a particular industry or segment of the market) rather than the price movements of individual securities held by a Fund.
A Fund may sell securities index options prior to expiration in order to close out its positions in securities index options that it has purchased. A Fund may also allow options to expire unexercised.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
A Fund may invest in REITs. REITs are pooled investment vehicles that invest primarily in either real estate or real estate related loans. The Fund will not invest in real estate directly, but only in securities issued by real estate companies. However, to the extent that a Fund invests in REITs, the Fund is also subject to the risks associated with the direct ownership of real estate: declines in the value of real estate; risks related to general and local economic conditions; possible lack of availability of mortgage funds; overbuilding; extended vacancies of properties; increased competition; increases in property taxes and operating expenses; changes in zoning laws; losses due to costs resulting from the clean-up of environmental problems; liability to third parties for damages resulting from environmental problems; casualty or condemnation losses; limitations on rents; changes in neighborhood values and the appeal of properties to tenants; and changes in interest rates. Thus, the value of the Fund's shares may change at different rates compared to the value of shares of a mutual fund with investments in a mix of different industries.
REITs are dependent upon management skills and generally may not be diversified. REITs are also subject to heavy cash flow dependency, defaults by borrowers and self-liquidation. In addition, REITs could possibly fail to qualify for tax-free pass-through of income under the Code, or to maintain their exemptions from registration under the 1940 Act. The above factors may also adversely affect a borrower's or a lessee's ability to meet its obligations to the REIT. In the event of a default by a borrower or lessee, the REIT may experience delays in enforcing its rights as a mortgagee or lessor and may incur substantial costs associated with protecting its investments. In addition, even the larger REITs in the industry tend to be small to medium-sized companies in relation to the equity markets as a whole. Accordingly, REIT shares can be more volatile than -- and at times will perform differently from -- larger capitalization stocks such as those found in the Dow Jones Industrial Average. In addition, because smaller-capitalization stocks are typically less liquid than larger capitalization stocks, REIT shares may sometimes experience greater share-price fluctuations than the stocks of larger companies.
REPURCHASE AGREEMENTS
A Fund may enter into domestic or foreign repurchase agreements with certain sellers determined by the Manager or the Subadvisor to be creditworthy pursuant to guidelines adopted by the Board.
A repurchase agreement, which provides a means for a Fund to earn income on uninvested cash for periods as short as overnight, is an arrangement under which the purchaser (i.e., the Fund) purchases a security, usually in the form of a debt obligation (the "Obligation") and the seller agrees, at the time of sale, to repurchase the Obligation at a specified time and price. Repurchase agreements with foreign banks may be available with respect to government securities of the particular foreign jurisdiction. The custody of the Obligation will be maintained by a custodian appointed by the Fund. The Fund attempts to assure that the value of the purchased securities, including any accrued interest, will at all times exceed the value of the repurchase agreement. The repurchase price may be higher than the purchase price, the difference being income to the Fund, or the purchase and repurchase prices may be the same, with interest at a stated rate due to the Fund together with the repurchase price upon repurchase. In either case, the income to the Fund is unrelated to the interest rate on the Obligation subject to the repurchase agreement.
A Fund will limit its investment in repurchase agreements maturing in more than seven days subject to a Fund's limitation on investments in illiquid securities.
In the event of the commencement of bankruptcy or insolvency proceedings with respect to the seller of the Obligation before repurchase of the Obligation under a repurchase agreement, a Fund may encounter delays and incur costs before being able to sell the security. Delays may involve loss of interest or decline in price of the Obligation. If the court characterizes the transaction as a loan and the Fund has not perfected a security interest in the Obligation, the Fund may be required to return the Obligation to the seller's estate and be treated as an unsecured creditor of the seller. As an unsecured creditor, the Fund would be at risk of losing some or all of the principal and income involved in the transaction. Apart from the risk of bankruptcy or insolvency proceedings, there is also the risk that the seller may fail to repurchase the security. In the event of the bankruptcy of the seller or the failure of the seller to repurchase the securities as agreed, a Fund could suffer losses, including loss of interest on or principal of the security and costs associated with delay and enforcement of the repurchase agreement. In addition, if the market value of the Obligation subject to the repurchase agreement becomes less than the repurchase price (including accrued interest), the Fund will direct the seller of the Obligation to deliver additional securities so that the market value of all securities subject to the repurchase agreement equals or exceeds the repurchase price.
The Trustees have delegated to each Fund's Manager or Subadvisor the authority and responsibility to monitor and evaluate the Fund's use of repurchase agreements, including identification of sellers whom they believe to be creditworthy, and have authorized the
Funds to enter into repurchase agreements with such sellers. As with any unsecured debt instrument purchased for the Funds, the Subadvisors seek to minimize the risk of loss from repurchase agreements by analyzing the creditworthiness of the obligor, in this case the seller of the Obligation.
For purposes of the 1940 Act, a repurchase agreement has been deemed to be a loan from a Fund to the seller of the Obligation. It is not clear whether a court would consider the Obligation purchased by the Fund subject to a repurchase agreement as being owned by the Fund or as being collateral for a loan by the Fund to the seller.
RESTRICTED SECURITIES - RULE 144A SECURITIES AND SECTION 4(2) COMMERCIAL PAPER
Restricted securities have no ready market and are subject to legal restrictions on their sale (other than those eligible for resale pursuant to Rule 144A or Section 4(2) under the 1933 Act determined to be liquid pursuant to guidelines adopted by the Board of Trustees). Difficulty in selling securities may result in a loss or be costly to a Fund. Restricted securities generally can be sold only in privately negotiated transactions, pursuant to an exemption from registration under the 1933 Act, or in a registered public offering. Where registration is required, the holder of an unregistered security may be obligated to pay all or part of the registration expense and a considerable period may elapse between the time it decides to seek registration and the time it may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the holder of a restricted security (e.g., the Fund) might obtain a less favorable price than prevailed when it decided to seek registration of the security.
Each Fund may invest in Rule 144A securities and in 4(2) commercial paper. Certain securities only may be sold subject to limitations imposed under federal securities laws. Among others, two categories of such securities are (1) restricted securities that may be sold only to certain types of purchasers pursuant to the limitations of Rule 144A under the Securities Exchange Act of 1934 ("Rule 144A securities") and (2) commercial debt securities that are not sold in a public offering and therefore exempt from registration under Section 4(2) of the Securities Act of 1933 ("4(2) commercial paper"). The resale limitations on these types of securities may effect their liquidity.
The Trustees have the ultimate responsibility for determining whether specific securities are liquid or illiquid. The Trustees have delegated the function of making day-to-day determinations of liquidity to the Manager or the Subadvisor, as the case may be, pursuant to guidelines approved by the Trustees.
The Manager or the Subadvisor takes into account a number of factors in determining whether a Rule 144A security being considered for purchase by a Fund is liquid, including at least the following:
(i) the frequency and size of trades and quotes for the Rule 144A security relative to the size of the Fund's holding;
(ii) the number of dealers willing to purchase or sell the 144A security and the number of other potential purchasers;
(iii) dealer undertaking to make a market in the 144A security; and
(iv) the nature of the 144A security and the nature of the market for the 144A security (i.e., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer).
To the extent that the market for a Rule 144A security changes, a Rule 144A security originally determined to be liquid upon purchase may be determined to be illiquid.
To make the determination that an issue of 4(2) commercial paper is liquid, the Manager or Subadvisor must conclude that the following conditions have been met:
(a) the 4(2) commercial paper is not traded flat or in default as to principal or interest (par is equal to the face amount or stated value of such security and not the actual value received on the open market);
(b) the 4(2) commercial paper is rated:
(i) in one of the two highest rating categories by at least two NRSROs; or
(ii) if only one NRSRO rates the security, the 4(2) commercial paper is rated in one of the two highest rating categories by that NRSRO; or
(iii) if the security is unrated, the Manager or Subadvisor has determined that the security is of equivalent quality based on factors commonly used by rating agencies; and
(c) there is a viable trading market for the specific security, taking into account all relevant factors (e.g., whether the security is the subject of a commercial paper program that is administered by an issuing and paying agent bank and for which there exists a dealer
willing to make a market in the security, the size of trades relative to the size of the Fund's holding or whether the 4(2) commercial paper is administered by a direct issuer pursuant to a direct placement program).
REVERSE REPURCHASE AGREEMENTS
A Fund may enter into reverse repurchase agreements with banks or broker-dealers, which involve the sale of a security by a Fund and its agreement to repurchase the instrument at a specified time and price. Under a reverse repurchase agreement, the Fund continues to receive any principal and interest payments on the underlying security during the term of the agreement. These agreements involve the sale of debt securities, or Obligations, held by a Fund, with an agreement to repurchase the Obligations at an agreed upon price, date and interest payment. The proceeds will be used to purchase other debt securities either maturing, or under an agreement to resell, at a date simultaneous with or prior to the expiration of the reverse repurchase agreement. Reverse repurchase agreements will be utilized, when permitted by law, only when the interest income to be earned from the investment of the proceeds from the transaction is greater than the interest expense of the reverse repurchase transaction.
Each Fund will limit its investments in reverse repurchase agreements and other borrowing to no more than 33 1/3% of its total assets. While a reverse repurchase agreement is outstanding, the Funds will maintain liquid assets in an amount at least equal in value to the Fund's commitments to cover their obligations under the agreement and will designate which assets are being so maintained on its books and records.
The use of reverse repurchase agreements by a Fund creates leverage that increases a Fund's investment risk. If the income and gains on securities purchased with the proceeds of reverse repurchase agreements exceed the cost of the agreements, the Fund's earnings or NAV will increase faster than otherwise would be the case; conversely, if the income and gains fail to exceed the costs, earnings or NAV would decline faster than otherwise would be the case.
If the buyer of the Obligation subject to the reverse repurchase agreement becomes bankrupt, realization upon the underlying securities may be delayed and there is a risk of loss due to any decline in their value.
RISKS OF INVESTING IN HIGH YIELD SECURITIES ("JUNK BONDS")
Securities rated lower than Baa by Moody's or lower than BBB by S&P (sometimes referred to as "high yield" or "junk" bonds) are not considered "investment grade". There is more price volatility, more risk of losing your principal investment, a greater possibility of the issuer going bankrupt, plus additional risks. These securities are considered speculative.
Investors should be willing to accept the risk associated with investment in high yield/high risk securities. Investment in high yield/high risk bonds involves special risks in addition to the risks associated with investments in higher rated debt securities. High yield/high risk bonds may be more susceptible to real or perceived adverse economic and competitive industry conditions than higher grade bonds. The prices of high yield/high risk bonds have been found to be less sensitive to interest-rate changes than more highly rated investments, but more sensitive to adverse economic downturns or individual corporate developments.
The secondary market on which high yield/high risk bonds are traded may be less liquid than the market for higher grade bonds. Less liquidity in the secondary trading market could adversely affect the price at which the Fund could sell a high yield/high risk bond, and could adversely affect and cause large fluctuations in the Fund's daily NAV. A projection of an economic downturn or of a period of rising interest rates, for example, could cause a decline in high yield/high risk bond prices because the advent of a recession could lessen the ability of a highly leveraged company to make principal and interest payments on its debt securities. If such securities are determined to be illiquid, then a Fund will limit its investment in these securities subject to its limitation on investments in illiquid securities.
Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of high yield/high risk bonds, especially in a thinly traded market.
If the issuer of high yield/high risk bonds defaults, a Fund may incur additional expenses to seek recovery. In the case of high yield/high risk bonds structured as zero coupon or payment-in-kind securities, the market prices of such securities are affected to a greater extent by interest rate changes, and therefore tend to be more volatile than securities that pay interest periodically and in cash.
Analysis of the creditworthiness of issuers of high yield/high risk bonds may be more complex than for issuers of higher quality debt securities, and the ability of the Fund to achieve its investment objective may, to the extent of its investment in high yield/high risk bonds, be more dependent upon such creditworthiness analysis than would be the case if the Fund were investing in higher quality bonds.
The use of credit ratings as the sole method for evaluating high yield/high risk bonds also involves certain risks. For example, credit ratings evaluate the safety of principal and interest payments, not the market value risk of high yield/high risk bonds. Also, credit rating agencies may fail to change credit ratings on a timely basis to reflect subsequent events. If a credit rating agency changes the rating of a portfolio security held by a Fund, the Fund may retain the portfolio security if the Manager or Subadvisor, where applicable, deems it in the best interest of the Fund's shareholders. Legislation designed to limit the use of high yield/high risk bonds in corporate transactions may have a material adverse effect on a Fund's NAV per share and investment practices. In addition, there may be special tax considerations associated with investing in high yield/high risk bonds structured as zero coupon or payment-in-kind securities. A Fund records the interest on these securities annually as income even though it receives no cash interest until the security's maturity or payment date.
In addition, there may be special tax considerations associated with investing in high yield/high risk bonds structured as zero coupon or payment-in-kind securities. Interest on these securities is recorded annually as income even though no cash interest is received until the security's maturity or payment date. As a result, the amounts that have accrued each year are required to be distributed to shareholders and such amounts will be taxable to shareholders. Therefore, the Fund may have to sell some of its assets to distribute cash to shareholders. These actions are likely to reduce the Fund's assets and may thereby increase its expense ratios and decrease its rate of return.
SHORT SALES AGAINST THE BOX
A Fund may engage in short sales, which are transactions in which a Fund sells through a broker a security it does not own in anticipation of a possible decline in market price. Each of the Funds will only enter into short sales "against the box," and such transactions will be limited to involve no more than 25% of a Fund's total assets. A short sale against the box is a short sale in which, at the time of the short sale, a Fund owns or has the right to obtain securities equivalent in kind and amount. A Fund may enter into a short sale against the box among other reasons, to hedge against a possible market decline in the value of a security owned by the Fund. If the value of a security sold short against the box increases, the Fund would suffer a loss when it purchases or delivers to the selling broker the security sold short. The proceeds of the short sale are retained by the broker pursuant to applicable margin rules. In addition, the Fund may maintain liquid assets, equal in value to 50% of the value of the short sale, and will designate which assets are being so maintained on its books and records. The maintained liquid assets are pledged to the broker pursuant to applicable margin rules. If a broker, with which the Fund has open short sales, were to become bankrupt, a Fund could experience losses or delays in recovering gains on short sales. A Fund will only enter into short sales against the box with brokers the Manager or Subadvisor believes are creditworthy.
SOURCES OF LIQUIDITY OR CREDIT SUPPORT
Issuers may employ various forms of credit and liquidity enhancements, including letters of credit, guarantees, puts, and demand features, and insurance provided by domestic or foreign entities such as banks and other financial institutions. The Manager or Subadvisors may rely on their evaluation of the credit of the liquidity or credit enhancement provider in determining whether to purchase a security supported by such enhancement. In evaluating the credit of a foreign bank or other foreign entities, the Manager or Subadvisors will consider whether adequate public information about the entity is available and whether the entity may be subject to unfavorable political or economic developments, currency controls, or other government restrictions that might affect its ability to honor its commitment. Changes in the credit quality of the entity providing the enhancement could affect the value of the security or a Fund's share price.
STRIPPED SECURITIES
Stripped securities are the separate income or principal components of a debt security. The risks associated with stripped securities are similar to those of other debt securities, although stripped securities may be more volatile, and the value of certain types of stripped securities may move in the same direction as interest rates. U.S. Treasury securities that have been stripped by a Federal Reserve Bank are obligations issued by the U.S. Treasury.
Privately stripped government securities are created when a dealer deposits a U.S. Treasury security or other U.S. government security with a custodian for safekeeping. The custodian issues separate receipts for the coupon payments and the principal payment, which the dealer then sells.
A number of banks and brokerage firms have separated ("stripped") the principal portions ("corpus") from the coupon portions of the U.S. Treasury bonds and notes and sold them separately in the form of receipts or certificates representing undivided interests in these instruments (which instruments are generally held by a bank in a custodial or trust account). The investment and risk characteristics of "zero coupon" Treasury securities described above under "U.S. Government Securities" are shared by such receipts or certificates. The staff of the SEC has indicated that receipts or certificates representing stripped corpus interests in U.S. Treasury securities sold by banks and brokerage firms should not be deemed U.S. government securities but rather securities issued by the bank or brokerage firm involved.
SWAP AGREEMENTS
A Fund may enter into interest rate, index and currency exchange rate swap agreements for purposes of attempting to obtain a particular desired return at a lower cost to the Fund than if the Fund had invested directly in an instrument that yielded that desired return or for other portfolio management purposes. Swap agreements can be individually negotiated and structured to include exposure to a variety of different types of investments or market factors. Depending on their structure, swap agreements may increase or decrease a Fund's exposure to long- or short-term interest rates (in the United States or abroad), foreign currency values, mortgage securities, corporate borrowing rates, or other factors such as security prices or inflation rates. Swap agreements can take many different forms and are known by a variety of names. Swap agreements are two party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard "swap" transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or "swapped" between the parties are calculated with respect to a "notional amount," i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a "basket" of securities representing a particular index. The "notional amount" of the swap agreement is only a fictive basis on which to calculate the obligations that the parties to a swap agreement have agreed to exchange. Most swap agreements entered into by a Fund would calculate the obligations of the parties to the agreements on a "net" basis. Consequently, a Fund's obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the "net amount"). A Fund's obligations under a swap agreement will be accrued daily (offset against any amounts owing to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by the maintenance of liquid assets, which have been designated by the Fund and are being maintained on its books and records for this purpose, to avoid any potential leveraging of the Fund's portfolio. A Fund may enter into swap agreements only to the extent that obligations under such agreements represent not more than 10% of the Fund's total assets.
In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed-upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed-upon level. An interest rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agreed to pay fixed rates in exchange for floating rates while holding fixed-rate bonds, the swap would tend to decrease the Fund's exposure to long-term interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield. The most significant factor in the performance of swap agreements is the change in the specific interest rate, currency, or other factors that determine the amounts of payments due to and from a Fund. If a swap agreement calls for payments by a Fund, the Fund must be prepared to make such payments when due.
Whether a Fund's use of swap agreements will be successful in furthering its investment objective will depend on the Manager's or Subadvisor's ability to correctly predict whether certain types of investments are likely to produce greater returns than other investments. Because they are two party contracts and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid. If such securities are determined to be illiquid, then a Fund will limit its investment in these securities subject to its limitation on investments in illiquid securities. Moreover, a Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. The Manager or Subadvisor will cause a Fund to enter into swap agreements only with counterparties that would be eligible for consideration as
repurchase agreement counterparties under the Fund's repurchase agreement guidelines. Certain restrictions imposed on the Funds by the Code may limit the Funds' ability to use swap agreements. A Fund may be able to eliminate its exposure under a swap agreement either by assignment or other disposition, or by entering into an offsetting swap agreement with the same party or a similarly creditworthy party. The swaps market is a relatively new market and is largely unregulated. It is possible that developments in the swaps market, including potential government regulation, could adversely affect a Fund's ability to terminate existing swap agreements or to realize amounts to be received under such agreements.
Certain swap agreements are largely excluded from regulation under the Commodity Exchange Act ("CEA") and, therefore, are not regulated as futures or commodity option transactions under the CEA. To qualify for this exclusion, a swap agreement must be entered into by "eligible contract participants," which include financial institutions, investment companies subject to regulation under the 1940 Act and the following, provided the participants' total assets exceed established levels: commodity pools, corporations, partnerships, proprietorships, organizations, trusts or other entities, employee benefit plans, governmental entities, broker-dealers, futures commission merchants, natural persons, or regulated foreign persons. To be eligible, natural persons and most other entities must have total assets exceeding $10 million; commodity pools and employee benefit plans must have assets exceeding $5 million. In addition, an eligible swap transaction must be subject to individual negotiation by the parties and may not be executed or traded on trading facilities other than qualifying electronic trading facilities.
TEMPORARY DEFENSIVE POSITION; CASH EQUIVALENTS
In times of unusual or adverse market, economic or political conditions, for temporary defensive purposes, each Fund, may invest outside the scope of its principal investment focus. Under such conditions, a Fund may not invest in accordance with its investment objective or investment strategies and, as a result, there is no assurance that the Fund will achieve its investment objective. Under such conditions, a Fund may invest without limit in cash and cash equivalents. These include, but are not limited to: short-term obligations issued or guaranteed as to interest and principal by the U.S. government or any agency or instrumentality thereof (including repurchase agreements collateralized by such securities; see "Repurchase Agreements" and "Reverse Repurchase Agreements" for a description of the characteristics and risks of repurchase agreements and reverse repurchase agreements); obligations of banks (certificates of deposit ("CDs"), bankers' acceptances and time deposits) that at the date of investment have capital, surplus, and undivided profits (as of the date of their most recently published financial statements) in excess of $100 million, and obligations of other banks or S&Ls if such obligations are federally insured; commercial paper (as described in this SAI); investment grade corporate debt securities or money market instruments, for this purpose including U.S. government securities having remaining maturities of one year or less; and other debt instruments not specifically described above if such instruments are deemed by the Manager or Subadvisor to be of comparable high quality and liquidity. In addition, the Global High Income Fund and International Equity Fund may hold foreign cash and cash equivalents.
In addition, a portion of each Fund's assets may be maintained in money market instruments as described above in such amount as the Manager or Subadvisor deems appropriate for cash reserves.
U.S. GOVERNMENT SECURITIES
Securities issued or guaranteed by the United States government or its agencies or instrumentalities include various U.S. Treasury securities, which differ only in their interest rates, maturities and times of issuance. U.S. Treasury bills have initial maturities of one year or less; U.S. Treasury notes have initial maturities of one to ten years; and U.S. Treasury bonds generally have initial maturities of greater than ten years. Some obligations issued or guaranteed by U.S. government agencies and instrumentalities, for example, GNMA pass-through certificates, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal Home Loan Banks are supported by the right of the issuer to borrow from the U.S. Treasury; others, such as those issued by FNMA are supported by the discretionary authority of the U.S. government to purchase certain obligations of the agency or instrumentality; and others, such as those issued by the Student Loan Marketing Association are supported only by the credit of the agency or instrumentality. While the U.S. government provides financial support to such U.S. government-sponsored agencies or instrumentalities, no assurance can be given that it will always do so, and it is not so obligated by law. U.S. government securities also include government-guaranteed mortgage-backed securities. See "Mortgage-Related and Other Asset-Backed Securities."
U.S. government securities do not generally involve the credit risks associated with other types of interest bearing securities, although, as a result, the yields available from U.S. government securities are generally lower than the yields available from other interest bearing securities. Like other fixed-income securities, however, the values of U.S. government securities change as interest rates fluctuate. When interest rates decline, the values of U.S. government securities can be expected to increase, and when interest rates rise, the values of U.S. government securities can be expected to decrease.
UNFUNDED LOAN COMMITMENTS
The Funds may enter into loan commitments that are unfunded at the time of investment. A loan commitment is a written agreement under which the lender (such as a Fund) commits itself to make a loan or loans up to a specified amount within a specified time period. The loan commitment sets out the terms and conditions of the lender's obligation to make the loans. Loan commitments are made pursuant to a term loan, a revolving credit line or a combination thereof. A term loan is typically a loan in a fixed amount that borrowers repay in a scheduled series of repayments or a lump-sum payment at maturity. A revolving credit line allows borrowers to draw down, repay, and reborrow specified amounts on demand. The portion of the amount committed by a lender under a loan commitment that the borrower has not drawn down is referred to as "unfunded." Loan commitments may be traded in the secondary market through dealer desks at large commercial and investment banks. Typically, the Funds enter into fixed commitments on term loans as opposed to revolving credit line arrangements.
Borrowers pay various fees in connection with loans and related commitments. In particular, borrowers may pay a commitment fee to lenders on unfunded portions of loan commitments and/or facility and usage fees, which are designed to compensate lenders in part for having an unfunded loan commitment.
Unfunded loan commitments expose lenders to credit risk--the possibility of loss due to a borrower's inability to meet contractual payment terms. A lender typically is obligated to advance the unfunded amount of a loan commitment at the borrower's request, subject to certain conditions regarding the creditworthiness of the borrower. Borrowers with deteriorating creditworthiness may continue to satisfy their contractual conditions and therefore be eligible to borrow at times when the lender might prefer not to lend. In addition, a lender may have assumptions as to when a borrower may draw on an unfunded loan commitment when the lender enters into the commitment. If the borrower does not draw as expected, the commitment may not prove as attractive an investment as originally anticipated.
Since a Fund with an unfunded loan commitment has a contractual obligation to lend money on short notice, it will maintain liquid assets in an amount at least equal in value to the amount of the unfunded commitment and will designate which assets are being so maintained on its books and records. The Fund will make appropriate changes to the liquid assets designated on a daily basis to reflect changes in the value of the liquid assets designated or the amount of the unfunded commitment.
The Fund records an investment when the borrower draws down the money and records interest as earned. Unfunded loan commitments are considered as having no value for purposes of determining the Funds' net asset values.
VARIABLE RATE DEMAND NOTES ("VRDNS")
The Tax Free Bond Fund may invest in tax-exempt obligations that contain a floating or variable interest rate adjustment formula and an unconditional right of demand to receive payment of the unpaid principal balance plus accrued interest upon a short notice period prior to specified dates, generally at 30, 60, 90, 180 or 365-day intervals. The interest rates are adjustable at various intervals to the prevailing market rate for similar investments, such adjustment formula being calculated to maintain the market value of the VRDN at approximately the par value of the VRDN on the adjustment date. The adjustments are typically based upon the prime rate of a bank or some other appropriate interest rate adjustment index.
The Tax Free Bond Fund may also invest in VRDNs in the form of participation interests ("Participating VRDNs") in variable rate tax-exempt obligations held by a financial institution, typically a commercial bank ("Institution"). Participating VRDNs provide the Fund with a specified undivided interest (up to 100%) of the underlying obligation and the right to demand payment of the unpaid principal balance plus accrued interest on the Participating VRDNs from the Institution upon a specified number of days' notice, not to exceed seven days. In addition, the Participating VRDN is backed up by an irrevocable letter of credit or guaranty of the Institution. The Fund has an undivided interest in the underlying obligation and thus participates on the same basis as the Institution in such obligation, except that the Institution typically retains fees out of the interest paid or the obligation for servicing the obligation, providing the letter of credit and issuing the repurchase commitment.
WARRANTS
To the extent that a Fund invests in equity securities, the Funds may invest in warrants. The holder of a warrant has the right to purchase a given number of shares of a particular issuer at a specified price until expiration of the warrant. Such investments can
provide a greater potential for profit or loss than an equivalent investment in the underlying security. Prices of warrants do not necessarily move in tandem with the prices of the underlying securities, and are speculative investments. Warrants pay no dividends and confer no rights other than a purchase option. If a warrant is not exercised by the date of its expiration, the Fund will lose its entire investment in such warrant.
WHEN-ISSUED SECURITIES
Each Fund may from time to time purchase securities on a "when-issued" basis. Debt securities, including municipal securities, are often issued in this manner. The price of such securities, which may be expressed in yield terms, is fixed at the time a commitment to purchase is made, but delivery of and payment for the when-issued securities take place at a later date. Normally, the settlement date occurs within one month of the purchase (60 days for municipal bonds and notes). During the period between purchase and settlement, no payment is made by a Fund and no interest accrues to the Fund. To the extent that assets of a Fund are held in cash pending the settlement of a purchase of securities, that Fund would earn no income; however, it is the Funds' intention that each Fund will be fully invested to the extent practicable and subject to the policies stated herein and in the Prospectus. Although when-issued securities may be sold prior to the settlement date, each Fund intends to purchase such securities with the purpose of actually acquiring them unless a sale appears desirable for investment reasons.
When-issued transactions are entered into in order to secure what is considered to be an advantageous price and yield to a Fund and not for purposes of leveraging the Fund's assets. However, a Fund will not accrue any income on these securities prior to delivery. The value of when-issued securities may vary prior to and after delivery depending on market conditions and changes in interest rate levels. There is a risk that a party with whom a Fund has entered into such transactions will not perform its commitment, which could result in a gain or loss to the Fund.
The Funds do not believe that a Fund's NAV per share or income will be exposed to additional risk by the purchase of securities on a when-issued basis. At the time a Fund makes the commitment to purchase a security on a when-issued basis, it will record the transaction and reflect the amount due and the value of the security in determining the Fund's NAV per share. The market value of the when-issued security may be more or less than the purchase price payable at the settlement date. The transactions are entered into in order to secure what is considered to be an advantageous price and yield to a Fund and not for purposes of leveraging the Fund's assets. However, a Fund will not accrue any income on these securities prior to delivery. The value of when-issued securities may vary prior to and after delivery depending on market conditions and changes in interest rate levels. There is a risk that a party with whom a Fund has entered into such transactions will not perform its commitment, which could result in a gain or loss to the Fund. A Fund will maintain liquid assets in an amount at least equal in value to any commitments to purchase securities on a when-issued basis and will designate which assets are being so maintained on its books and records. Such securities either will mature or, if necessary, be sold on or before the settlement date.
ZERO COUPON BONDS
The Funds may purchase zero coupon bonds, which are debt obligations issued without any requirement for the periodic payment of interest. Zero coupon bonds are issued at a significant discount from their face value. The discount approximates the total amount of interest the bonds would accrue and compound over the period until maturity at a rate of interest reflecting the market rate at the time of issuance. Because interest on zero coupon obligations is not paid to the Fund on a current basis but is, in effect, compounded, the value of the securities of this type is subject to greater fluctuations in response to changing interest rates than the value of debt obligations that distribute income regularly. Zero coupon bonds tend to be subject to greater market risk than interest paying securities of similar maturities. The discount represents income, a portion of which a Fund must accrue and distribute every year even though the Fund receives no payment on the investment in that year. Zero coupon bonds tend to be more volatile than conventional debt securities.
ANTICIPATED USE OF INVESTMENTS
The following chart indicates the types of investments that each Fund may typically utilize. The presence of an indication on the chart does not mean that a Fund will always use the indicated investment/technique in its portfolio nor does the absence of an indication mean that a Fund is restricted from using the investment/technique.
High
Global Yield
Capital Common Diversified Equity High CorPorate
Appreciation Stock Convertible Income Index Income Government Bond
Fund Fund Fund Fund Fund Fund Fund Fund
------------ ------ ----------- ----------- ------ ------ ---------- ---------
Arbitrage
Bank Obligations o o o o o o
Borrowing o
Brady Bonds o o o
Common Stock o o o o o o
Commercial Paper o o o o o o o
Convertible Securities o o o
Debt Securities o o o o o
Depositary Receipts o o o o
Exchange Traded Funds o
Floating Rate Securities
Floating Rate Loans
Foreign Currency o o o
Foreign Government Securities o o o
Foreign Index-Linked Instruments
Foreign Securities o o o o o
Futures o
High Yield Debt Securities
("Junk Bonds") o o o o
Illiquid Securities o o o
Industrial Development and/or
Pollution Control o o
Bonds
Investment Companies o
Loan Participations o o
Mortgage Dollar Rolls o
Mortgage-Related/Asset-Backed
Securities o o o o o
Municipal Securities o o o
Options on Foreign Currencies o o
Options on Securities o o o
Preferred Stock o
Real Estate Investment Trusts o o
Repurchase Agreements o
Restricted Securities -
Rule 144A Securities and o o o o
Section 4(2) Commercial Paper
Reverse Repurchase Agreements o
Securities Index Options o
Short Sales Against the Box
Stripped Securities
Swap Agreements
U.S. Government Securities o o o o o o
Variable Rate Demand Notes
Warrants o o o o
When Issued Securities o o o
Zero Coupon Bonds o o o
Larg Mid Mid Small Small Tax
International Cap Cap Cap Money Cap Cap Free Total
Equity Growth MAP Growth Value Market Growth Value Bond Return Value
Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
------------- ------ ---- ------ ----- ------ ------ ----- ---- ------ -----
Arbitrage
Bank Obligations o o o o
Borrowing
Brady Bonds o
Common Stock o o o o o o o o
Commercial Paper o o o o o o o o o
Convertible Securities o o o
Debt Securities o o o o o
Depositary Receipts o o o o o o o o o
Exchange Traded Funds
Floating Rate Securities
Floating Rate Loans
Foreign Currency o o o
Foreign Government Securities o o
Foreign Index-Linked Instruments o
Foreign Securities o o o o o o o o o o
Futures o
High Yield Debt Securities
("Junk Bonds") o o
Illiquid Securities o o
Industrial Development and/or
Pollution Control o o
Bonds
Investment Companies o o o
Loan Participations
Mortgage Dollar Rolls o
Mortgage-Related/Asset-Backed
Securities o o o
Municipal Securities o o
Options on Foreign Currencies o
Options on Securities o o o o o o o
Preferred Stock o o o o
Real Estate Investment Trusts o o o o
Repurchase Agreements o
Restricted Securities -
Rule 144A Securities and o o o o o
Section 4(2) Commercial Paper
Reverse Repurchase Agreements o
Securities Index Options
Short Sales Against the Box
Stripped Securities o
Swap Agreements
U.S. Government Securities o o o
Variable Rate Demand Notes
Warrants o o
When Issued Securities o o o o
Zero Coupon Bonds o o o o
|
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Funds' investment restrictions set forth below are fundamental policies of each Fund; i.e., they may not be changed with respect to a Fund without shareholder approval. Shareholder approval means approval by the lesser of (1) more than 50% of the outstanding voting securities of the Fund, or (2) 67% or more of the voting securities present at a meeting if the holders of more than 50% of the outstanding voting securities of the Fund are present or represented by proxy. Except for those investment policies of a Fund specifically identified as fundamental in the Prospectus and this SAI, and the Funds' objectives as described in the Prospectus, all other investment policies and practices described may be changed by the Board of Trustees without the approval of shareholders.
Unless otherwise indicated, all of the percentage limitations below, and in the investment restrictions recited in the Prospectus, apply to each Fund on an individual basis, and apply only at the time a transaction is entered into. Accordingly, if a percentage restriction is adhered to at the time of investment, a later increase or decrease in the percentage which results from a relative change in values or from a change in a Fund's net assets will not be considered a violation.
EACH FUND MAY NOT:
1. With respect to 75% of each Fund's total assets, invest more than 5% of the value of the total assets of a Fund in the securities of any one issuer, except U.S. government securities, or purchase the securities of any issuer if such purchase would cause more than 10% of the voting securities of such issuer to be held by a Fund. This restriction does not apply to the Equity Index Fund and Global High Income Fund.
2. Borrow money except from banks on a temporary basis for extraordinary or emergency purposes, including the meeting of redemption requests, or by engaging in reverse repurchase agreements or comparable portfolio transactions provided that these Funds maintain asset coverage of at least 300% for all such borrowings, and no purchases of securities will be made while such borrowings exceed 5% of the value of the Fund's total assets.
3. Purchase securities (or with respect to the Tax Free Bond Fund purchase
(i) Pollution Control and Industrial Development Bonds, or (ii) securities the
interest from which is not exempt from regular federal income tax) if such
purchase would cause 25% or more in the aggregate of the market value of the
total assets of a Fund to be invested in the securities of one or more issuers
having their principal business activities in the same industry, provided that
there is no limitation in respect to investments in U.S. government securities,
or with respect to each Fund, investments in repurchase agreements with respect
thereto (for the purposes of this restriction, telephone companies are
considered to be a separate industry from gas or electric utilities, and wholly
owned finance companies are considered to be in the industry of their parents if
their activities are primarily related to financing the activities of the
parents) except that (a) the above limitation does not apply to the Equity Index
Fund to the extent that the Standard & Poor's 500(R) Composite Stock Price Index
is so concentrated; (b) up to 40% of the Diversified Income Fund's, and High
Yield Corporate Bond Fund's total assets, taken at market value, may be invested
in each of the electric utility and telephone industries, but each Fund will not
invest 25% or more in either of those industries unless yields available for
four consecutive weeks in the four highest rating categories on new issue bonds
in such industry (issue size of $50 million or more) have averaged in excess of
105% of yields of new issue long-term industrial bonds similarly rated (issue
size of $50 million or more); (c) 25% or more of the market value of the total
assets of the Money Market Fund will be invested in the securities of banks and
bank holding companies, including CDs and bankers' acceptances; and (d) at such
time that the 1940 Act is amended to permit a registered investment company to
elect to be "periodically industry concentrated" (i.e., a fund that does not
concentrate its investments in a particular industry would be permitted, but not
required, to invest 25% or more of its total assets in a particular industry)
the Funds elect to be so classified and the foregoing limitation shall no longer
apply with respect to the Funds.
For the purposes of this investment restriction, each Fund may use the industry classifications provided by Bloomberg, L.P, the Morgan Stanley Capital International/Standard & Poor's Global Industry Classification Standard ("GICS") or any other reasonable industry classification system approved by the Board of Trustees. As of the date of this SAI, the Capital Appreciation Fund, Common Stock Fund, Equity Index Fund, International Equity Fund, Large Cap Growth Fund, MAP Fund, Mid Cap Growth Fund, Mid Cap Value Fund, Small Cap Growth Fund, Small Cap Value Fund, and the Value Fund relied on the GICS classifications, and the Convertible Fund, Diversified Income Fund, Global High Income Fund, Government Fund, High Yield Corporate Bond Fund, Money Market Fund, Tax Free Bond Fund, and Total Return Fund relied on the classifications provided by Bloomberg, L.P. A Fund's reliance on a particular classification system is not a fundamental investment restriction, and, therefore, may be changed without shareholder approval.
4. Purchase or sell real estate (excluding securities secured by real estate or interests therein or issued by companies that invest in or deal in real estate), commodities and commodity contracts. The Trust reserves the freedom of action to hold and to sell real estate acquired for any Fund as a result of the ownership of securities. Purchases and sales of foreign currencies on a spot basis and forward foreign currency exchange contracts, options on currency, futures contracts on currencies (or securities, with respect to Common Stock Fund, Global High Income Fund, Large Cap Growth Fund, MAP Fund, Mid Cap Value Fund, Small Cap Growth Fund, and Small Cap Value Fund) or securities indices and options on such futures contracts are not deemed to be an investment in a prohibited commodity or commodity contract for the purpose of this restriction.
5. Make loans to other persons, except loans of portfolio securities. The Equity Index Fund may lend securities in an amount not to exceed 30% of its total assets in accordance with applicable guidelines approved by the Board of Trustees. The purchase of debt obligations (and bankers' acceptances and commercial paper in the case of the Equity Index Fund) and the entry into repurchase agreements in accordance with a Fund's investment objectives and policies are not deemed to be loans for this purpose.
6. Act as an underwriter of securities issued by others, except to the extent that a Fund may be considered an underwriter within the meaning of the 1933 Act, as amended, in the disposition of portfolio securities.
7. Issue senior securities, except to the extent permitted under the 1940 Act .
The following fundamental investment restriction is applicable to the Tax Free Bond Fund only. The Tax Free Bond Fund must:
1. Invest at least 80% of the Fund's net assets in securities the interest on which is exempt from regular federal income tax, except that the Fund may temporarily invest more than 20% of its net assets in securities the interest income on which may be subject to regular federal income tax.
2. Invest at least 80% of the value of its assets in investments the income from which is exempt from federal income tax.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
In addition to each Fund's fundamental investment restrictions, the Trustees have voluntarily adopted certain policies and restrictions, set forth below, that are observed in the conduct of the affairs of the Funds. These represent intentions of the Trustees based upon current circumstances. They differ from fundamental investment policies in that the following additional investment restrictions may be changed or amended by action of the Trustees without requiring prior notice to or approval of shareholders. The following non-fundamental investment restrictions apply:
- Each Fund may not acquire any securities of registered open-end investment companies or registered unit investment trusts in reliance on Section 12(d)(1)(F) or Section 12(d)(1)(G) of the 1940 Act.
- The Convertible Fund may not invest more than 5% of its total assets in securities that are rated less than B by Moody's or S&P; or are unrated but judged by the Subadvisor to be of comparable quality.
- The Total Return Fund may not invest more than 20% of its debt securities in securities rated lower than Baa by Moody's or lower than BBB by S&P, or, if unrated, judged by the Subadvisor to be of comparable quality.
- The High Yield Corporate Bond Fund may not invest more than 20% of its net assets in securities rated lower than B by Moody's or S&P.
- The Convertible Fund, Equity Index Fund, Government Fund, High Yield Corporate Bond Fund, International Equity Fund, MAP Fund, Money Market Fund, Tax Free Bond Fund, and Total Return Fund may not enter into reverse repurchase agreements.
- Each of the Common Stock Fund, Diversified Income Fund, Global High Income Fund, Large Cap Growth Fund, Mid Cap Value Fund, Small Cap Growth Fund and Small Cap Value Fund may not invest more than 5% of its total assets in reverse repurchase agreements.
- The Government Fund and Tax Free Bond Fund may not invest in foreign securities.
- The Equity Index Fund, Government Fund, Money Market Fund and Tax Free Bond Fund may not invest in foreign currencies.
- The Equity Index Fund and MAP Fund may not invest in non-government mortgage pass-through securities.
- The Equity Index Fund, Government Fund, MAP Fund, Money Market Fund and Tax Free Bond Fund may not purchase or write options on foreign currencies.
- The Capital Appreciation Fund, Common Stock Fund, Equity Index Fund, Large Cap Growth Fund, MAP Fund, Mid Cap Growth Fund, Mid Cap Value Fund, Money Market Fund, Small Cap Growth Fund, Small Cap Value Fund, and Value Fund may not purchase or sell futures contracts on debt securities or indices of debt securities.
- The Government Fund, High Yield Corporate Bond Fund, Mid Cap Growth Fund, Money Market Fund, and Tax Free Bond Fund may not purchase or sell stock index futures.
- The Equity Index Fund, Government Fund, Money Market Fund and Tax Free Bond Fund may not purchase or sell foreign currency futures.
- The Equity Index Fund, Government Fund, MAP Fund, Money Market Fund and Tax Free Bond Fund may not enter into interest rate, index or currency exchange rate swap agreements.
- The MAP Fund may not enter into short sales "against the box."
- The Equity Index Fund, Government Fund, Money Market Fund and Tax Free Bond Fund may not invest in convertible securities.
- The Equity Index Fund, International Equity Fund, MAP Fund and Tax Free Bond Fund may not simultaneously purchase and sell a security in different markets to take advantage of price differences in the different markets.
- The MAP Fund and Money Market Fund may not write or purchase call or put options on portfolio securities.
- The Equity Index Fund, MAP Fund, Money Market Fund and Tax Free Bond Fund may not engage in married puts.
- Capital Appreciation Fund, Convertible Fund, Government Fund, High Yield Corporate Bond Fund, Mid Cap Growth Fund, Money Market Fund, Total Return Fund, and Value Fund may not purchase a put or call option if, as a result, the amount of premiums paid for all put and call options then outstanding would exceed 10% of the value of the Fund's total assets.
- The MAP Fund may not purchase call or put options on securities indices.
- The Equity Index Fund may not purchase put options on securities indices and may purchase index call options only on the S&P 500(R) Composite Price Index.
- The Equity Index Fund may not trade in foreign currencies.
- The Money Market Fund may only invest in mortgage-backed and asset-backed securities that meet the requirements of Rule 2a-7 under the 1940 Act.
- The Money Market Fund may not invest in leveraged inverse floating rate debt instruments.
Unless otherwise indicated, all percentage limitations apply to each Fund on an individual basis, and apply only at the time a transaction is entered into. Accordingly, if a percentage restriction is adhered to at the time of investment, a later increase or decrease in the percentage which results from a relative change in values or from a change in a Fund's net assets will not be considered a violation. "Value" for the purposes of all investment restrictions shall mean the value used in determining a Fund's NAV.
NON-FUNDAMENTAL POLICIES RELATED TO FUND NAMES
Certain of the Trust's Funds have names that suggest that the Fund will focus on a type of investment, within the meaning of Rule 35d-1 of the 1940 Act. The Trust has adopted a non-fundamental policy for each of these Funds to invest at least 80% of the value of its assets (net assets plus the amount of any borrowing for investment purposes) in the particular type of investments suggested by its name. Furthermore, with respect to each of these Funds, the Trust has adopted a policy to provide the Fund's shareholders with at least 60 days prior notice of any change in the policy of a Fund to invest at least 80% of its assets in the manner described below. The affected Funds and their corresponding 80% policies are as set forth in the table below:
FUND NON-FUNDAMENTAL INVESTMENT POLICY
---- ---------------------------------
MAINSTAY COMMON STOCK FUND To invest, under normal circumstances, at least 80% of its assets in common
Stocks
MAINSTAY CONVERTIBLE FUND To invest, under normal circumstances, at least 80% of its assets in
convertible securities
MAINSTAY EQUITY INDEX FUND To invest, under normal circumstances, at least 80% of its assets in stocks of
the S&P 500(R) Index
MAINSTAY GOVERNMENT FUND To invest, under normal circumstances, at least 80% of its assets in U.S.
government securities
MAINSTAY HIGH YIELD CORPORATE BOND FUND To invest, under normal circumstances, at least 80% of its assets in
high-yield corporate debt securities
|
FUND NON-FUNDAMENTAL INVESTMENT POLICY
---- ---------------------------------
MAINSTAY INTERNATIONAL EQUITY FUND To invest, under normal circumstances, at least 80% of its assets in equity
Securities
MAINSTAY LARGE CAP GROWTH FUND To invest, under normal circumstances, at least 80% of its net assets
plus borrowings, in large capitalization companies.
MAINSTAY MID CAP GROWTH FUND To invest, under normal circumstances, at least 80% of its assets in securities
of mid capitalization companies, as defined from time to time
in the current prospectus of the Fund
MAINSTAY MID CAP VALUE FUND To invest, under normal circumstances, at least 80% of its assets in
common and preferred stock of companies with market capitalizations that,
at the time of investment, are similar to the companies in the
Russell Midcap(R) Value Index
MAINSTAY SMALL CAP GROWTH FUND To invest, under normal circumstances, at least 80% of its assets in securities
of small capitalization companies, as defined from time to time
in the current prospectus of the Fund
MAINSTAY SMALL CAP VALUE FUND To invest, under normal circumstances, at least 80% of its assets in securities
of small capitalization companies, as defined from time to time
in the current prospectus of the Fund
MAINSTAY TAX FREE BOND FUND To invest, under normal circumstances, at least 80% of its assets in
municipal bonds
|
TRUSTEES AND OFFICERS
MANAGEMENT
The Board of Trustees oversees the management of the Trust and elects its officers. Information pertaining to the Board Members and officers is set forth below. Each Trustee serves until (1) such time as less than a majority of the Trustees holding office have been elected by shareholders, in which case the trustees then in office will call a shareholder meeting for the election of Trustees, or (2) his or her resignation, death or removal. Officers serve a term of one year and are elected annually by the Trustees. The Trust's officers are responsible for the day-to-day operations of the Trust. The business address of each Trustee and officer is 51 Madison Avenue, New York, New York 10010.
INTERESTED TRUSTEES*
NUMBER OF
PORTFOLIOS
IN FUND OTHER
TERM OF OFFICE PRINCIPAL COMPLEX DIRECTORSHIPS
NAME AND POSITION(S) AND LENGTH OCCUPATION(S) OVERSEEN HELD BY
DATE OF BIRTH WITH TRUST OF SERVICE DURING PAST 5 YEARS BY TRUSTEE TRUSTEE
------------- ----------- ---------------- -------------------------------------- ---------- ------------------
GARY E. WENDLANDT Chairman, Indefinite; Chief Executive Officer, Chairman, and 62 Chairman and Chief
10/8/50 Chief Chairman since Manager, New York Life Investment Executive Officer
Executive 2002, Chief Management LLC (including predecessor of MainStay VP
Officer and Executive advisory organizations) and New York Series Fund, Inc.
Trustee Officer since Life Investment Management Holdings
2004 and Trustee LLC; Executive Vice President, New
since 2000 York Life Insurance Company; Executive
Vice President and Manager, NYLIFE
LLC; Chairman, McMorgan & Company LLC,
Madison Capital Funding LLC, and
NYLCAP Manager LLC; Manager, MacKay
Shields LLC; Executive Vice President,
New York Life Insurance and Annuity
Corporation; Chairman, Chief Executive
Officer, and Director, MainStay VP
Series Fund, Inc. (25 portfolios);
Chief Executive Officer, Eclipse Funds
(3 Portfolios) and Eclipse Funds Inc.
(15 Portfolios) (since June 2005);
Executive Vice President and Chief
Investment Officer, MassMutual Life
Insurance Company (1993 to 1999).
|
* Trustee considered to be an "interested person" of the Trust within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, MacKay Shields LLC, McMorgan & Company LLC, Eclipse Funds, Eclipse Funds Inc., MainStay VP Series Fund, Inc., NYLIFE Securities Inc. and/or NYLIFE Distributors LLC, as described in detail in the column "Principal Occupation(s) During Past 5 Years." All Trustees not considered "interested persons" may be referred to as "Non-Interested Trustees."
NON-INTERESTED TRUSTEES
NUMBER OF
PORTFOLIOS
IN FUND OTHER
TERM OF OFFICE PRINCIPAL COMPLEX DIRECTORSHIPS
NAME AND POSITION(S) AND LENGTH OCCUPATION(S) OVERSEEN HELD BY
DATE OF BIRTH WITH TRUST OF SERVICE DURING PAST 5 YEARS BY TRUSTEE TRUSTEE
------------- -------------- ----------------- ------------------------------- ---------- --------------------
CHARLYNN GOINS Trustee Indefinite; since Retired. Chairperson of the 19 None
9/15/42 2001 Board, New York City Health and
Hospital Corporation.
EDWARD J. HOGAN Trustee Indefinite; since Rear Admiral U.S. Navy 19 None
8/17/32 1996 (Retired); Independent
Management Consultant (1997 to
2002).
TERRY L. LIERMAN Trustee Indefinite; since Partner, Health Ventures LLC 19 None
1/4/48 1991 (2001 to 2005); Chair, Maryland
Democratic Party; Chairman,
Smartpaper Networks Corporation
(communications); Vice Chair,
Employee Health Programs (1990
to 2002); Partner, TheraCom
(1994 to 2001); President,
Capitol Associates, Inc. (1984
to 2001).
JOHN B. MCGUCKIAN Trustee Indefinite; since Chairman, Ulster Television 19 Non-Executive
11/13/39 1997 Plc; Pro Chancellor, Queen's Director, Allied
University (1985 to 2001). Irish Banks Plc;
Chairman and
Non-Executive
Director, Irish
Continental Group,
Plc; Chairman, AIB
Group (UK) Plc;
Non-Executive
Director, Unidare
Plc.
DONALD E. NICKELSON Lead Indefinite; Retired. Vice Chairman, Harbour 19 Director, Adolor
12/9/32 Non-Interested Trustee since Group Industries, Inc. Corporation;
Trustee 1994; Lead (leveraged buyout firm) ); Director, First
Non-Interested President, PaineWebber Group Advantage
Trustee since 2000 (1988 to 1990). Corporation
RICHARD S. TRUTANIC Trustee Indefinite; since Chairman (1990 to present) and 19 None
2/13/52 1994 Chief Executive Officer (1990
to 1999), Somerset Group
(financial advisory firm);
Managing Director and Advisor,
The Carlyle Group (private
investment firm) (2002 to
2004); Senior Managing
Director, Groupe Arnault
(private investment firm) (1999
to 2002).
ALAN R. LATSHAW Trustee Indefinite; since Retired. Partner, Ernst & Young 19 State Farm
3/27/51 2006 LLP (2002 to 2003); Partner, Associates Funds
Arthur Andersen LLP (1976 to Trusts (4
2002). portfolios); State
Farm Mutual Fund
Trust (15
portfolios); State
Farm Variable
Product Trust (8
portfolios); Utopia
Funds (4 portfolios)
|
OFFICERS (WHO ARE NOT TRUSTEES)*
TERM OF OFFICE PRINCIPAL
POSITION(S) WITH AND LENGTH OCCUPATION(S)
NAME AND DATE OF BIRTH TRUST OF SERVICE DURING PAST 5 YEARS
---------------------- -------------------- -------------- ------------------------------------------
ROBERT A. ANSELMI Chief Legal Officer Since 2003 Senior Managing Director, General Counsel
10/19/46 and Secretary, New York Life Investment
Management LLC (including predecessor
advisory organizations); General Counsel
and Secretary, New York Life Investment
Management Holdings LLC; Senior Vice
President, New York Life Insurance
Company; Vice President and Secretary,
McMorgan & Company LLC; Secretary, NYLIM
Service Company LLC, NYLCAP Manager LLC,
and Madison Capital Funding LLC; Chief
Legal Officer, Eclipse Funds, Eclipse
Funds Inc., and MainStay VP Series Fund,
Inc.; Managing Director and Senior
Counsel, Lehman Brothers Inc. (October
1998 to December 1999); General Counsel
and Managing Director, JP Morgan
Investment Management Inc. (1986 to
September 1998).
ARPHIELA ARIZMENDI Treasurer, Since 2005 Director of Fund Accounting and
10/26/56 and Principal Administration, New York Life Investment
Financial and Management LLC (since ); Treasurer, and
Accounting Officer Principal Financial and Accounting
Officer, Eclipse Funds, Eclipse Funds
Inc., McMorgan Funds and MainStay VP
Series Fund, Inc. (since December 2005);
Assistant Treasurer, The MainStay Funds,
Eclipse Funds, Eclipse Funds Inc.,
McMorgan Funds and MainStay VP Series
Fund, Inc. (since 2005).
CHRISTOPHER O. BLUNT President Since 2005 Executive Vice President, New York Life
5/13/61 Investment Management LLC and New York
Life Investment Management Holdings LLC
(since July 2004); Manager and Executive
Vice President, NYLIM Product
Distribution, NYLIFE Distributors LLC
(since January 2005); Chairman, NYLIM
Service Company LLC (since March 2005);
Chairman and Class C Director, New York
Life Trust Company, FSB (since December
2004); Chairman, New York Life Trust
Company (since February 2005); President,
Eclipse Funds and Eclipse Funds Inc.
(since June 2005); Chairman and Chief
Executive Officer, Giving Capital, Inc.
(2001 to June 2004); Chief Marketing
Officer - Americas, Merrill Lynch
Investment Managers, and President,
Mercury Funds Distributors (1999 to 2001).
SCOTT T. HARRINGTON Vice President - Since 2005 Director, New York Life Investment
2/8/59 Administration Management LLC (including predecessor
advisory organizations); Vice President -
Administration, MainStay VP Series Fund,
Inc., Eclipse Funds, and Eclipse Funds
Inc. (since June 2005).
ALISON H. MICUCCI Vice President - Since 2004 Managing Director and Chief Compliance
12/16/65 Compliance Officer, New York Life Investment
Management LLC (June 2003 to present);
Chief Compliance Officer, New York Life
Investment Management Holdings LLC (June
2003 to present); Managing Director,
Compliance, NYLIFE Distributors LLC; Vice
President - Compliance, Eclipse Funds,
Eclipse Funds Inc., and MainStay VP
Series Fund, Inc.; Deputy Chief
Compliance Officer, New York Life
Investment Management LLC (September 2002
to June 2003); Vice
|
TERM OF OFFICE PRINCIPAL
POSITION(S) WITH AND LENGTH OCCUPATION(S)
NAME AND DATE OF BIRTH TRUST OF SERVICE DURING PAST 5 YEARS
---------------------- -------------------- -------------- ------------------------------------------
President and Compliance Officer, Goldman
Sachs Asset Management (November 1999 to
August 2002).
MARGUERITE E.H. MORRISON Secretary Since 2004 Managing Director and Associate General
3/26/56 Counsel, New York Life Investment
Management LLC (since June 2004);
Managing Director and Secretary, NYLIFE
Distributors LLC; Secretary, Eclipse
Funds, Eclipse Funds Inc., and MainStay
VP Series Fund, Inc.; Chief Legal Officer
- Mutual Funds and Vice President and
Corporate Counsel, The Prudential
Insurance Company of America (2000 to
June 2004).
RICHARD W. ZUCCARO Vice President - Tax Since 1991 Vice President, New York Life Insurance
12/12/49 Company; Vice President, New York Life
Insurance and Annuity Corporation, New
York Life Trust Company, FSB, NYLIFE
Insurance Company of Arizona, NYLIFE LLC,
and NYLIFE Securities Inc.; Vice
President, Tax, NYLIFE Distributors LLC;
Tax Vice President, New York Life
International, LLC, New York Life Trust
Company, and NYLIM Service Company LLC;
Vice President - Tax, Eclipse Funds,
Eclipse Funds Inc., and MainStay VP
Series Fund, Inc.
|
* The officers listed above are considered to be "interested persons" of the Trust within the meaning of the 1940 Act because of their affiliation with the Trust, New York Life Insurance Company, New York Life Investment Management LLC, MacKay Shields LLC, McMorgan & Company LLC, Eclipse Funds, Eclipse Funds Inc., MainStay VP Series Fund, Inc., NYLIFE Securities Inc. and/or NYLIFE Distributors LLC, as described in detail in the column captioned "Principal Occupation(s) During Past 5 Years."
BOARD OF TRUSTEES
The Board of Trustees oversees the Fund, the Manager and the Subadvisor. The committees of the Board include the Audit and Compliance Committee, Brokerage Committee, Expense Committee, Performance Committee and Nominating Committee. The Board has also established a Valuation Committee, a Valuation Subcommittee, and a Dividend Committee, each of which include members who are not Trustees.
Audit and Compliance Committee. The purpose of the Audit and Compliance Committee, which meets on an as needed basis, is to (1) oversee the Trust's accounting and financial reporting policies and practices, its internal controls and, as appropriate, the internal controls of certain service providers; (2) oversee the quality and objectivity of the Trust's financial statements and the independent audit thereof; (3) to oversee the Trust's compliance program and the compliance monitoring, supervision, and reporting by, and overall performance of, the Trust's Chief Compliance Officer; and (4) act as a liaison between the Trust's independent auditors and the full Board of Trustees. The members of the Audit and Compliance Committee include Alan R. Latshaw (Chairman), Donald E. Nickelson, and Richard S. Trutanic. There were 9 Audit and Compliance Committee meetings held during the fiscal year ended October 31, 2005.
Pursuant to the authority granted it by the Audit and Compliance Committee Charter, the Audit and Compliance Committee retained the services of Alan R. Latshaw from November 1, 2004 until his election to the Board of Trustees on March 27, 2006 as an independent financial expert consultant to provide advice and other services similar to that provided by an "Audit Committee Financial Expert" under Section 407 of the Sarbanes-Oxley Act of 2002. Until March 27, 2006, Mr. Latshaw received an annual retainer of $45,000, as well $1,000 per meeting attended, plus reimbursements for travel and out-of-pocket expenses.
Brokerage Committee. The purposes of the Committee are to assist the Board in overseeing the policies and procedures of the Fund with respect to brokerage and other matters relating to transactions in portfolio securities and other instruments. The members of the Brokerage Committee include Charlynn Goins, Edward J. Hogan (Chairman), Terry L. Lierman and John B. McGuckian. There were 3 Brokerage and Expense Committee meetings held during the fiscal year ended October 31, 2005 when the Committee was named the Brokerage and Expense Committee.
Expense Committee. The purposes of the Committee are to assist the Board in requesting and evaluating necessary information in connection with fee and expenses of the Funds or their shareholders that may arise out of agreements and arrangements that may be submitted to the Board for its review or approval. The members of the Expense Committee include Alan R. Latshaw, Terry L. Lierman, John B. McGuckian, and Richard S. Trutanic (Chairman). There were no Expense Committee meetings held during the fiscal year ended October 31, 2005, although there were 3 Brokerage and Expense Committee meetings held during the fiscal year ended October 31, 2005, during which the Expense Committee was part of that Committee.
Dividend Committee. The purpose of the Dividend Committee is to calculate the dividends authorized by the Board and to set the record and payment dates. The members of the Dividend Committee, on which one or more Trustees may serve, include Arphiela Arizmendi and Gary E. Wendlandt. There were no Dividend Committee meetings held during the fiscal year ended October 31, 2005.
Performance Committee. The purpose of the Performance Committee is to oversee the Fund's investment performance. The members of the Performance Committee include Charlynn Goins (Chairperson), Edward J. Hogan, and Donald E. Nickelson. There were 4 Performance Committee meetings held during the fiscal year ended October 31, 2005.
Nominating Committee. The purposes of the Nominating Committee are to (1)
evaluate the qualifications of candidates and make nominations for independent
trustee membership on the Board; (2) nominate members of committees of the Board
and periodically review committee assignments; and (3) make recommendations to
the Board concerning the responsibilities or establishment of Board committees.
The members of the Nominating Committee include all the Independent Trustees:
Charlynn Goins, Edward J. Hogan, Alan R. Latshaw, Terry L. Lierman, John B.
McGuckian, Donald E. Nickelson (Chairman), and Richard S. Trutanic. There were 2
Nominating Committee meetings held during the fiscal year ended October 31,
2005.
The Nominating Committee has adopted Policies for Consideration of Board Member Candidates (the "Candidate Policy"), formal policies on the consideration of Board member candidates, including nominees recommended by shareholders. When evaluating the qualifications of a candidate, the Nominating Committee considers the candidate's potential contribution to the Board and its committees and any other relevant factors. The Nominating Committee may solicit suggestions for nominations from any source, which it deems appropriate, including independent consultants engaged specifically for such a purpose.
In assessing the qualifications of a candidate for membership on the Board, the Nominating Committee may consider the candidate's potential contribution to the operation of the Board and its committees, and such other factors as it may deem relevant. The Nominating Committee will consider potential candidates recommended by shareholders provided that: (i) the proposed candidates satisfy the director qualification requirements; and (ii) the nominating shareholders comply with the Candidate Policy. Other than in compliance with the requirements mentioned in the preceding sentence, the Nominating Committee will not otherwise evaluate shareholder trustee nominees in a different manner than other nominees, and the standard of the Committee is to treat all equally qualified nominees in the same manner.
Valuation Committee. The purpose of the Valuation Committee is to oversee the implementation of the Trust's valuation procedures and to make fair value determinations on behalf of the Board as specified in the valuation procedures. The members of the Valuation Committee, on which one or more Trustees may serve, include Arphiela Arizmendi, Alan R. Latshaw, Alison H. Micucci, Marguerite E. H. Morrison, Donald E. Nickelson, and Gary E. Wendlandt (Chairman). The Committee meets as often as necessary to ensure that each action taken by the Valuation Subcommittee is reviewed within a calendar quarter of such action. There were 4 Valuation Committee meetings held during the fiscal year ended October 31, 2005.
Valuation Subcommittee. The purpose of the Valuation Subcommittee, which meets on an as needed basis, is to establish prices of securities for which market quotations are not readily available or the prices of which are not often readily determinable pursuant to the Fund's valuation procedures. Meetings may be held in person or by telephone conference call. The subcommittee may also take action via electronic mail in lieu of a meeting pursuant to the guidelines set forth in the valuation procedures. The members of the Valuation Subcommittee, on which one or more Trustees may serve, include Ravi Akhoury, Arphiela Arizmendi, Alan R. Latshaw, Alison H. Micucci, Marguerite E. H. Morrison, Donald E. Nickelson, and Gary E. Wendlandt. There were 5 Valuation Subcommittee meetings held during the fiscal year ended October 31, 2005.
As of December 31, 2005, the dollar range of equity securities owned beneficially by each Trustee in the Funds and in any registered investment company overseen by the Trustee within the same family of investment companies as the Trust was as follows:
INTERESTED TRUSTEES
AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED INVESTMENT
COMPANIES OVERSEEN BY TRUSTEE
NAME OF TRUSTEE DOLLAR RANGE OF EQUITY SECURITIES IN THE TRUST IN FAMILY OF INVESTMENT COMPANIES
--------------- ---------------------------------------------- ---------------------------------------
Gary E. Wendlandt Large Cap Growth Fund - Over $100,000 Over $100,000
International Equity Fund - Over $100,000
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NON-INTERESTED TRUSTEES
AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED INVESTMENT
COMPANIES OVERSEEN BY TRUSTEE
NAME OF TRUSTEE DOLLAR RANGE OF EQUITY SECURITIES IN THE TRUST IN FAMILY OF INVESTMENT COMPANIES
--------------- --------------------------------------------------- ---------------------------------------
Charlynn Goins High Yield Corporate Bond Fund - $10,001 - $50,000 Over $100,000
International Equity Fund - Over $100,000
Mid Cap Value Fund - $50,001 - $100,000
Small Cap Value Fund - $10,001 - $50,000
Edward J. Hogan High Yield Corporate Bond Fund - $50,001 - $100,000 Over $100,000
Alan R. Latshaw N/A N/A
Terry L. Lierman Capital Appreciation Fund - $1 - $10,000 $10,001 - $50,000
Global High Income Fund - $1 - $10,000
International Equity Fund - $10,001 - $50,000
Value Fund - $10,001 - $50,000
John B. McGuckian $0 $0
Donald E. Nickelson Large Cap Growth Fund - $50,001 - $100,000 Over $100,000
Richard S. Trutanic Total Return Fund - $1 -10,000 $1 -10,000
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As of December 31, 2005, each Trustee who is not an "interested person," as that term is defined in the 1940 Act, of the Trust, and his or her immediate family members, beneficially or of record owned securities in (1) an investment adviser or principal underwriter of the Trust, or (2) a person (other than a registered investment company) directly or indirectly controlling, controlled by, or under common control with and investment adviser or principal underwriter of the Trust as follows:
NON-INTERESTED TRUSTEES
NAME OF OWNERS AND TITLE OF PERCENT OF
NAME OF TRUSTEE RELATIONSHIP TO TRUSTEE COMPANY CLASS VALUE OF SECURITIES CLASS
--------------- ----------------------- ------- -------- ------------------- ----------
Charlynn Goins N/A None
Edward J. Hogan N/A None
Terry L. Lierman N/A None
John B. McGuckian N/A None
Donald E. Nickelson N/A None
Richard S. Trutanic N/A None
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COMPENSATION
The following Compensation Table reflects the compensation received by certain Trustees and/or officers, for the fiscal period ended October 31, 2005, from the Trust and from certain other investment companies (as indicated) that have the same investment adviser as the Trust or an investment adviser that is an affiliated person of one of the Trust's investment advisers. The Non-Interested Trustees of the Trust receive from the Trust an annual retainer of $45,000, a fee of $2,000 for each Board of Trustees meeting attended and a fee of $1,000 for each Board committee meeting attended, $500 for each Valuation Subcommittee meeting attended, and are reimbursed for all out-of-pocket expenses related to attendance at such meetings. The Lead Non-Interested Trustee is also paid an annual fee of $20,000. The Chairman of the Audit and Compliance Committee receives $2,000 and the Chairmen of the Brokerage, Operations and Performance Committees receives $1,000 for each meeting of the respective committees. In addition, each Non-Interested Trustee is paid $1,000 for attending meetings of the Non-
Interested Trustees held in advance of or in connection with Board/Committee meetings. Trustees who are affiliated with New York Life do not receive compensation from the Trust.
COMPENSATION TABLE
AGGREGATE PENSION OR RETIREMENT TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED ESTIMATED FROM THE TRUST AND THE
NAME OF PERSON, FROM THE AS PART OF ANNUAL BENEFITS FUND COMPLEX
POSITION TRUST FUND EXPENSES UPON RETIREMENT PAID TO TRUSTEES
--------------- ------------ --------------------- --------------- ----------------------
Charlynn Goins, Trustee $102,000 0 0 $102,000
Edward J. Hogan, Trustee $ 99,000 0 0 $ 99,000
Alan R. Latshaw $ 0 0 0 $ 0
Terry L. Lierman, Trustee* $ 92,000 0 0 $ 92,000
Donald E. Nickelson, Lead $136,500 $136,500
Non-Interested Trustee 0 0
Richard S. Trutanic, Trustee $ 94,500 0 0 $ 94,500
John B. McGuckian, Trustee $ 84,000 0 0 $ 84,000
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* Mr. Latshaw was elected to the Board of Trustees on March 27, 2006.
CODES OF ETHICS
The Trust, its Manager, its Distributor, and each of its Subadvisors have adopted Codes of Ethics pursuant to Rule 17j-1 under the 1940 Act. Each of these Codes of Ethics permits the personnel of their respective organizations to invest in securities for their own accounts, including securities that may be purchased or held by the Trust. A copy of each of the Codes of Ethics is on public file with, and is available from, the SEC.
THE MANAGER, THE SUBADVISORS AND THE DISTRIBUTOR
MANAGEMENT AGREEMENT
Pursuant to the Management Agreement for the Funds, NYLIM, subject to the supervision of the Trustees of the Trust and in conformity with the stated policies of each Fund, administers each Fund's business affairs and has investment advisory responsibilities with respect to the Funds' portfolio securities. NYLIM is a wholly-owned subsidiary of New York Life.
The Management Agreement remains in effect for two years following its initial effective date, and continues in effect thereafter only if such continuance is specifically approved at least annually by the Trustees or by a vote of a majority of the outstanding voting securities of each of the Funds (as defined in the 1940 Act and the rules thereunder) and, in either case, by a majority of the Trustees who are not "interested persons" (as the term is defined in the 1940 Act) of the Trust, the Manager or the Subadvisors (the "Non-Interested Trustees").
The Manager has authorized any of its members, managers, officers and employees who have been elected or appointed as Trustees or officers of the Trust to serve in the capacities in which they have been elected or appointed.
The Management Agreement provides that the Manager shall not be liable to a Fund for any error or judgment by the Manager or for any loss sustained by a Fund except in the case of the Manager's willful misfeasance, bad faith, gross negligence or reckless disregard of duty. The Management Agreement also provides that it shall terminate automatically if assigned and that it may be terminated without penalty by either party upon no more than 60 days' or less than 30 days' written notice.
In connection with its administration of the business affairs of each of the Funds, and except as indicated in the Prospectus, the Manager bears the following expenses:
(a) the salaries and expenses of all personnel of the Trust and the Manager, except the fees and expenses of Trustees not affiliated with the Manager or a Subadvisor;
(b) the fees to be paid to the Subadvisors pursuant to the Subadvisory Agreements; and
(c) all expenses incurred by the Manager in connection with administering the ordinary course of the Funds' business, other than those assumed by the Trust, as the case may be.
(d) For its services, each Fund pays the Manager a monthly fee. See the Prospectus, under the heading "Know with Whom You're Investing."
Effective August 1, 2005, with respect to certain Funds, the Manager has entered into a written expense limitation agreement under which it agreed to waive a portion of each Fund's management fee or reimburse expenses to the extent that such Fund's total ordinary expenses (total fund operating expenses excluding taxes, interest, litigation, extraordinary expenses, and brokerage and other transactions expenses relating to the purchase or sale of portfolio investments) on an annualized basis exceed a certain percentage for its Class A shares, as specified in the Funds' prospectus, from time to time. The Manager will apply an equivalent waiver or reimbursement, in an equal amount of basis points, to Class B, Class C, Class I, Class R1, Class R2, and Class R3 shares of those Funds. These expense limitations may be modified or terminated only the with approval of the Board of Trustees. The Manager may recoup the amount of any management fee waivers or expense reimbursements from a Fund pursuant to this agreement if such action does not cause the Fund to exceed existing expense limitations and the recoupment is made within three years after the year in which the Manager incurred the expense.
Investors Bank & Trust Company, 200 Clarendon Street, P.O. Box 9130, Boston, Massachusetts, 02116 ("IBT") provides sub-administration and sub-accounting services to certain Funds pursuant to an agreement with NYLIM. These services include calculating daily net asset values of the Funds, maintaining general ledger and sub-ledger accounts for the calculation of the Funds' respective net asset values, and assisting NYLIM in conducting various aspects of the Funds' administrative operations. For providing these services to the Funds, IBT is compensated by NYLIM.
SUBADVISORY AGREEMENTS
Pursuant to the Subadvisory Agreements, as the case may be, (a) between the Manager and Markston with respect to the MAP Fund; (b) between the Manager and Jennison with respect to the MAP Fund; (c) between the Manager and Winslow with respect to the Large Cap Growth Fund; and (d) between the Manager and MacKay Shields with respect to the Capital Appreciation Fund, Convertible Fund, Diversified Income Fund, Global High Income Fund, Government Fund, High Yield Corporate Bond Fund, International Equity Fund, Mid Cap Growth Fund, Mid Cap Value Fund, Money Market Fund, Small Cap Growth Fund, Small Cap Value Fund Tax Free Bond Fund, Total Return Fund and Value Fund (each a "Subadvisor" and collectively the "Subadvisors"), and subject to the supervision of the Trustees of the Trust and the Manager in conformity with the stated policies of each of the Funds and the Trust, each Subadvisor manages such Fund's portfolios, including the purchase, retention, disposition and loan of securities. There are no subadvisors for the Common Stock Fund and the Equity Index Fund.
As compensation for services, the Manager, not the Funds, pays the Funds' Subadvisors an annual fee, computed daily and paid monthly, calculated on the basis of each Fund's average daily net assets during the preceding month at the following annual rates:
ANNUAL RATE
-----------
Capital Appreciation Fund 0.360% (1)
Convertible Fund * 0.360% (2)
Diversified Income Fund * 0.300%
Global High Income Fund * 0.350%
Government Fund * 0.300% (3)
High Yield Corporate Bond Fund 0.300% (4)
International Equity Fund * 0.600%
Large Cap Growth Fund 0.400% (5)
MAP Fund 0.450% (6)
Mid Cap Growth Fund * 0.375%
Mid Cap Value Fund * 0.350%
Money Market Fund * 0.250% (7)
Small Cap Growth Fund * 0.500%
Small Cap Value Fund * 0.425% (8)
Tax Free Bond Fund * 0.300%
Total Return Fund * 0.320% (9)
Value Fund * 0.360% (10)
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* NYLIM has entered into written expense limitation agreements with respect to these Funds whereby it agreed to waive fees and/or reimburse expenses to the extent that total annual fund operating expenses exceed a certain percentage of average daily
net assets for each Class of shares of such Fund (see the Prospectus). To the extent NYLIM has agreed to reimburse expenses, MacKay Shields, the Subadvisor for these Funds, has voluntarily agreed to waive or reimburse its fee proportionately.
(1) On assets up to $200 million; 0.325% on assets from $200 million to $500 million; and 0.250% on assets in excess of $500 million.
(2) On assets up to $500 million; 0.335% on assets from $500 million to $1 billion; and 0.310% on assets in excess of $1 billion.
(3) On assets up to $1 billion; 0.275% on assets in excess of $1 billion.
(4) On assets up to $500 million; 0.275% on assets in excess of $500 million.
(5) On the average daily net asset value of all Subadvisor -serviced assets in all investment companies managed by the Manager, including the Large Cap Growth Fund, up to $250 million; 0.350% on such assets from $250 million up to $500 million; 0.300% on such assets from $500 million up to $750 million; 0.250% on such assets from $750 million up to $1 billion; and 0.200% on such assets in excess of $1 billion.
(6) On assets up to $250 million; 0.400% on assets from $250 million to $500 million; and 0.350% on assets in excess of $500 million.
(7) On assets up to $300 million; 0.225% on assets from $300 million to $700 million; 0.200% on assets from $700 million to $1 billion; and 0.175% on assets in excess of $1 billion.
(8) One half of the management fee payable to the Manager, net of management fee waivers, expense limitations and reimbursements.
(9) On assets up to $500 million; 0.300% on assets in excess of $500 million.
(10) On assets up to $200 million; 0.325% on assets from $200 million to $500 million; and 0.250% on assets in excess of $500 million.
The Subadvisory Agreements remain in effect for two years following their effective dates, and continue in effect thereafter only if such continuance is specifically approved at least annually by the Trustees or by vote of a majority of the outstanding voting securities of each of the Funds (as defined in the 1940 Act and the rules thereunder) and, in either case, by a majority of the Non-Interested Trustees.
The Subadvisors have authorized any of their directors, officers and employees who have been elected or appointed as Trustees or officers of the Trust to serve in the capacities in which they have been elected or appointed. In connection with the services they render, the Subadvisors bear the salaries and expenses of all of their personnel.
The Subadvisory Agreements provide that the Subadvisors shall not be liable to a Fund for any error of judgment by a Subadvisor or for any loss sustained by a Fund except in the case of a Subadvisor's willful misfeasance, bad faith, gross negligence or reckless disregard of duty. The Subadvisory Agreements also provide that they shall terminate automatically if assigned and that they may be terminated without penalty by either party upon no more than 60 days' or less than 30 days' written notice.
For the fiscal years ended October 31, 2005 and October 31, 2004, the ten month fiscal period ended October 31, 2003, and the fiscal year ended December 31, 2002, the amount of the Management fee paid by each Fund; the amount of any Management fees waived and/or reimbursed by NYLIM; the amount of the Subadvisory fee paid by the Manager from the Management fee; and the amount of the Subadvisory fee waived and/or reimbursed were as follows:
YEAR ENDED
10/31/05
MANAGEMENT FEE SUBADVISORY FEE
MANAGEMENT WAIVED AND/OR SUBADVISORY WAIVED AND/OR
FUND FEE PAID* REIMBURSED FEE PAID* REIMBURSED
---- ----------- -------------- ----------- ---------------
Capital Appreciation Fund $ 7,512,626 $ -- $ 3,756,313 $ --
Common Stock Fund 469,541 435,191 -- --
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YEAR ENDED
10/31/05
MANAGEMENT FEE SUBADVISORY FEE
MANAGEMENT WAIVED AND/OR SUBADVISORY WAIVED AND/OR
FUND FEE PAID* REIMBURSED FEE PAID* REIMBURSED
---- ----------- -------------- ----------- ---------------
Convertible Fund 2,901,140 935,148 1,450,570 467,574
Diversified Income Fund 704,130 87,293 352,065 43,647
Equity Index Fund 1,277,850 1,696,218 -- --
Global High Income Fund 917,784 38,120 458,892 19,060
Government Fund 1,218,147 1,157,488 609,074 578,744
High Yield Corporate Bond Fund 25,241,244 -- 12,620,622 --
International Equity Fund 2,262,057 39,296 1,131,029 19,648
Large Cap Growth Fund** 441,809 397,089 -- --
MAP Fund*** 8,437,084 237,690 4,218,542 118,845
Mid Cap Growth Fund 683,836 144,183 341,918 72,092
Mid Cap Value Fund 2,500,321 259,768 1,250,161 129,884
Money Market Fund 948,860 1,379,735 474,430 689,868
Small Cap Growth Fund 1,813,755 731,987 906,878 365,994
Small Cap Value Fund 908,776 378,656 454,388 189,328
Tax Free Bond Fund 1,235,433 504,934 617,717 252,467
Total Return Fund 4,403,915 975,313 2,201,958 487,157
Value Fund 4,054,459 528,090 2,027,230 264,045
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* After expense reimbursement or waiver.
** For the fiscal period from July 1, 2005 through October 31, 2005. Prior to that, the Fund had a fiscal year end of June 30, 2005. The Fund commenced operations on April 1, 2005. For the period from April 1, 2005 through June 30, 2005 the amount of the Management fee paid by the Fund to NYLIM was $76,091; the amount of Management fees and expenses waived and/or reimbursed by NYLIM was $136,738; the amount of the Subadvisory fee paid by the Manager from the Management fee was $15,503.
*** The total subadvisory fee paid during this period for the MAP Fund includes $2,189,001 paid to Markston and $2,029,541 paid to Jennison.
YEAR ENDED
10/31/04
MANAGEMENT FEE SUBADVISORY FEE
MANAGEMENT WAIVED AND/OR SUBADVISORY WAIVED AND/OR
FUND FEE PAID* REIMBURSED FEE PAID* REIMBURSED
---- ----------- -------------- ----------- ---------------
Capital Appreciation Fund $ 8,736,271 $ -- $ 4,368,136 $ --
Common Stock Fund 544,762 110,333 -- --
Convertible Fund 4,154,277 70,554 2,077,139 35,277
Diversified Income Fund 764,456 -- 382,228 --
Equity Index Fund 2,812,061 381,648 -- --
Global High Income Fund 578,715 -- 289,358 --
Government Fund 2,696,382 108,955 54,478 1,348,191
High Yield Corporate Bond Fund 25,282,743 -- 12,641,372 --
International Equity Fund 1,392,321 -- 916,119 --
MAP Fund** 6,210,286 258,449 3,698,829 --
Mid Cap Growth Fund 426,780 147,001 213,390 73,500
Mid Cap Value Fund 2,285,484 -- 1,142,742 --
Money Market Fund 883,477 1,786,551 441,739 893,276
Small Cap Growth Fund 2,523,297 91,982 1,261,649 45,991
Small Cap Value Fund 1,091,680 108,819 545,840 54,409
Tax Free Bond Fund 1,828,429 115,751 914,215 57,876
Total Return Fund 5,802,586 -- 2,901,293 --
Value Fund 4,420,269 -- 2,210,135 --
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* After expense reimbursement or waiver.
** The total subadvisory fee paid during this period for the MAP Fund includes $1,974,917 paid to Markston and $1,723,912 paid to Jennison.
TEN MONTH PERIOD ENDED
10/31/03
MANAGEMENT FEE SUBADVISORY FEE
MANAGEMENT WAIVED AND/OR SUBADVISORY WAIVED AND/OR
FUND FEE PAID* REIMBURSED FEE PAID* REIMBURSED
---- ----------- -------------- ----------- ---------------
Capital Appreciation Fund $ 7,020,528 $ -- $3,510,264 $ --
Common Stock Fund 334,681 145,000 -- --
Convertible Fund 3,239,824 -- 1,619,912 --
Diversified Income Fund 485,963 -- 242,982 --
Equity Index Fund 2,510,779 -- -- --
Global High Income Fund 378,560 -- 189,280 --
Government Fund 2,888,946 -- 1,444,473 --
High Yield Corporate Bond Fund 18,391,630 -- 9,195,815 --
International Equity Fund 722,685 -- 433,611 --
MAP Fund** 2,925,666 450,609 2,001,678 --
Mid Cap Growth Fund 93,588 142,380 46,794 71,190
Mid Cap Value Fund 1,424,103 -- 712,052 --
Money Market Fund 914,694 1,695,034 457,347 847,517
Small Cap Growth Fund 1,695,204 -- 847,602 --
Small Cap Value Fund 783,999 34,725 409,362 --
Tax Free Bond Fund 1,838,581 -- 919,291 --
Total Return Fund 4,891,225 -- 2,445,613 --
Value Fund 3,352,483 -- 1,676,242 --
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* After expense reimbursement or waiver.
** The total subadvisory fee paid during this period for the MAP Fund includes $1,060,844 paid to Markston and $940,834 paid to Jennison.
YEAR ENDED
12/31/02
MANAGEMENT FEE SUBADVISORY FEE
MANAGEMENT WAIVED AND/OR SUBADVISORY WAIVED AND/OR
FUND FEE PAID* REIMBURSED FEE PAID* REIMBURSED
---- ----------- -------------- ------------ ---------------
Capital Appreciation Fund $10,382,694 $ 816,657 $5,191,347 $408,328
Common Stock Fund 559,783 94,568 -- --
Convertible Fund 4,141,953 -- 2,070,977 --
Diversified Income Fund 432,211 -- 216,106 --
Equity Index Fund 3,750,311 -- -- --
Global High Income Fund 148,893 65,911 74,447 32,955
Government Fund 3,104,474 -- 1,624,530 --
High Yield Corporate Bond Fund 18,354,964 283,439 9,177,482 141,719
International Equity Fund 793,000 -- 475,800 --
MAP Fund** 2,992,214 507,575 2,001,809** --
Mid Cap Growth Fund 130,954 94,291 65,477 47,145
Mid Cap Value Fund 1,500,247 -- 750,124 --
Money Market Fund 1,586,146 1,681,471 793,073 840,735
Small Cap Growth Fund 2,221,302 -- 1,110,651 --
Small Cap Value Fund 1,173,251 -- 586,626 --
Tax Free Bond Fund 2,197,934 -- 1,098,967 --
Total Return Fund 6,978,583 63,277 3,489,292 31,639
Value Fund 4,696,735 -- 2,348,368 --
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* After expense reimbursement or waiver.
** The total subadvisory fee paid for the MAP Fund includes $1,895,365 paid to Markston for the year ending December 31, 2002 and $106,444 paid to Jennison for the period November 25, 2002 through December 31, 2002. Jennison was not employed as a Subadvisor to the Fund prior to that period.
DISTRIBUTION AGREEMENT
NYLIFE Distributors LLC, a corporation organized under the laws of Delaware, serves as the distributor and principal underwriter ("NYLIFE Distributors" or the "Distributor") of each Fund's shares pursuant to an Amended and Restated Distribution Agreement, dated August 1, 2002. NYLIFE Securities Inc. ("NYLIFE Securities"), an affiliated company, sells shares of the Funds pursuant to a dealer agreement with the Distributor. The Distributor and other broker-dealers will pay commissions to salesmen as well as the cost of printing and mailing prospectuses to potential investors and of any advertising incurred by them in connection with their distribution of Trust shares. In addition, the Distributor will pay for a variety of account maintenance and personal services to
shareholders after the sale. The Distributor is not obligated to sell any specific amount of the Trust's shares. The Distributor receives sales loads and distribution plan payments. The Trust anticipates making a continuous offering of its shares, although it reserves the right to suspend or terminate such offering at any time with respect to any Fund or class or group of Funds or classes.
The Distribution Agreement remains in effect for two years following its initial effective date, and continues in effect if such continuance is specifically approved at least annually by the Trustees or by a vote of a majority of the outstanding voting securities of each of the Funds (as defined in the 1940 Act and the rules thereunder) and, in either case, by a majority of the Non-Interested Trustees. The Distribution Agreement is terminable with respect to a Fund at any time, without payment of a penalty, by vote of a majority of the Trust's Non-Interested Trustees, upon 60 days' written notice to the Distributor, or by vote of a majority of the outstanding voting securities of that Fund, upon 60 days' written notice to the Trust. The Distribution Agreement will terminate in the event of its assignment.
DISTRIBUTION PLANS
With respect to each of the Funds (except the Money Market Fund and the Equity Index Fund, which does not offer Class B or Class C shares) the Board has adopted separate plans of distribution pursuant to Rule 12b-1 under the 1940 Act for Class A, Class B and Class C shares of each Fund (the "Class A Plans," the "Class B Plans" and the "Class C Plans." The Board has also adopted with respect to each of the Funds (except the Money Market Fund and the Equity Index Fund) a separate plan of distribution pursuant to Rule 12b-1 for the Class R2 shares and Class R3 shares (the "Class R2 Plan" and "Class R3 Plans" respectively, and, together with the Class A Plans, Class B Plans and Class C Plans, the "12b-1 Plans"). Only certain Funds currently offer Class R2 and Class R3 shares.
Under the 12b-1 Plans, a class of shares of a Fund pays distribution and/or service fees to the Distributor as compensation for distribution and/or service activities related to that class of shares and its shareholders. Because these fees are paid out of a Fund's assets on an on-going basis, over time these fees will increase the cost of an investment and may cost a shareholder more than paying other types of sales charges. Each 12b-1 Plan provides that the distribution and/or service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor. Authorized distribution expenses include the Distributor's interest expense and profit. The Distributor anticipates that its actual expenditures will substantially exceed the distribution fee received by it during the early years of the operation of a 12b-1 Plan. For example, the Distributor will advance to dealers who sell Class B shares of the Funds an amount equal to 4% of the aggregate NAV of the shares sold. Dealers meeting certain criteria established by the Distributor, which may be changed from time to time, may receive additional compensation. In addition, with respect to Class A and Class B shares, the Distributor may pay dealers an ongoing annual service fee equal to 0.25% of the aggregate NAV of shares held by investors serviced by the dealer. With regard to Class B shares that are converted to Class A shares, the Manager may continue to pay the amount of the annual service fee to dealers after any such conversion.
The Distributor will advance to dealers who sell Class C shares of the Funds an amount equal to 1% of the aggregate NAV of the shares sold. In addition, the Distributor may make payments quarterly to dealers in an amount up to 1.00% (0.50% for the Tax Free Bond Fund) on an annualized basis of the average NAV of the Class C shares that are attributable to shareholders for whom the dealers are designated as dealers of record.
In later years, its expenditures may be less than the distribution fee, thus enabling the Distributor to realize a profit in those years.
If a 12b-1 Plan for the Funds is terminated, the Funds will owe no payments to the Distributor other than fees accrued but unpaid on the termination date. Each 12b-1 Plan may be terminated only by specific action of the Board of Trustees or shareholders.
12b-1 Plan revenues may be used to reimburse third parties that provide various services to shareholders who are participants in various retirement plans. These services include aggregating and processing purchase and redemption orders for participant shareholders, processing dividend payments, forwarding shareholder communications, and recordkeeping. Persons selling or servicing different classes of shares of the Funds may receive different compensation with respect to one particular class of shares as opposed to another in the same Fund. The Distributor, at its expense, also may from time to time provide additional promotional incentives to dealers who sell Fund shares.
Under the Class A Plans, Class A shares of a Fund pay the Distributor a monthly fee at the annual rate of 0.25% of the average daily net assets of that Fund's Class A shares for distribution or service activities, as designated by the Distributor.
Under the current Class B Plans, a Fund's Class B shares pay a monthly distribution fee to the Distributor at the annual rate of 0.75% (0.25% in the case of the Tax Free Bond Fund) of the average daily net assets attributable to that Fund's Class B shares.
Pursuant to the Class B Plan, the Class B shares also pay a service fee to the Distributor at the annual rate of 0.25% of the average daily net assets of a Fund's Class B shares.
Under the Class C Plans, a Fund's Class C shares pay a monthly distribution fee to the Distributor at the annual rate of 0.75% (0.25% in the case of the Tax Free Bond Fund) of the average daily net assets attributable to that Fund's Class C shares. Pursuant to the Class C Plans, the Class C shares also pay a service fee to the Distributor at the annual rate of 0.25% of the average daily net assets of a Fund's Class C shares.
Under the Class R2 Plans, Class R2 shares of a Fund pay the Distributor a monthly fee at the annual rate of 0.25% of the average daily net assets of that Fund's Class R2 shares for distribution or service activities, as designated by the Distributor.
Under the Class R3 Plans, Class R3 shares of a Fund pay the Distributor a monthly distribution fee at the annual rate of 0.25% of the average daily net assets of that Fund's Class R3 shares. Pursuant to the Class R3 Plans, the Class R3 shares also pay a service fee to the Distributor at the annual rate of 0.25% of the average daily net assets of a Fund's Class R3 shares.
Each 12b-1 Plan shall continue in effect from year to year, provided such continuance is approved at least annually by the Trustees or by a vote of a majority of the outstanding voting securities of each of the Funds (as defined in the 1940 Act and the rules thereunder) and, in either case, by a majority of the Non-Interested Trustees. No 12b-1 Plan may be amended to increase materially the amount to be spent for the services described therein without approval of the shareholders of the affected class of shares of a Fund, and all material amendments of a 12b-1 Plan must also be approved by the Trustees in the manner described above. Each 12b-1 Plan may be terminated at any time, without payment of any penalty, by vote of a majority of the Non-Interested Trustees, or by a vote of a majority of the outstanding voting securities of the affected Fund (as defined in the 1940 Act) on not more than 30 days' written notice to any other party to the 12b-1 Plan. So long as any 12b-1 Plan is in effect, the selection and nomination of Trustees who are not such interested persons has been committed to those Trustees who are not such interested persons. Pursuant to each 12b-1 Plan, the Distributor shall provide the Trust for review by the Trustees, and the Trustees shall review at least quarterly, a written report of the amounts expended under each 12b-1 Plan and the purpose for which such expenditures were made. In the Trustees' quarterly review of each 12b-1 Plan, they will consider its continued appropriateness and the level of compensation provided therein. The Trustees have determined that, in their judgment, there is a reasonable likelihood that each 12b-1 Plan will benefit the respective Fund and its shareholders.
Pursuant to Conduct Rule 2830 of the National Association of Securities Dealers, Inc., the amount which a Fund may pay for distribution expenses, excluding service fees, is limited to 6.25% of the gross sales of the Fund's shares since inception of the Fund's Plan, plus interest at the prime rate plus 1% per annum (less any contingent deferred sales charges paid by shareholders to the Distributor or distribution fee (other than service fees) paid by the Funds to the Distributor).
The Class R2 shares were first offered on January 1, 2004. Therefore, no payments were made under the Class R2 Plans prior to December 31, 2003. The Class R3 shares of the International Equity Fund, Large Cap Growth Fund, MAP Fund, and Mid Cap Growth Fund were first offered on April 28, 2006. Therefore no fees were paid pursuant to the Class R3 12b-1 Plans as of the date of this SAI.
For the fiscal year ended October 31, 2005, the Funds paid distribution and/or service fees pursuant to the Class A, Class B, Class C and Class R2 Plans as follows:
YEAR ENDED 10/31/05
-------------------------------------------------------------
AMOUNT OF FEE AMOUNT OF FEE AMOUNT OF FEE AMOUNT OF FEE
PURSUANT TO PURSUANT TO PURSUANT TO PURSUANT TO
CLASS A PLAN CLASS B PLAN CLASS C PLAN CLASS R2 PLAN
------------- ------------- ------------- -------------
Capital Appreciation Fund $ 610,719 $10,723,303 $ 79,061 N/A
Common Stock Fund 92,073 535,711 30,415 N/A
Convertible Fund 240,162 4,136,872 255,156 N/A
Diversified Income Fund 98,566 761,379 161,709 N/A
Equity Index Fund 1,487,034 N/A N/A N/A
Global High Income Fund 164,168 485,927 222,976 N/A
Government Fund 209,524 3,038,199 82,909 N/A
High Yield Corporate Bond Fund 3,408,800 27,019,520 4,278,319 N/A
International Equity Fund 203,133 842,564 96,315 163
Large Cap Growth Fund* 59,419 575,027 26,081 2
MAP Fund 807,031 3,666,091 1,606,571 3,316
Mid Cap Growth Fund 128,899 509,011 71,475 N/A
|
Mid Cap Value Fund 336,496 2,125,803 435,959 4,976 Money Market Fund N/A N/A N/A N/A Small Cap Growth Fund 184,240 1,732,089 76,695 N/A Small Cap Value Fund 142,788 694,887 118,724 N/A Tax Free Bond Fund 95,886 1,227,166 31,592 N/A Total Return Fund 266,595 7,172,304 42,209 N/A Value Fund 333,965 5,842,061 120,295 21,715 |
* For the fiscal period from July 1, 2005 through October 31, 2005. Prior to that, the Fund had a fiscal year end of June 30, 2005. The Fund commenced operations on April 1, 2005. For the period from April 1, 2005 through June 30, 2005 the amount of the distribution and/or service fees paid by the Fund pursuant to the Class A, Class B, Class C and Class R2 Plans were as follows: $7,008, $11,936, $831 and $1, respectively.
For the fiscal year ended October 31, 2004, the Funds paid distribution and service fees pursuant to the Class A, Class B, Class C and Class R2 Plans as follows:
YEAR ENDED 10/31/04
-------------------------------------------------------------
AMOUNT OF FEE AMOUNT OF FEE AMOUNT OF FEE AMOUNT OF FEE
PURSUANT TO PURSUANT TO PURSUANT TO PURSUANT TO
CLASS A PLAN CLASS B PLAN CLASS C PLAN CLASS R2 PLAN
------------- ------------- ------------- -------------
Capital Appreciation Fund $ 745,595 12,610,165 99,976 N/A
Common Stock Fund 89,163 551,624 27,572 N/A
Convertible Fund 244,632 4,661,434 293,053 N/A
Diversified Income Fund 88,713 782,421 136,491 N/A
Equity Index Fund 1,596,855 -- N/A -- N/A N/A
Global High Income Fund 99,025 290,153 140,505 N/A
Government Fund 225,692 3,670,709 101,933 N/A
High Yield Corporate Bond Fund 3,159,532 28,586,887 4,265,723 N/A
International Equity Fund 152,430 652,570 50,556 2
MAP Fund 579,454 2,765,094 1,202,879 3
Mid Cap Growth Fund 107,224 304,501 31,643 N/A
Mid Cap Value Fund 267,207 1,806,620 384,673 499
Money Market Fund N/A N/A N/A N/A
Small Cap Growth Fund 182,678 1,806,018 78,549 N/A
Small Cap Value Fund 130,069 649,059 96,457 N/A
Tax Free Bond Fund 97,824 1,394,316 30,186 N/A
Total Return Fund 311,201 8,044,555 47,998 N/A
Value Fund 297,674 5,819,659 39,006 2,790
|
For the ten month fiscal period ended October 31, 2003, the Funds paid distribution and service fees pursuant to the Class A, Class B and Class C Plans as follows:
TEN MONTH PERIOD ENDED 10/31/03
---------------------------------------------
AMOUNT OF FEE AMOUNT OF FEE AMOUNT OF FEE
PURSUANT TO PURSUANT TO PURSUANT TO
CLASS A PLAN CLASS B PLAN CLASS C PLAN
------------- ------------- -------------
Capital Appreciation Fund $ 623,447 9,982,801 81,946
Common Stock Fund 65,251 408,069 16,185
Convertible Fund 160,366 3,719,347 164,501
Diversified Income Fund 50,418 544,166 64,170
Equity Index Fund 1,255,390 -- --
Global High Income Fund 65,743 191,316 86,359
Government Fund 218,726 3,805,025 135,561
High Yield Corporate Bond Fund 2,235,100 21,330,190 2,789,135
International Equity Fund 74,660 410,081 13,964
MAP Fund 294,196 1,473,161 637,039
Mid Cap Growth Fund 51,455 98,485 10,318
Mid Cap Value Fund 164,313 1,135,283 241,899
Money Market Fund -- -- --
Small Cap Growth Fund 111,608 1,199,151 49,621
Small Cap Value Fund 76,305 440,744 72,760
Tax Free Bond Fund 99,635 1,305,940 26,940
Total Return Fund 301,153 6,631,044 38,896
Value Fund 215,249 4,340,337 21,113
|
For the fiscal year ended December 31, 2002, the Funds paid distribution and service fees pursuant to the Class A, Class B and Class C Plans as follows:
YEAR ENDED 10/31/02
---------------------------------------------
AMOUNT OF FEE AMOUNT OF FEE AMOUNT OF FEE
PURSUANT TO PURSUANT TO PURSUANT TO
CLASS A PLAN CLASS B PLAN CLASS C PLAN
------------- ------------- -------------
Capital Appreciation Fund $ 870,621 15,369,685 133,220
Common Stock Fund 80,038 597,120 17,516
Convertible Fund 172,954 4,931,084 142,846
Diversified Income Fund 39,038 526,572 37,626
Equity Index Fund 1,875,155 -- --
Global High Income Fund 36,459 115,161 45,868
Government Fund 179,948 4,331,692 123,627
High Yield Corporate Bond Fund 1,859,907 23,311,005 2,167,482
International Equity Fund 71,740 498,736 7,303'
MAP Fund 325,589 1,575,497 709,332
Mid Cap Growth Fund 55,119 72,937 6,915
Mid Cap Value Fund 157,760 1,299,723 212,449
Money Market Fund -- -- --
Small Cap Growth Fund 133,650 1,627,107 59,596
Small Cap Value Fund 105,101 636,949 115,897
Tax Free Bond Fund 107,519 1,592,524 24,050
Total Return Fund 444,523 9,457,914 60,936
Value Fund 296,126 6,408,317 20,649
|
For the fiscal years ended October 31, 2005 and October 31,2004, the ten month fiscal period ended October 31, 2003 and the fiscal year ended December 31, 2002, NYLIFE Distributors retained the following amounts of sales charges, including CDSC, for Class A shares of the Funds:
YEAR YEAR 10 MONTH YEAR
ENDED ENDED PERIOD ENDED ENDED
10/31/05 10/31/04 10/31/03 12/31/02
-------- -------- ------------ --------
Capital Appreciation Fund $107,475 88,472 20,796 42,752
Common Stock Fund 15,073 9,329 347 1,569
Convertible Fund 49,958 65,872 46,568 21,777
Diversified Income Fund 31,882 48,276 661 9,167
Equity Index Fund -- 10,572 -- 25,255
Global High Income Fund 56,014 26,667 14,394 25,322
Government Fund 29,990 30,496 85,689 22,207
High Yield Corporate Bond Fund 789,369 768,313 701,261 301,196
International Equity Fund 467,720 38,631 17,552 41,494
Large Cap Growth Fund* 16,144 N/A N/A N/A
MAP Fund 271,473 215,072 220 122,394
Mid Cap Growth Fund 80,546 26,565 66 583
Mid Cap Value Fund 107,929 66,291 66,953 50,355
Money Market Fund+ 63,451 83,753 639,985 205,447
Small Cap Growth Fund 48,380 33,865 3,114 10,183
Small Cap Value Fund 35,746 13,797 195 3,512
Tax Free Bond Fund 32,536 13,524 103,159 13,474
Total Return Fund 311,006 41,600 21,440 26,533
Value Fund 66,436 50,963 29,058 24,066
|
* For the fiscal period from July 1, 2005 through October 31, 2005. Prior to that, the Fund had a fiscal year end of June 30, 2005. The Fund commenced operations on April 1, 2005. For the period from April 1, 2005 through June 30, 2005, NYLIFE Distributors retained the following amounts of sales charges, including CDSC, for Class A shares of the Fund: $3,152
For the fiscal years ended October 31, 2005 and October 31, 2004, the ten month fiscal period ended October 31, 2003 and the fiscal year ended December 31, 2002, contingent deferred sales charges were paid by investors on the redemption of Class B shares of each Fund, as follows:
YEAR ENDED YEAR ENDED 10 MONTH PERIOD YEAR ENDED
10/31/05 10/31/05 10/31/03 12/31/02
---------- ---------- --------------- ----------
Capital Appreciation Fund $ 912,707 770,578 605,895 1,290,486
Common Stock Fund 77,935 63,300 55,741 105,472
Convertible Fund 259,488 286,029 177,736 325,779
Diversified Income Fund 69,918 96,166 57,525 64,563
Equity Index Fund -- 10,524 -- --
Global High Income Fund 59,632 55,986 54,359 20,010
Government Fund 215,418 241,046 266,736 305,060
High Yield Corporate Bond Fund 2,708,943 3,362,137 2,018,676 3,070,148
International Equity Fund 63,443 53,085 39,506 51,754
Large Cap Growth Fund* 89,100 N/A N/A N/A
MAP Fund 459,520 392,114 299,227 383,802
Mid Cap Growth Fund 58,470 36,021 9,432 11,588
Mid Cap Value Fund 263,868 236,730 193,218 543,726
Money Market Fund + 1,241,942 620,227 660,022 936,886
Small Cap Growth Fund 245,716 229,242 157,141 280,616
Small Cap Value Fund 62,234 80,604 75,783 95,931
Tax Free Bond Fund 72,168 103,635 80,604 162,991
Total Return Fund 363,647 330,990 265,345 515,803
Value Fund 302,656 249,437 198,446 415,463
|
* For the fiscal period from July 1, 2005 through October 31, 2005. Prior to that, the Fund had a fiscal year end of June 30, 2005. The Fund commenced operations on April 1, 2005. For the period from April 1, 2005 through June 30, 2005, contingent deferred sales charges were paid by investors on the redemption of Class B shares, as follows: $2,089.
+ The amount shown represents proceeds from contingent deferred sales charges that were assessed on redemptions of shares that had previously been exchanged from other Funds into the Money Market Fund.
For the fiscal years ended October 31, 2005 and October 31, 2004, the ten month fiscal period ended October 31, 2003 and the fiscal year ended December 31, 2002, contingent deferred sales charges were paid by investors on the redemption of Class C shares of each Fund, as follows:
10 MONTH
YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
10/31/05 10/31/04 10/31/03 12/31/02
---------- ---------- ------------ ----------
Capital Appreciation Fund $ 971 1,854 1,100 2,032
Common Stock Fund 579 396 670 1,440
Convertible Fund 3,639 7,162 3,184 6,743
Diversified Income Fund 3,573 4,628 4,405 4,071
Equity Index Fund -- -- -- --
Global High Income Fund 15,023 7,167 7,629 3,164
Government Fund 1,780 5,664 8,887 6,359
High Yield Corporate Bond Fund 116,485 165,719 137,679 128,783
International Equity Fund 1,830 1,745 7,765 3,069
Large Cap Growth Fund* 741 N/A N/A N/A
MAP Fund 19,712 27,307 12,037 55,964
Mid Cap Growth Fund 2,789 1,750 9 31
Mid Cap Value Fund 5,290 5,869 9,388 14,292
Money Market Fund + 35,599 79,743 34,807 45,905
Small Cap Growth Fund 855 1,011 1,154 2,950
Small Cap Value Fund 2,222 199 423 8,385
Tax Free Bond Fund 1,263 3,255 3,122 1,859
Total Return Fund 370 1,101 674 1,030
Value Fund 1,323 1,243 807 2,588
|
* For the fiscal period from July 1, 2005 through October 31, 2005. Prior to that, the Fund had a fiscal year end of June 30, 2005. The Fund commenced operations on April 1, 2005. For the period from April 1, 2005 through June 30, 2005, contingent deferred sales charges were paid by investors on the redemption of Class C shares, as follows: $3.
+ The amount shown represents proceeds from contingent deferred sales charges that were assessed on redemptions of shares that had previously been exchanged from other Funds into the Money Market Fund.
For the fiscal year ended October 31, 2005, it is estimated that the following amounts were spent for distribution-related activities with respect to the Class A shares of each Fund:
MAINSTAY FUNDS
CLASS A EXPENSE CATEGORIES
NOVEMBER 1, 2004 TO OCTOBER 31, 2005
PRINTING AND APPROXIMATE
MAILING TOTAL AMOUNT
PROSPECTUSES COMPENSATION SPENT BY NYLIFE
SALES TO OTHER TO COMPENSATION COMPENSATION DISTRIBUTOR
MATERIAL AND THAN CURRENT DISTRIBUTION TO SALES TO BROKER WITH RESPECT
ADVERTISING SHAREHOLDERS PERSONNEL PERSONNEL DEALERS OTHER* TO FUND
------------ ------------ ------------ ------------ ------------ --------- ---------------
Capital Appreciation 2,137 36,022 280,165 1,055,765 171,349 202,947 1,748,38
Common Stock 233 5,434 30,516 149,149 27,465 22,105 234,902
Convertible Fund 1,210 14,172 158,578 344,478 176,232 114,871 809,541
Diversified Income 783 5,818 102,661 175,084 120,514 74,366 479,227
Equity Index -- -- -- 569,706 904,114 -- 1,473,820
Global High Income 2,106 9,705 276,150 218,025 329,796 200,038 1,035,821
Government 1,370 12,361 179,608 249,775 119,586 130,105 692,806
High Yield Corp. Bond 43,913 201,208 5,756,752 3,160,497 4,152,117 4,170,094 17,484,581
International Equity 1,721 11,988 225,575 367,468 222,487 163,403 992,641
Large Cap Growth** 553 3,812 72,518 129,228 32,507 52,531 291,150
Map 7,837 47,662 1,027,421 1,071,540 1,337,522 744,247 4,236,229
Mid Cap Growth 1,741 7,608 228,272 251,640 283,427 165,356 938,045
Mid Cap Value 2,891 19,863 379,025 535,595 363,584 274,559 1,575,518
Money Market 12,721 28,227 1,667,643 -- 27,622 1,208,013 2,944,225
Small Cap Growth 806 10,872 105,642 356,422 78,131 76,525 628,398
Small Cap Value 1,267 -- 166,084 169,447 177,623 120,308 634,729
Tax Free 682 5,659 89,366 200,824 81,133 64,735 442,399
Total Return 930 15,726 121,978 455,179 100,087 88,359 782,259
Value 1,291 19,713 169,242 591,455 202,711 122,596 1,107,007
TOTAL 84,192 455,849 11,037,197 10,051,279 8,908,007 7,995,160 38,531,685
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* Includes Trustees' fees, travel, telephone, postage, training material and other miscellaneous expenses.
** For the fiscal period from July 1, 2005 through October 31, 2005. Prior to that, the Fund had a fiscal year end of June 30, 2005. The Fund commenced operations on April 1, 2005. For the period from April 1, 2005 through June 30, 2005, expenses for distribution-related activities for Class A shares were as follows:
PRINTING AND APPROXIMATE
MAILING TOTAL AMOUNT
PROSPECTUSES COMPENSATION SPENT BY NYLIFE
SALES TO OTHER TO COMPENSATION COMPENSATION DISTRIBUTOR
MATERIAL AND THAN CURRENT DISTRIBUTION TO SALES TO BROKER WITH RESPECT
ADVERTISING SHAREHOLDERS PERSONNEL PERSONNEL DEALERS OTHER* TO FUND
------------ ------------ ------------ ------------ ------------ ------ ---------------
235 1,621 30,837 54,952 13,823 22,338 123,806
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For the fiscal year ended October 31, 2005, it is estimated that the following amounts were spent for distribution-related activities with respect to the Class B shares of each Fund:
MAINSTAY FUNDS
CLASS B EXPENSE CATEGORIES
NOVEMBER 1, 2004 TO OCTOBER 31, 2005
PRINTING AND APPROXIMATE
MAILING TOTAL AMOUNT
PROSPECTUSES COMPENSATION SPENT BY NYLIFE
SALES TO OTHER TO COMPENSATION COMPENSATION DISTRIBUTOR
MATERIAL AND THAN CURRENT DISTRIBUTION TO SALES TO BROKER WITH RESPECT
ADVERTISING SHAREHOLDERS PERSONNEL PERSONNEL DEALERS OTHER* TO FUND
------------ ------------ ------------ ------------ ------------ --------- ---------------
Capital Appreciation 3,051 158,149 399,987 3,514,978 653,239 289,744 5,019,148
Common Stock 238 7,902 31,236 215,363 35,008 22,627 312,375
Convertible Fund 637 61,017 83,561 790,303 488,862 60,530 1,484,911
Diversified Income 210 11,231 27,505 189,081 85,585 19,924 333,535
Equity Index -- -- -- -- -- -- --
Global High Income 418 7,180 54,814 155,856 174,718 39,706 432,692
Government 513 44,802 67,273 852,574 140,477 48,732 1,154,371
|
PRINTING AND APPROXIMATE
MAILING TOTAL AMOUNT
PROSPECTUSES COMPENSATION SPENT BY NYLIFE
SALES TO OTHER TO COMPENSATION COMPENSATION DISTRIBUTOR
MATERIAL AND THAN CURRENT DISTRIBUTION TO SALES TO BROKER WITH RESPECT
ADVERTISING SHAREHOLDERS PERSONNEL PERSONNEL DEALERS OTHER* TO FUND
------------ ------------ ------------ ------------ ------------ --------- ---------------
High Yield Corp. Bond 5,845 398,496 766,270 4,795,128 4,430,407 555,073 10,951,220
International Equity 511 12,438 66,953 324,300 134,865 48,500 587,567
Large Cap Growth** 273 8,661 35,825 436,972 53,599 25,951 561,282
Map 2,681 54,118 351,457 1,232,806 963,818 254,590 2,859,470
Mid Cap Growth 530 7,521 69,425 257,203 132,105 50,290 517,074
Mid Cap Value 1,050 31,370 137,591 732,689 306,197 99,669 1,308,565
Money Market 977 40,718 128,076 -- -- 92,776 262,547
Small Cap Growth 770 25,549 100,920 662,805 145,191 73,105 1,008,340
Small Cap Value 309 -- 40,556 193,985 88,742 29,378 352,970
Tax Free 120 36,196 15,740 946,285 183,524 11,402 1,193,267
Total Return 1,376 105,783 180,342 2,122,773 316,195 130,637 2,857,105
Value 1,213 86,190 159,079 1,706,897 367,194 115,234 2,435,808
TOTAL 20,722 1,097,319 2,716,611 19,130,001 8,699,726 1,967,868 33,632,247
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* Includes Trustees' fees, travel, telephone, postage, training material and other miscellaneous expenses.
** For the fiscal period from July 1, 2005 through October 31, 2005. Prior to that, the Fund had a fiscal year end of June 30, 2005. The Fund commenced operations on April 1, 2005. For the period from April 1, 2005 through June 30, 2005, expenses for distribution-related activities for Class B shares were as follows:
PRINTING AND APPROXIMATE
MAILING TOTAL AMOUNT
PROSPECTUSES COMPENSATION SPENT BY NYLIFE
SALES TO OTHER TO COMPENSATION COMPENSATION DISTRIBUTOR
MATERIAL AND THAN CURRENT DISTRIBUTION TO SALES TO BROKER WITH RESPECT
ADVERTISING SHAREHOLDERS PERSONNEL PERSONNEL DEALERS OTHER* TO FUND
------------ ------------ ------------ ------------ ------------ ------ ---------------
116 3,683 15,234 185,815 22,792 11,035 238,675
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For the fiscal year ended October 31, 2005, it is estimated that the following amounts were spent for distribution-related activities with respect to the Class C shares of each Fund:
MAINSTAY FUNDS
CLASS C EXPENSE CATEGORIES
NOVEMBER 1, 2004 TO OCTOBER 31, 2005
PRINTING AND APPROXIMATE
MAILING TOTAL AMOUNT
PROSPECTUSES COMPENSATION SPENT BY NYLIFE
SALES TO OTHER TO COMPENSATION COMPENSATION DISTRIBUTOR
MATERIAL AND THAN CURRENT DISTRIBUTION TO SALES TO BROKER WITH RESPECT
ADVERTISING SHAREHOLDERS PERSONNEL PERSONNEL DEALERS OTHER* TO FUND
------------ ------------ ------------ ------------ ------------ --------- ---------------
Capital Appreciation 56 1,166 7,315 25,322 52,347 5,299 91,504
Common Stock 43 449 5,622 10,617 19,802 4,073 40,606
Convertible Fund 160 3,763 20,961 26,044 205,347 15,184 271,459
Diversified Income 406 2,386 53,234 27,326 130,545 38,561 252,458
Equity Index -- -- -- -- -- -- --
Global High Income 821 3,295 107,656 16,574 216,726 77,984 423,055
Government 92 1,223 12,038 26,597 54,575 8,720 103,246
High Yield Corp. Bond 8,448 63,112 1,107,529 468,254 3,689,493 802,275 6,139,112
International Equity 344 1,423 45,055 16,754 83,200 32,637 179,412
Large Cap Growth** 75 398 9,827 7,498 25,300 7,118 50,215
Map 3,475 23,720 455,566 73,753 1,555,076 330,005 2,441,595
Mid Cap Growth 718 1,059 94,180 16,504 109,945 68,222 290,629
Mid Cap Value 685 6,433 89,838 41,550 403,348 65,077 606,932
Money Market 613 2,481 80,308 -- -- 58,174 141,575
Small Cap Growth 70 1,131 9,217 18,920 56,886 6,677 92,901
Small Cap Value 463 -- 60,685 9,142 119,607 43,959 233,857
Tax Free 90 932 11,823 15,760 19,755 8,564 56,925
|
Total Return 27 622 3,578 14,886 27,009 2,592 48,714 Value 117 1,778 15,277 19,138 126,381 11,067 173,759 TOTAL 16,703 115,371 2,189,708 834,641 6,895,342 1,586,187 11,637,952 |
* Includes Trustees' fees, travel, telephone, postage, training material and other miscellaneous expenses.
** For the fiscal period from July 1, 2005 through October 31, 2005. Prior to that, the Fund had a fiscal year end of June 30, 2005. The Fund commenced operations on April 1, 2005. For the period from April 1, 2005 through June 30, 2005, expenses for distribution-related activities for Class C shares were as follows:
PRINTING AND APPROXIMATE
MAILING TOTAL AMOUNT
PROSPECTUSES COMPENSATION SPENT BY NYLIFE
SALES TO OTHER TO COMPENSATION COMPENSATION DISTRIBUTOR
MATERIAL AND THAN CURRENT DISTRIBUTION TO SALES TO BROKER WITH RESPECT
ADVERTISING SHAREHOLDERS PERSONNEL PERSONNEL DEALERS OTHER* TO FUND
------------ ------------ ------------ ------------ ------------ ------ ---------------
32 169 4,179 3,188 10,758 3,027 21,353
|
For the fiscal year ended October 31, 2005, it is estimated that the following amounts were spent for distribution-related activities with respect to the Class R2 shares of each Fund:
MAINSTAY FUNDS
CLASS R2 EXPENSE CATEGORIES
NOVEMBER 1, 2004 TO OCTOBER 31, 2005
PRINTING AND APPROXIMATE
MAILING TOTAL AMOUNT
PROSPECTUSES COMPENSATION SPENT BY NYLIFE
SALES TO OTHER TO COMPENSATION COMPENSATION DISTRIBUTOR
MATERIAL AND THAN CURRENT DISTRIBUTION TO SALES TO BROKER WITH RESPECT
ADVERTISING SHAREHOLDERS PERSONNEL PERSONNEL DEALERS OTHER* TO FUND
------------ ------------ ------------ ------------ ------------ ------ ---------------
Capital Appreciation -- -- -- -- -- -- --
Common Stock -- -- -- -- -- -- --
Convertible Fund -- -- -- -- -- -- --
Diversified Income -- -- -- -- -- -- --
Equity Index -- -- -- -- -- -- --
Global High Income -- -- -- -- -- -- --
Government -- -- -- -- -- -- --
High Yield Corp. Bond -- -- -- -- -- -- --
International Equity 32 10 4,142 -- -- 3,000 7,184
Large Cap Growth -- 0 -- -- -- -- 0
Map 52 197 6,807 1 7,018 4,931 19,005
Mid Cap Growth -- -- -- -- -- -- --
Mid Cap Value 120 295 15,672 495 332 11,353 28,267
Money Market -- -- -- -- -- -- --
Small Cap Growth -- -- -- -- -- -- --
Small Cap Value -- -- -- -- -- -- --
Tax Free -- -- -- -- -- -- --
Total Return -- -- -- -- -- -- --
Value 244 1,284 31,977 7,544 267 23,164 64,480
TOTAL 447 1,785 58,598 8,040 7,616 42,448 118,935
|
* Includes Trustees' fees, travel, telephone, postage, training material and other miscellaneous expenses.
SHAREHOLDER SERVICES PLAN; SERVICE FEES
The Board has adopted a separate shareholder services plan with respect to the Class R1,Class R2 and Class R3 shares of the Funds (each a "Services Plan"). Only certain Funds currently offer Class R1, Class R2 and Class R3 shares. Under the terms of the Services Plans, each Fund is authorized to pay to NYLIM, its affiliates or independent third-party service providers, as compensation for services rendered by NYLIM to shareholders of the Class R1,Class R2 and Class R3 shares, in connection with the administration of plans or programs that use Fund shares as their funding medium a shareholder servicing fee at the rate of 0.10% on an annual basis of the average daily net assets of the Class R1, Class R2 and Class R3 shares.
Under the terms of the Services Plan, each covered Fund may pay for personal services or account maintenance services, including assistance in establishing and maintaining shareholder accounts, processing purchase and redemption orders, communicating periodically with shareholders and assisting shareholders who have questions or other needs relating to their account. With respect to the Class R2 and Class R3 shares, these services are in addition to those services that may be provided under the Class R2 and Class R3 12b-1 Plans. Because service fees are ongoing, over time they will increase the cost of an investment in a Fund and may cost more than other types of sales charges.
Each Services Plan provides that it may not take effect until approved by vote of a majority of both (i) the Board and (ii) the Non-Interested Trustees. The Services Plan provides that it shall continue in effect so long as such continuance is specifically approved at least annually by the Board and the Non-Interested Trustees. Each Services Plan provides that it may not be amended to materially increase the costs that holders of Class R1, Class R2 and Class R3 shares of a Fund may bear under the Services Plan without the approval of a majority of both (i) the Board and (ii) the Non-Interested Trustees, cast in person at a meeting called for the purpose of voting on such amendments.
Each Services Plan provides that the Manager shall provide to the Board, and the Board shall review at least quarterly, a written report of the amounts expended in connection with the performance of service activities, and the purposes for which such expenditures were made.
OTHER SERVICES
Pursuant to an Amended and Restated Accounting Agreement with the Trust, dated August 1, 2002, the Manager performs certain bookkeeping and pricing services for the Funds. Each Fund will bear an allocable portion of the cost of providing these services to the Trust. For the fiscal years ended October 31, 2005 and October 31, 2004, ten month fiscal period ended October 31, 2003, and fiscal year ended December 31, 2002, the amount of recordkeeping fees paid to the Manager by each Fund was as follows:
10 MONTH
YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
10/31/05 10/31/04 10/31/03 12/31/02
---------- ---------- ------------ ----------
Capital Appreciation Fund $159,119 $183,589 $147,796 $216,522
Common Stock Fund 39,591 34,528 25,617 33,991
Convertible Fund 80,193 85,911 67,457 84,320
Diversified Income Fund 39,857 39,408 29,090 27,344
Equity Index Fund 86,148 90,540 72,426 101,674
Global High Income Fund 40,322 30,899 20,802 14,111
Government Fund 66,261 73,420 70,358 78,408
High Yield Corporate Bond Fund 476,386 481,807 352,819 355,849
International Equity Fund 52,237 41,937 26,838 29,766
Large Cap Growth Fund* 19,610 N/A N/A N/A
MAP Fund 143,449 112,916 67,228 73,332
Mid Cap Growth Fund 37,707 28,835 13,343 13,347
Mid Cap Value Fund 66,097 59,317 42,554 48,098
Money Market Fund 75,081 82,668 77,589 96,221
Small Cap Growth Fund 52,124 52,820 39,163 48,871
Small Cap Value Fund 41,813 39,329 29,548 38,299
Tax Free Bond Fund 55,677 59,078 52,852 63,298
Total Return Fund 109,476 120,043 100,956 139,643
Value Fund 100,518 97,270 74,436 102,803
|
* For the fiscal period from July 1, 2005 through October 31, 2005. Prior to that, the Fund had a fiscal year end of June 30, 2005. The Fund commenced operations on April 1, 2005. For the period from April 1, 2005 through June 30, 2005, recordkeeping fees paid to the Manager by the Fund was: $3,033.
In addition, each Fund may reimburse NYLIFE Securities, NYLIFE Distributors and NYLIM SC, for the cost of certain correspondence to shareholders and the establishment of shareholder accounts.
EXPENSES BORNE BY THE TRUST
Except for the expenses to be paid by the Manager as described in the
Prospectus, the Trust, on behalf of each Fund, is responsible under its
Management Agreement for the payment of expenses related to each Fund's
operations, including: (1) the fees payable to the Manager; (2) the fees and
expenses of Trustees who are not affiliated with the Manager or Subadvisors; (3)
certain fees and expenses of the Trust's custodian and transfer agent; (4) the
charges and expenses of the Trust's legal counsel and independent accountants;
(5) brokers' commissions and any issue or transfer taxes chargeable to the
Trust, on behalf of a Fund, in connection with its securities transactions; (6)
the fees of any trade association of which a Fund or the Trust is a member; (7)
the cost of share certificates representing shares of a Fund; (8) reimbursement
of a portion of the organization expenses of a Fund and the fees and expenses
involved in registering and maintaining registration of the Trust and of its
shares with the SEC and registering the Trust as a broker or dealer and
qualifying its shares under state securities laws, including the preparation and
printing of the Trust's registration statements and prospectuses for such
purposes; (9) allocable communications expenses with respect to investor
services and all expenses of shareholders' and Trustees' meetings and preparing,
printing and mailing prospectuses and reports to shareholders; (10) litigation
and indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of a Fund's business; (11) any expenses assumed by the Fund
pursuant to its plan of distribution; (12) all taxes and business fees payable
by a Fund to federal, state or other governmental agencies; and (13) costs
associated with the pricing of the Funds' shares. Fees and expenses of legal
counsel include an allocable portion of the cost of maintaining an internal
legal and compliance department.
PROXY VOTING POLICIES AND PROCEDURES
It is the policy of the MainStay Funds (the "Funds") that proxies received by the Funds are voted in the best interests of the Funds' shareholders. The Board has adopted Proxy Voting Policies and Procedures for the Funds that delegate all responsibility for voting proxies received relating to the Funds' portfolio securities to New York Life Investment Management LLC (the "Manager"), subject to the oversight of the respective Board. The Manager has adopted its own Proxy Voting Policies and Procedures in order to assure that proxies voted on behalf of the Funds are voted in the best interests of the Funds and their shareholders. Where the Funds have retained the services of a Subadvisor to provide day-to-day portfolio management for a Fund, the Manager may delegate proxy voting authority to the Subadvisor; provided that, as specified in the Manager's Proxy Voting Policies and Procedures, the Subadvisor either (1) follows the Manager's Proxy Voting Policy and the Funds' 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 Funds may revoke all or part of this delegation (to the Manager and/or Subadvisor as applicable) at any time by a vote of the Board.
MANAGER'S PROXY VOTING GUIDELINES. To assist the Manager in approaching
proxy-voting decisions for the Funds and its other clients, the Manager has
adopted proxy-voting guidelines ("Guidelines") with respect to certain recurring
issues. These Guidelines are reviewed on an annual basis by the Manager's Proxy
Voting Committee and revised when the Proxy Voting Committee determines that a
change is appropriate. The Manager has selected Institutional Shareholder
Services ("ISS") - an unaffiliated third-party proxy research and voting service
- to assist it in researching and voting proxies. With respect to each proxy
received, ISS researches the proxy and provides a recommendation to the Manager
as to how to vote on each issue based on its research of the individual facts
and circumstances of the proxy issue and its application of its research
findings to the Guidelines. The Funds' portfolio managers (or other designated
personnel) have the ultimate responsibility to accept or reject any ISS proxy
voting recommendation ("Recommendation"). The Manager will memorialize the basis
for any decision to override a Recommendation, to abstain from voting, and to
resolve any conflicts as further discussed below. In addition, the Manager may
choose not to vote a proxy if the cost of voting outweighs the possible benefit;
if the vote would have an indeterminable or insignificant effect on the client's
economic interests or the value of the portfolio holding; or if a jurisdiction
imposes share blocking restrictions.
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 Funds' 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 Fund's Board, a designated Board committee or a representative of either, of the conflict of interest 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 Fund shareholders, under its usual policy; or (3) forward the proxies to the Fund's Board, a designated Board committee or a representative of either, so that the Board, the committee or the representative may vote the proxies
itself. As part of its delegation of proxy voting responsibility to the Manager, the Funds 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 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.
The Manager has retained voting authority for the following Funds: Common Stock and Equity Index Funds.
GUIDELINES EXAMPLES
The following examples illustrate the Guidelines with respect to certain typical proxy votes. This summary is not an exhaustive list of all the issues that may arise or of all matters addressed in the Guidelines, and whether the Manager supports or opposes a proposal will depend upon the specific facts and circumstances described in the proxy statement and other available information. To the extent a Subadvisor, to which the Manager has delegated proxy-voting authority, utilizes ISS these Guidelines apply to the Subadvisor.
- Board of Directors. The Manager/Subadvisor will vote on director nominees in an uncontested election on a case-by-case basis, examining such factors as the composition of the board and key board committees, attendance at board meetings, corporate governance provisions and takeover activity, long-term company performance relative to a market index, directors' investment in the company, whether the chairman also serves as CEO, and whether a retired CEO sits on the board. Also, withhold votes from overboarded CEO directors, defined as serving on more than three boards. Withhold votes from directors who sit on more than six public company boards. In a contested election of directors, the Manager/Subadvisor will evaluate the nominees based on such factors as the long-term financial performance of the target company relative to its industry; management's track record; background to the proxy contest; qualifications of director nominees (both slates); and evaluation of what each side is offering shareholders as well as the likelihood that the proposed objectives and goals can be met; and stock ownership positions. The Manager/Subadvisor generally supports proposals to fix the board size or designate a range for the board size. However, the Manager/Subadvisor will vote against management ability to alter the size of a specified range without shareholder approval. In addition, The Manager/Subadvisor supports proposals to repeal classified boards or elect all directors annually. The Manager/Subadvisor also supports proposals seeking that a majority or more of the board be independent. The Manger/Subadvisor generally votes against shareholder proposals to impose a mandatory retirement age for outside directors.
- Antitakeover Defenses and Voting Related Issues. The Manager/Subadvisor generally evaluates advance notice proposals on a case-by-case basis, supporting proposals that allow shareholders to submit proposals as close to the meeting date as reasonably possible and within the broadest window possible. The Manager/Subadvisor generally supports shareholder proposals that ask a company to submit its poison pill for shareholder ratification; proposals to allow or make easier shareholder action by written consent; and proposals to lower supermajority vote requirements. The Manger/Subadvisor generally votes against proposals to restrict or prohibit shareholder ability to call special shareholder meetings and proposals giving the board exclusive authority to amend the bylaws.
- Capital Structure. Generally, votes on proposals to increase the number of shares of common stock authorized for issuance are determined on a case-by-case basis using a model developed by ISS. The Manger/Subadvisor will generally vote for proposals to create a new class of nonvoting or subvoting common stock if it is intended for financing purposes with minimal or no dilution to current shareholders and if it is not designed to preserve the voting power of an insider or significant shareholder. Vote for proposals to approve increases beyond the allowable increase when a company's shares are in danger of being delisted or if a company's ability to continue to operate as a going certain is uncertain. The Manager/Subadvisor will generally vote against proposals authorizing the creation of new classes of preferred stock with unspecified voting, conversion, dividend distribution, and other rights and against proposals to create a new class of common stock with superior voting rights.
- Executive and Director Compensation. Proposals regarding compensation plans are reviewed on a case-by-case basis using a methodology focusing on the transfer of shareholder wealth.
Generally, the Manager/Subadvisor will
support proposals seeking additional information regarding compensation, but will vote against proposals, which set absolute levels on compensation or dictate amount or form of compensation. The Manager/Subadvisor will support withholding votes from Compensation Committee members if the company has poor compensation practices.
Below are summaries of each Subadvisor's proxy voting policies and procedures with respect to the Funds where the Manager has delegated proxy voting authority to the Subadvisor. These summaries are not an exhaustive list of all the issues that may arise or of all matters addressed in the applicable proxy voting policies and procedures, and whether the Subadvisor supports or opposes a proposal will depend upon the specific facts and circumstances described in the proxy statement and other available information. These summaries have either been provided by the Subadvisor or summarized by the Manager on behalf of the Subadvisor.
CAPITAL APPRECIATION, CONVERTIBLE, DIVERSIFIED INCOME, GLOBAL HIGH INCOME, GOVERNMENT, HIGH YIELD CORPORATE BOND, INTERNATIONAL EQUITY, MID CAP GROWTH, MID CAP VALUE, MONEY MARKET, SMALL CAP GROWTH, SMALL CAP VALUE, TAX FREE BOND, TOTAL RETURN AND VALUE FUNDS.
The Manager has delegated proxy-voting authority to the Funds' Subadvisor, MacKay Shields LLC ("MacKay Shields" or "MacKay"). A summary of McKay Shields' proxy voting policies and procedures is provided below.
MacKay Shields
MacKay has adopted proxy-voting policies and procedures designed to ensure that where clients have delegated proxy-voting authority to MacKay, all proxies are voted in the best interest of such clients without regard to the interests of MacKay or related parties. When a client retains MacKay, the firm generally determines through its investment management agreement, whether it will vote proxies on behalf of that client. Currently, MacKay uses ISS as its third-party proxy voting service provider. If the client appoints MacKay as its proxy-voting agent, the client will also instruct MacKay to vote its proxies in accordance with custom guidelines provided by the client, MacKay's Standard Guidelines (currently the same as the ISS standard guidelines), or in the case of a Taft-Hartley client, in accordance with the ISS Taft-Hartley guidelines. MacKay informs the client's custodian to send all proxies to ISS. MacKay then informs ISS that the client has appointed MacKay as its agent and instructs ISS as to which guidelines to follow.
Once the appropriate guidelines have been established, each proxy must be voted in accordance with those guidelines unless a MacKay portfolio manager believes that it is in the best interest of the client(s) to vote otherwise. In those cases, the portfolio manager must complete a form describing the reasons for departing from the guidelines and disclosing any facts that might suggest there is a conflict. The portfolio manager submits the form to MacKay's Legal/Compliance Department for review. If the Legal/Compliance Department determines that no "conflict" exists, then the dissent will be approved and ISS will be informed of how to vote. All dissenting votes are presented to MacKay's Compliance Committee. If MacKay's General Counsel or Chief Compliance Officer determines that a conflict exists, the matter will immediately be referred to MacKay's Compliance Committee for consideration. In accordance with Firm procedures in this area, the committee members will consider the matter and resolve the conflict as deemed appropriate under the circumstances. Please see the "Guidelines Examples" section above for examples of MacKay's guidelines with respect to certain typical proxy votes.
LARGE CAP GROWTH FUND
The Manager has delegated proxy-voting authority to the Fund's Subadvisor, Winslow Capital Management, Inc., ("Winslow Capital"). A summary of Winslow Capital's proxy voting policies and procedures is provided below.
Winslow Capital, pursuant to Rule 206(4)-6 under the Investment Advisers Act of 1940, has adopted Proxy Voting Policies and Procedures pursuant to which Winslow Capital has undertaken to vote all proxies or other beneficial interests in an equity security prudently and solely in the best long-term economic interest of its advisory clients and their beneficiaries, considering all relevant factors and without undue influence from individuals or groups who may have an economic interest in the outcome of a proxy vote.
Winslow Capital will vote all proxies appurtenant to shares of corporate stock held by a plan or account with respect to which Winslow Capital serves as investment manager, unless the investment management contract expressly precludes Winslow Capital, as investment manager, from voting such proxy.
Winslow Capital has delegated the authority to vote proxies in accordance with its Proxy Voting Policies and Procedures to ISS, a third party proxy-voting agency. Winslow Capital subscribes to ISS' Implied Consent service feature. As ISS research is completed, the ISS Account Manager executes the ballots as Winslow Capital's agent according to the vote recommendations and consistent with the ISS Standard Proxy Voting Guidelines. Please see the "Guidelines Examples" section above for examples of Winslow Capital's guidelines with respect to certain typical proxy votes.
Winslow Capital retains the ability to override any vote if it disagrees with ISS' vote recommendation, and always maintains the option to review and amend votes before they are cast, except in the case of a conflict of interest. When there is an apparent conflict of interest, or the appearance of a conflict of interest, e.g. where Winslow Capital may receive fees from a company for advisory or other services at the same time that Winslow Capital has investments in the stock of that company, Winslow Capital will follow the vote recommendation of ISS. Winslow Capital retains documentation of all amended votes.
MAP FUND
The Manager has delegated proxy-voting authority to the MAP Fund's Subadvisors, Jennison Associates LLC (" Jennison") and Markston International LLC ("Markston"). Summaries of their proxy voting policies and procedures are provided below.
Markston
Markston votes proxies on a company-by-company basis. Markston's overarching objective in voting proxies is to support proposals and director nominees that maximize the value the Fund's investments over the long term. Although Markston gives substantial weight to the recommendations of the issuer's board of directors, in all instances, the final decision rests with the portfolio manager under supervision of the chief compliance officer to vote the proxies.
Markston always endeavors to place the Fund's interest ahead of Markston's interest. Generally, Markston will always vote proxies with respect to an issue in accordance with its guidelines. If a potential conflict still exists, Markston will seek outside opinions to ensure the quality and impartiality of its votes.
Markston's approach with respect to proxies involving election of directors is to encourage independence and competence at the board level. Markston will not support director nominees who may have excessive commitments or have proven lax in their oversight. Markston will also often support proposals to declassify existing boards and is not sympathetic to the establishment of classified boards.
Markston generally supports management recommendations regarding the auditor. Markston evaluates votes involving compensation plans on a case-by-case basis. Markston also believes that the exercise of shareholder rights, in proportion to economic ownership, is a fundamental privilege of stock ownership that should not be unnecessarily limited.
Jennison
Jennison Associates LLC ("Jennison") actively manages publicly traded equity securities and fixed income securities. It is the policy of Jennison that where proxy voting authority has been delegated to and accepted by Jennison, all proxies shall be voted by investment professionals in the best interest of the client without regard to the interests of Jennison or other related parties, based on recommendations as determined by pre-established guidelines either adopted by Jennison or provided by the client. Secondary consideration may be given to the public and social value of each issue. For purposes of this policy, the "best interests of clients" shall mean, 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. Any proxy vote that may represent a potential material conflict is reviewed by Jennison Compliance and referred to the Proxy Voting Committee to determine how to vote the proxy if Compliance determines that a material conflict exists.
In voting proxies for international holdings, we will generally apply the same principles as those for U.S. holdings. However, in some countries, voting proxies result in additional restrictions that have an economic impact or cost to the security, such as "share blocking", where Jennison would be restricted from selling the shares of the security for a period of time if Jennison exercised its ability to vote the proxy. As such, we consider whether the vote, either itself or together with the votes of other shareholders, is expected to have an effect on the value of the investment that will outweigh the cost of voting. Our policy is to not vote these types of proxies when the cost far outweighs the benefit of voting, as in share blocking.
It is further the policy of Jennison that complete and accurate disclosure concerning its proxy voting policies and procedures and proxy voting records, as required by the Advisers Act, is to be made available to clients.
FUND'S PROXY VOTING RECORD. Each Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The most recent Form N-PX is available on the Funds' website at www.mainstayfunds.com or on the SEC's website at www.sec.gov.
DISCLOSURE OF PORTFOLIO HOLDINGS
The Board has adopted policies and procedures concerning selective disclosure of portfolio holdings of the Funds. Under these policies, the Manager publicly discloses the complete schedule of each Fund's portfolio holdings, as reported at month-end, no earlier than the first business day falling 30 business days after the month's end and will publicly disclose each Fund's top ten holdings no earlier than the first business day falling 15 business days after the quarter's end. Such information will remain accessible until the next schedule is made publicly available. You may obtain a copy of a Fund's schedule of portfolio holdings or top ten holdings for the most recently completed period by accessing the information on the Funds' website at www.mainstayfunds.com or by calling the Funds at 1-800-MAINSTAY (1-800-624-6782). The Funds' quarterly holdings information is also provided in the Annual Report and Semi-Annual Report to Fund shareholders and in the quarterly holdings report to the SEC on Form N-Q.
In addition, the Manager may share the Funds' non-public portfolio holdings information with sub-advisers, pricing services and other service providers to the Funds, including IBT, who require access to such information in order to fulfill their contractual duties to the Funds.; as of the date of this SAI, those service providers are Investors Bank and Trust Company, KPMG LLP, Russell Mellon, ISS, IDC, Princeton Financial Systems and Merrill Corporation. The Manager may also disclose non-public information regarding a Fund's portfolio holdings information to certain mutual fund analysts and rating and tracking entities, such as Morningstar and Lipper Analytical Services, or to other entities that have a legitimate business purpose in receiving such information on a more frequent basis. Exceptions to the frequency and recipients of the disclosure may be made only with the advance authorization of the Fund's Chief Compliance Officer and the Manager's Chief Investment Officer upon a determination that such disclosure serves a legitimate business purpose and is in the best interests of the Funds and will be reported to the Board of Trustees at the next regularly scheduled board meeting. All non-public portfolio holdings information is provided pursuant to a confidentiality agreement.
All confidentiality agreements entered into for the receipt of non-public
portfolio holdings information must provide, among other things, that the
recipient (1) will limit access to the information to its employees and agents
who are subject to a duty to keep and treat such information as confidential;
(2) will implement procedures to monitor compliance by its employees with the
terms of the confidentiality agreement; and (3) upon written request from the
Manager or the Funds, will promptly return or destroy the information.
Generally, employees of the Manager who have access to non-public information regarding the Funds' portfolio holdings information are restricted in their uses of such information pursuant to information barriers and personal trading restrictions contained in the Manager's policies and procedures.
Whenever portfolio holdings disclosure made pursuant to these procedures involves a conflict of interest between the Funds' shareholders and the Funds' Manager, Subadvisor, Distributor or any affiliated person of the Funds, the disclosure may not be made unless a majority of the Non-Interested Trustees or a majority of a board committee consisting solely of independent directors approves such disclosure. The Funds, the Manager and the Subadvisors shall not enter into any arrangement providing for the disclosure of non-public portfolio holding information for the receipt of compensation or benefit of any kind. Any material changes to the policies and procedures for the disclosure of portfolio holdings are reported to the Board.
PORTFOLIO MANAGERS
Each Fund's portfolio managers also have responsibility for the day-to-day management of accounts other than the Funds. Information regarding these other accounts, as of December 31, 2005 is set forth below:
NUMBER OF ACCOUNTS AND ASSETS
NUMBER OF OTHER ACCOUNTS MANAGED FOR WHICH THE ADVISORY FEE IS
AND ASSETS BY ACCOUNT TYPE BASED ON PERFORMANCE
-------------------------------------------- -----------------------------------------
REGISTERED OTHER POOLED REGISTERED OTHER POOLED
PORTFOLIO FUNDS MANAGED BY INVESTMENT INVESTMENT OTHER INVESTMENT INVESTMENT OTHER
MANAGER PORTFOLIO MANAGER COMPANY VEHICLES ACCOUNTS COMPANY VEHICLES ACCOUNTS
----------------- -------------------- -------------- ------------ -------------- ----------- ------------ --------------
Claude Athaide Money Market Fund 3 RICs, 0 5 Accounts, 0 0 0
$ 400,114,384 $649,967,962
Rupal J. Bhansali International Equity 1 RIC, 0 5 Accounts, 0 0 3 Accounts,
Fund $ 342,342,588 $1,003,238,379 $ 446,119,936
Mark G. DeFranco* MAP Fund 3 RICs, 3 Accounts, 11 Accounts, 0 0 0
$ 997,942,000 $344,677,000 $ 719,127,000**
Caroline Evascu Small Cap Value Fund 0 0 1 Account, 0 0 0
479,090
John Fitzgerald Tax Free Bond Fund 0 0 1 Account, 0 0 0
$ 9,303,316
Harvey Fram Common Stock Fund 4 RICs, 2 Accounts, 31 Accounts, 0 0 0
$1,381,927,882 $ 97,464,259 $2,451,168,408
Brian M. Gillott* MAP Fund 3 RICs, 3 Accounts 11 Accounts, 0 0 0
$ 997,942,000 $344,677,000 $ 719,127,000**
Gary Goodenough Diversified Income 2 RICs, 1 Account, 45 Accounts, 0 0 3 Accounts,
Fund, $ 791,080,551 $ 21,698,171 $3,982,627,297 $1,156,387,461
Global High Income
Fund,
Government Fund,
Total Return Fund
Christopher Harms Money Market Fund, 3 RICs, 0 42 Accounts, 0 0 0
Total Return Fund $ 810,974,896 $3,991,796,138
Justin H. Kelly Large Cap Growth 2 RICs, 2 Accounts, 5 Accounts, 0 0 0
Fund $209,000,000 $49,000,000 $ 140,000,000
Roger Lob MAP Fund 1 RIC 0 10 Accounts 0 0 0
$ 83,000,000 $ 29,000,000
Christopher MAP Fund 1 RIC 0 4 Accounts, 2 RICs 0 0
Mullarkey $ 55,000,000 $ 8,000,000 $15,000,000
Michael J. MAP Fund 1 RIC 0 4 Accounts, 2 RICs 0 0
Mullarkey $ 552,000,000 $ 104,000,000 $73,000,000
Francis J. Ok Equity Index Fund 2 RICs, 0 6 Accounts, 0 0 0
$3,040,517,102 $1,147,039,524
J. Matthew Philo Diversified Income 1 RIC, 1 Account, 45 Accounts, 0 2 Accounts, 0
Fund, $1,423,903,500 $261,384,849 $9,432,178,799 $576,049,525
High Yield Corporate
Bond Fund
Joseph Portera Diversified Income 1 RIC, 3 Accounts, 24 Accounts, 0 0 3 Accounts,
Fund, $ 289,829,553 $740,711,130 $2,862,552,822 $1,156,387,461
Global High Income
Fund,
Government Fund
Richard A. Rosen Mid Cap Value Fund, 3 RICs, 0 28 Accounts, 0 0 1 Account,
Total Return Fund, $1,560,217,188 $1,245,776,779 $ 180,398,453
Value Fund
Jeffrey H. Saxon Global High Income 0 0 0 0 0 0
Fund
Edward Convertible Fund 1 RIC, 2 Accounts 6 Accounts, 0 0 2 Accounts,
Silverstein $ 360,462,332 $ 10,502,196 $ 697,619,427 $ 573,770,514
Mark T. Spellman Mid Cap Value Fund 1 RIC, 0 28 Accounts, 0 0 0
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NUMBER OF ACCOUNTS AND ASSETS
NUMBER OF OTHER ACCOUNTS MANAGED FOR WHICH THE ADVISORY FEE IS
AND ASSETS BY ACCOUNT TYPE BASED ON PERFORMANCE
-------------------------------------------- -----------------------------------------
REGISTERED OTHER POOLED REGISTERED OTHER POOLED
PORTFOLIO FUNDS MANAGED BY INVESTMENT INVESTMENT OTHER INVESTMENT INVESTMENT OTHER
MANAGER PORTFOLIO MANAGER COMPANY VEHICLES ACCOUNTS COMPANY VEHICLES ACCOUNTS
----------------- -------------------- -------------- ------------ -------------- ----------- ------------ --------------
$ 429,987,863 $1,245,776,779
Edmund C. Spelman Capital Appreciation 5 RICs, 0 26 Accounts, 0 0 1 Account,
Fund, $2,229,335,701 $1,612,712,816 $ 22,734,317
Convertible Fund,
Mid Cap Growth Fund,
Small Cap Growth
Fund,
Total Return Fund
Laurie Walters Tax Free Bond Fund 0 0 0 0 0 0
R. Bart Wear Large Cap Growth 2 RICs, 2 Accounts, 5 Accounts, 0 0 0
Fund $ 209,000,000 $ 49,000,000 $ 140,000,000
Clark J. Winslow Large Cap Growth 2 RICs, 2 Accounts, 5 Accounts, 0 0 0
Fund $ 209,000,000 $ 49,000,000 $ 140,000,000
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* None of the accounts managed are subject to performance fees.
** "Other Accounts" excludes the assets and number of accounts in wrap fee programs that are managed using model portfolios and the assets of an institutional account managed using a model portfolio because Jennison does not have discretion to trade securities in the institutional model portfolio.
Certain portfolio managers who are responsible for managing certain institutional accounts share a performance fee based on the performance of the account. These accounts are distinguishable from the funds because they use techniques that are not permitted for the funds, such as short sales and leveraging. (Note that this conflict only arises with regards to the Funds that have a High Yield component).
To address potential conflicts of interest between the clients and the Manager, NYLIM and each Subadvisor have adopted Allocation Procedures, a Code of Ethics and Policy and Procedures for Portfolio Management and Trades in Securities, to assist and guide the portfolio managers and other investment personnel when faced with a conflict. Although the Manager has adopted such policies and procedures to provide for equitable treatment of trading activity and to ensure that investment opportunities are allocated in a manner that is fair and appropriate, it is possible that unforeseen or unusual circumstances may arise that may require different treatment between the Funds and other accounts managed.
PORTFOLIO MANAGER COMPENSATION STRUCTURE. In an effort to retain key personnel, NYLIM and each Subadvisor have structured compensation plans for portfolio managers and other key personnel that it believes are competitive with other investment management firms.
NYLIM
NLYIM portfolio managers receive a base pay and an annual incentive based on performance against individual and organizational unit objectives, as well as business unit and overall NYLIM results. The plan is designed to align manager compensation with investors' goals by rewarding portfolio managers who meet the long-term objective of consistent, dependable and superior investment results, measured by the performance of the product(s) under the individual's management. In addition, these employees also participate in a long-term incentive program.
NYLIM offers an annual incentive plan and a long-term incentive plan. The total dollars available for distribution is equal to the pool generated based on NYLIM's overall company performance. "NYLIM Company Performance" is determined using several key financial indicators, including operating revenue, pre-tax operating income, and net cash flow. The long-term incentive plan, is eligible to senior level employees and is designed to reward profitable growth in Company value. An employee's total compensation package is reviewed periodically to ensure that they are competitive relative to the external marketplace.
MacKay Shields
MacKay Shields establishes salaries at competitive levels, verified through industry surveys, to attract and maintain the best professional talent. In addition, an incentive bonus equal to a significant percentage of the firm's pre-tax profits is paid annually to the
firm's employees based upon an individual's performance and the profitability of the firm. The bonus generally represents a sizable amount relative to the base salary, and when considered with the base salary, results in a highly attractive level of total cash compensation for the firm's professional employees. Certain other accounts at MacKay Shields pay the firm a fee based on performance, a portion of which forms a part of the bonus pool for all employees. Every MacKay Shields employee participates in the bonus pool. This approach instills a strong sense of commitment on the part of each employee towards the overall success of the firm. There is no difference between the method used in determining a portfolio manager's compensation with respect to a Portfolio and other accounts.
MacKay Shields offers a Phantom Stock Plan, which enhances the firm's ability to attract, retain, motivate and reward key executives. Awards can be made annually and vesting takes place over a period of several subsequent years. Participation in the Plan by senior professionals is contingent upon the execution of an Executive Employment Agreement.
Winslow
In an effort to retain key personnel, Winslow Capital has structured compensation plans for portfolio managers and other key personnel that it believes are competitive with other investment management firms. Specifically, portfolio managers receive a base pay and an annual incentive based on performance against individual and organizational objectives, as well as overall Winslow Capital results. The plan is designed to align manager compensation with investors' goals by rewarding portfolio managers who meet the long-term objective of consistent, superior investment results, measured by the performance of the product under the individual's management.
At Winslow Capital the Large Cap Growth portfolio managers are substantial owners of the firm. The financial success of the portfolio managers/owners (base salary and share of the earnings) is a direct result of providing favorable long-term results for clients. The firm establishes salaries at competitive levels, verified through industry surveys, to attract and maintain the best professional and administrative personnel. Portfolio manager compensation packages are independent of advisory fees collected on any given client account under management. In addition, an incentive bonus is paid annually to the firm's non-owner employees based upon each individual's performance and the profitability of the firm. The incentive bonus and share of the firm's earnings engender a commitment and loyalty to the firm to always strive for success.
Winslow Capital provides a 401(k) profit-sharing and salary savings plan for all eligible employees. Contributions are based on a percentage of the employee's total base and bonus paid during the fiscal year, subject to a specified maximum amount. At the employees' discretion, assets of this profit-sharing plan are invested in the Large Cap Growth Fund.
Jennison
Jennison seeks to maintain a highly competitive compensation program designed to attract and retain outstanding investment professionals, which includes portfolio managers and research analysts, and to align the interests of its investment professionals with that of its clients and overall firm results. Overall firm profitability determines the total amount of incentive compensation pool that is available for investment professionals. Jennison investment professionals are compensated with a combination of base salary and discretionary cash bonus. In general, the cash bonus comprises the majority of the compensation for investment professionals.
Investment professionals' total compensation is determined through a subjective process that evaluates numerous qualitative and quantitative factors. There is no particular weighting or formula for considering the factors. Some portfolio managers or analysts may manage or contribute ideas to more than one product strategy and are evaluated accordingly.
The following factors will be reviewed for Mark G. DeFranco and Brian M. Gillott:
- One and three year pre-tax investment performance of groupings of accounts (a "Composite") relative to pre-determined passive indices and industry peer group data for the product strategy (e.g., large cap growth, large cap value) for which the portfolio manager is responsible;
- The investment professional's contribution to client portfolios' pre-tax one and three year performance from the investment professional's recommended stocks relative to the strategy's passive benchmarks and to the investment professional's respective coverage universes;
- Historical and long-term business potential of the product strategies;
- Qualitative factors such as teamwork and responsiveness; and
- Other factors such as experience and other responsibilities such as being a team leader or supervisor may also affect an investment professional's total compensation.
Markston
The Markston portfolio management team (Michael Mullarkey, Roger Lob, Christopher Mullarkey) are all owners of Markston International LLC. The portfolio managers share in the profits of the firm. Therefore, the success of the team in generating long term above average performance directly correlates with the success of Markston and the compensation of the portfolio managers.
As of December 31, 2005, the dollar range of fund securities beneficially owned by each Portfolio Manager in the Trust ($1-$10,000, $10,001-$50,000, $50,000-$100,000, $100,001-$500,000, $500,001-$1,000,000, or over $1,000,000) was as follows:
PORTFOLIO MANAGER FUND $ RANGE OF OWNERSHIP
--------------------- ------------------------- --------------------
Claude Athaide NONE $0
Rupal J. Bhansali NONE $0
Mark G. DeFranco NONE $0
Caroline Evascu NONE $0
John Fitzgerald Tax Free Bond Fund $1-$10,000
Harvey Fram Common Stock Fund $10,001-$50,000
Brian M. Gillott NONE $0
Gary Goodenough NONE $0
Christopher Harms NONE $0
Justin H. Kelly Large Cap Growth Fund $100,001-$500,000
Roger Lob MAP Fund $50,001-$100,000
Christopher Mullarkey MAP Fund $1-$10,000
Michael J. Mullarkey MAP Fund $10,001-$50,000
Francis J. Ok NONE $0
J. Matthew Philo NONE $0
Joseph Portera Diversified Income Fund $10,001-$50,000
Richard A. Rosen Value Fund $100,001-$500,000
Jeffrey H. Saxon Global High Income Fund $1-$10,000
Edward Silverstein Convertible Fund $100,001 - $500,000
Mark T. Spellman Capital Appreciation Fund $10,001-$50,000
International Equity Fund $10,001-$50,000
Mid Cap Value Fund $10,001-$50,000
Money Market Fund $10,001-$50,000
Value Fund $10,001-$50,000
Edmund C. Spelman Capital Appreciation Fund $500,001-$1,000,000
Small Cap Growth Fund $100,001-$500,000
Total Return Fund $1-$10,000
Laurie Walters MAP Fund $10,001-$50,000
R. Bart Wear Large Cap Growth Fund $100,001-$500,000
Clark J. Winslow Large Cap Growth Fund Over $1,000,000
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Potential Portfolio Manager Conflicts
A portfolio manager who makes investment decisions with respect to multiple funds and/or other accounts may be presented with one or more of the following potential conflicts:
- The management of multiple funds and/or accounts may result in the portfolio manager devoting unequal time and attention to the management of each fund and/or account;
- If a portfolio manager identifies a limited investment opportunity which may be suitable for more than one fund or account managed by the portfolio manager, a fund may not be able to take full advantage of that opportunity due to an allocation of filled purchase or sale orders across all eligible funds and accounts managed by the portfolio manager;
- A portfolio manager may take a position for a fund or account in a security that is contrary to the position held in the same security by other funds or accounts managed by the portfolio manager. For example, the portfolio manager may sell certain securities short for one fund or account while other funds or accounts managed by the portfolio manager simultaneously hold the same or related securities long; and
- An apparent conflict may arise where an adviser receives higher fees from certain funds or accounts that it manages than from others, or where an adviser receives a performance-based fee from certain funds or accounts that it manages and not from
others. In these cases, there may be an incentive for a portfolio manager to favor the higher and/or performance-based fee funds or accounts over other funds or accounts managed by the portfolio manager.
To address potential conflicts of interest, NYLIM and each Subadvisor have adopted various policies and procedures to provide for equitable treatment of trading activity and to ensure that investment opportunities are allocated in a fair and appropriate manner. In addition, NYLIM has adopted a Code of Ethics that recognizes the manager's obligation to treat all of its clients, including the Fund, fairly and equitably. These policies, procedures and the Code of Ethics are designed to restrict the portfolio manager from favoring one client over another. There is no guarantee that the policies, procedures and the Code of Ethics will be successful in every instance.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Purchases and sales of securities on a securities exchange are effected by brokers, and the Funds pay a brokerage commission for this service. In transactions on stock exchanges in the United States, these commissions are negotiated, whereas on many foreign stock exchanges these commissions are fixed. In the over-the-counter markets, securities (i.e., municipal bonds, other debt securities and some equity securities) are generally traded on a "net" basis with dealers acting as principal for their own accounts without a stated commission, although the price of the security usually includes a profit to the dealer. Transactions in certain over-the-counter securities also may be effected on an agency basis, when the total price paid (including commission) is equal to or better than the best total prices available from other sources. In underwritten offerings, securities are usually purchased at a fixed price which includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. On occasion, certain money market instruments may be purchased directly from an issuer, in which case no commissions or discounts are paid.
In effecting purchases and sales of portfolio securities for the account of a Fund, the Fund's Manager or Subadvisor will seek the best execution of the Fund's orders. The Board of Trustees have adopted policies and procedures that govern the selection of broker-dealers to effect securities transactions on behalf of a Fund. Under these policies and procedures, the Manager or Subadvisor must consider not only the commission rate, spread or other compensation paid, but the price at which the transaction is executed, bearing in mind that it may be in a Fund's best interests to pay a higher commission, spread or other compensation in order to receive better execution. The Manager or Subadvisor may consider other factors, including the broker's integrity, specialized expertise, speed, ability or efficiency, research or other services. The Manager or Subadvisor may not consider a broker's promotional or sales efforts on behalf of any Fund as part of the broker selection process for executing Fund portfolio transactions. Furthermore, neither the Funds nor the Manager may enter into agreements under which a Fund directs brokerage transactions (or revenue generated from those transactions) to a broker to pay for distribution of Fund shares.
NYLIFE Securities (the "Affiliated Broker") may act as broker for the Funds. In order for the Affiliated Broker to effect any portfolio transactions for the Funds on an exchange, the commissions, fees or other remuneration received by the Affiliated Broker must be reasonable and fair compared to the commissions, fees or other remuneration paid to other brokers in connection with comparable transactions involving similar securities being purchased or sold on an exchange during a comparable period of time. This standard would allow the Affiliated Broker to receive no more than the remuneration that would be expected to be received by an unaffiliated broker in a commensurate arms-length transaction. The Funds will not deal with the Affiliated Broker in any portfolio transaction in which the Affiliated Broker acts as principal.
As permitted by Section 28(e) of the Securities Exchange Act of 1934 (the "1934 Act"), the Manager or a Subadvisor may cause a Fund to pay a broker-dealer (except the Affiliated Broker) that provides brokerage and research services to the Manager or Subadvisor an amount of commission for effecting a securities transaction for a Fund in excess of the amount other broker-dealers would have charged for the transaction if the Manager or the Subadvisor determines in good faith that the greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of either a particular transaction or the Manager's or the Subadvisor's overall responsibilities to the Funds or to its other clients. The term "brokerage and research services" includes advice as to the value of securities, the advisability of investing in, purchasing, or selling securities, and the availability of securities or of purchasers or sellers of securities; furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts; and effecting securities transactions and performing functions incidental thereto such as clearance and settlement.
In the fiscal years ended October 31, 2005 and October 31, 2004, the MainStay MAP Fund paid commissions to Wachovia Capital Markets, an affiliate of the Fund's Sub-Adviser, Jennison. The following table sets forth information regarding such payments. No payments to Affiliated Brokers were made in the fiscal year ended October 31, 2003.
2005 2004
---------- ----------
Total brokerage commissions paid by the MainStay MAP Fund .. $1,986,694 $1,651,338
Total brokerage commissions paid to Affiliated Brokers ..... $2,900 $3,230
Percentage of total brokerage commissions paid to
Affiliated Brokers ...................................... 0.001% 0.002%
Percentage of the MAP Fund's aggregate dollar amount of
transactions involving the payment of commissions
effected through Affiliated Broker ...................... 0% 0%
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Although commissions paid on every transaction will, in the judgment of the Manager or the Subadvisors, be reasonable in relation to the value of the brokerage services provided, commissions exceeding those that another broker might charge may be paid to broker-dealers (except the Affiliated Broker) who were selected to execute transactions on behalf of the Funds and the Manager's or the Subadvisors' other clients in part for providing advice as to the availability of securities or of purchasers or sellers of securities and services in effecting securities transactions and performing functions incidental thereto such as clearance and settlement.
Broker-dealers may be willing to furnish statistical, research and other factual information or services ("Research") to the Manager or the Subadvisors for no consideration other than brokerage or underwriting commissions. Securities may be bought or sold through such broker-dealers, but at present, unless otherwise directed by the Funds, a commission higher than one charged elsewhere will not be paid to such a firm solely because it provided Research to the Manager or the Subadvisor. Research provided by brokers is used for the benefit of all of the Manager's or the Subadvisors' clients and not solely or necessarily for the benefit of the Funds. The Manager's or the Subadvisors' investment management personnel attempt to evaluate the quality of Research provided by brokers. Results of this effort are sometimes used by the Manager or the Subadvisors as a consideration in the selection of brokers to execute portfolio transactions.
Certain of the Funds may participate in commission recapture programs with certain brokers selected by the Manager. Under these programs, a Fund may select a broker or dealer to effect transactions for the Fund whereby the broker or dealer uses a negotiated portion of the commissions earned on such brokerage transactions to pay bona fide operating expenses of the Fund. Such expenses may include fees paid directly to the broker or dealer, to an affiliate of the broker or dealer, or to other service providers, for transfer agency, sub-transfer agency, recordkeeping, or shareholder services or other bona fide services of the Funds.
In certain instances there may be securities that are suitable for a Fund's portfolio as well as for that of another Fund or one or more of the other clients of the Manager or the Subadvisors. Investment decisions for a Fund and for the Manager's or the Subadvisors' other clients are made independently from those of the other accounts and investment companies that may be managed by the Manager or the Subadvisor with a view to achieving their respective investment objectives. It may develop that a particular security is bought or sold for only one client even though it might be held by, or bought or sold for, other clients. Likewise, a particular security may be bought for one or more clients when one or more other clients are selling that same security. Some simultaneous transactions are inevitable when several clients receive investment advice from the same investment adviser, particularly when the same security is suitable for the investment objectives of more than one client. When two or more clients are simultaneously engaged in the purchase or sale of the same security, the securities are allocated among clients in a manner believed to be equitable to each. It is recognized that in some cases this system could have a detrimental effect on the price or volume of the security in a particular transaction as far as a Fund is concerned. The Manager and Subadvisors each believes that over time the Funds' ability to participate in volume transactions will produce better executions for the Funds.
The management fees paid by the Trust, on behalf of each Fund, to the Manager and the Subadvisory fee that the Manager pays on behalf of certain Funds to the Subadvisors will not be reduced as a consequence of the Manager's or the Subadvisors' receipt of brokerage and research services. To the extent a Fund's portfolio transactions are used to obtain such services, the brokerage commissions paid by the Fund will exceed those that might otherwise be paid, by an amount that cannot be clearly determined. Such services would be useful and of value to the Manager and the Subadvisors in serving both the Funds and other clients and, conversely, such services obtained by the placement of brokerage business of other clients would be useful to the Manager and the Subadvisors in carrying out their obligations to the Funds.
The table below shows information on brokerage commissions paid by each of the Funds for the fiscal years ended October 31, 2005 and October 31, 2004, ten-month fiscal period ended October 31, 2003 and the fiscal year ended December 31, 2002, all of which were paid to entities that are not affiliated with the Funds, the Manager or the Distributor.
TEN MONTH
YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
10/31/05 10/31/04 10/31/03 12/31/02
---------- ---------- ------------ ----------
Capital Appreciation Fund $1,177,945 $1,225,952 $ 772,835 $3,828,300
Common Stock Fund 70,811 77,871 156,026 277,909
Convertible Fund 265,612 578,954 493,959 722,421
Diversified Income Fund 5,195 3,861 1,939 836
Equity Index Fund 32,616 38,677 85,055 75,934
Global High Income Fund 1,359 1,506 N/A 1,373
Government Fund N/A N/A N/A N/A
High Yield Corporate Bond Fund 436,080 574,231 258,318 599,394
International Equity Fund 835,174 498,427 376,394 492,890
Large Cap Growth Fund* 333,144 N/A N/A N/A
MAP Fund 1,980,487 1,651,338 1,249,348 744,195
Mid Cap Growth Fund 130,565 124,777 86,313 169,397
Mid Cap Value Fund 781,323 307,142 265,062 544,735
Money Market Fund N/A N/A N/A N/A
Small Cap Growth Fund 437,713 655,372 532,842 941,603
Small Cap Value Fund 636,267 338,084 200,432 240,340
Tax Free Bond Fund N/A N/A N/A N/A
Total Return Fund 634,165 1,243,189 354,681 1,358,084
Value Fund 1,081,020 942,979 1,027,454 1,978,755
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* For the fiscal period from July 1, 2005 through October 31, 2005. Prior to that, the Fund had a fiscal year end of June 30, 2005. The Fund commenced operations on April 1, 2005. For the period from April 1, 2005 through June 30, 2005, brokerage commissions paid to entities not affiliated with the Fund, the Manager or the Distributor were: $13,763.
The following table shows the dollar amount of brokerage commissions paid to brokers that provided research services during the fiscal year ended October 31, 2005 and the dollar amount of the transactions involved.
TOTAL AMOUNT OF TRANSACTIONS
WHERE COMMISSIONS PAID TO BROKERS THAT TOTAL BROKERAGE COMMISSIONS PAID
PROVIDED RESEARCH SERVICES TO BROKERS THAT PROVIDED RESEARCH
-------------------------------------- ---------------------------------
Capital Appreciation Fund 212,460,852 283,335
Common Stock Fund 4,322,039 6,980
Convertible Fund 37,785,797 55,188
Diversified Income Fund 583,022 2,546
Equity Index Fund 2,482,436 2,641
Global High Income Fund N/A N/A
High Yield Corporate Bond Fund 18,383,598 41,480
International Equity Fund 6,220,744 14,323
Large Cap Growth Fund 13,754,448 17,349
MAP Fund 399,011,529 736,515
Mid Cap Growth Fund 26,615,283 31,221
Mid Cap Value Fund 77,767,797 171,145
Small Cap Growth Fund 73,210,552 105,041
Small Cap Value Fund 78,549,747 152,410
Total Return Fund 96,627,504 130,218
Value Fund 146,560,549 203,851
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As of October 31, 2005, the following Funds held securities of their regular brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their parent companies:
FUND BROKER-DEALER MARKET VALUE
---- ------------- ------------
MainStay Capital Appreciation Fund American Express Co. (common stock) $20,852,333
Credit Suisse First Boston Corp. (time deposit) $ 4,113,021
Deutsche Bank (time deposit) $ 4,700,595
UBS AG (time deposit) $ 4,700,595
UBS Finance Delaware LLC (commercial paper) $ 7,065,000
MainStay Common Stock Fund AG Edwards, Inc. $ 119,131
Charles Schwab Corp.(common stock) $ 227,924
Citigroup, Inc. (common stock) $ 2,347,278
Credit Suisse First Boston LLC (time deposit) $ 378,301
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FUND BROKER-DEALER MARKET VALUE
---- ------------- ------------
Deutsche Bank (time deposit) $ 432,344
Goldman Sachs Group, Inc. (common stock) $ 242,125
JPMorgan Chase & Co. (common stock) $ 800,953
Lehman Brothers Holdings, Inc.(common stock) $ 232,519
Merrill Lynch & Co., Inc. (common stock) $ 832,103
Morgan Stanley (common stock) $ 947,985
State Street Corp. (common stock) $ 295,039
UBS AG (time deposit) $ 432,344
Wachovia Corp. (common stock) $ 103,768
MainStay Convertible Fund American Express Co. (convertible bonds) $10,788,662
Citigroup, Inc. (common stock) $ 4,013,533
Credit Suisse First Boston, Inc. (convertible
bonds) $ 5,742,000
Credit Suisse First Boston, Inc. (time deposits) $ 2,921,647
Deutsche Bank (time deposit) $ 3,339,025
Merrill Lynch & Co., Inc. (convertible bonds) $ 7,999,125
Merrill Lynch Funds (investment companies) $ 2,925,257
State Street Corp. (convertible preferred stocks) $ 3,172,000
UBS AG (time deposit) $ 3,339,025
UBS Finance Delaware LLC (commercial paper) $ 7,480,000
MainStay Diversified Income Fund American Express Credit Corp.(common stock) $ 8,780,971
Bank of America Commercial mortgage (mortgage
backed securities) $ 56,782
Bank of America Commercial mortgage (mortgage
backed securities) $ 292,779
Bear Stearns Cos., Inc. (The) (corporate bond) $ 225,904
Citigroup, Inc. (corporate bond) $ 259,087
Citigroup Commercial Mortgage Trust (mortgage
backed securities) $ 211,708
Citigroup/Deutsche Bank (mortgage backed
securities) $ 440,114
Credit Suisse First Boston LLC (time deposit) $ 6,905,813
Deutsche Bank (time deposit) $ 195,835
Goldman Sachs Group, Inc. (corporate bond) $ 223,130
Goldman Sachs Group, Inc. (corporate bond) $ 95,263
Goldman Sachs Group, Inc. (commercial paper) $ 1,097,566
JPMorgan Chase Capital XVII (corporate bond) $ 94,422
LB-UBS Commercial MortgageTrust (mortgage backed
securities) $ 403,083
LB-UBS Commercial MortgageTrust (mortgage backed
securities) $ 246,153
LB-UBS Commercial MortgageTrust (mortgage backed
securities) $ 233,752
Merrill Lynch Mortgage Trust (mortgage backed
securities) $ 221,239
Merrill Lynch Mortgage Trust (mortgage backed
securities) $ 537,859
Merrill Lynch & Co., Inc. (commercial paper) $ 1,298,197
Morgan Stanley Capital I (mortgage backed
securities) $ 157,725
Morgan Stanley (corporate bond) $ 257,470
Morgan Stanley (commercial paper) $ 959,384
Morgan Stanley & Co., Inc. (corporate bond) $ 703,508
UBS AG (time deposit) $ 195,835
UBS Finance Delaware LLC (commercial paper) $ 835,000
Wachovia Bank Commercial Mortgage Trust
(mortgage backed sec.) $ 84,981
Wachovia Corp. (corporate bonds) $ 103,707
MainStay Equity Index Fund Bank of America Corp. (common stock) $ 8,587,081
Bear Stearns Cos., Inc. (The) (common stock) $ 575,764
Charles Schwab Corp.(common stock) $ 771,886
Citigroup, Inc. (common stock) $11,567,004
Credit Suisse First Boston Corp. (time deposit) $ 1,661,830
Deutsche Bank (time deposit) $ 1,899,235
Goldman Sachs Group, Inc. (common stock) $ 2,861,396
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FUND BROKER-DEALER MARKET VALUE
---- ------------- ------------
JPMorgan Chase & Co. (common stock) $ 6,287,544
Lehman Brothers Holdings, Inc.(common stock) $ 1,595,680
Merrill Lynch & Co., Inc. (common stock) $ 2,942,821
State Street Corp. (common stock) $ 885,613
UBS AG (time deposit) $ 1,899,235
Wachovia Corp. (common stock) $ 3,889,232
MainStay Global High Income Fund Credit Suisse First Boston USA, Inc.
(time deposit) $ 44,630
Deutsche Bank (time deposit) $ 51,006
Merrill Lynch & Co., Inc. (commercial paper) $ 529,265
Merrill Lynch & Co., Inc. (commercial paper) $ 1,084,644
UBS AG (time deposit) $ 51,006
UBS Finance Delaware LLC (commercial paper) $ 7,720,000
MainStay Government Fund Bank of America Commercial Mortgage (mortgage
backed securities) $ 2,044,492
Citigroup Commercial Mortgage Trust (mortgage
backed securities) $ 2,912,334
Credit Suisse First Boston Corp. (time deposit) $ 240,065
Deutsche Bank (time deposit) $ 274,360
UBS AG (time deposit) $ 274,360
MainStay High Yield Corporate Credit Suisse First Boston Corp. (time deposit) $11,207,745
Bond Fund Goldman Sachs Group, Inc. (commercial paper) $18,444,128
Deutsche Bank (time deposit) $12,808,851
Merrill Lynch & Co., Inc. (commercial paper) $24,991,792
Merrill Lynch Funds (investment companies) $81,864,065
Morgan Stanley (commercial paper) $39,974,333
UBS AG (time deposit) $12,808,851
UBS Finance Delaware LLC (commercial paper) $29,280,000
UBS Finance Delaware LLC (commercial paper) $ 683,762
MainStay International Equity Fund Credit Suisse First Boston Corp. (time deposit) $ 1,306
Merrill Lynch & Co., Inc. (commercial paper) $ 2,995,840
UBS AG (time deposit) $ 1,493,331
MainStay Large Cap Growth Fund Credit Suisse First Boston (time deposit) $ 592,772
Deutsche Bank (time deposit) $ 677,454
Goldman Sachs Group, Inc. (common stock) $ 8,795,352
Merrill Lynch & Co., Inc. (common stock) $ 3,405,324
UBS AG (time deposit) $ 677,454
MainStay MAP Fund American Express Credit Corp. (commercial paper) $13,787,000
Citigroup, Inc. (common stock) $11,733,414
Charles Schwab Corp.(common stock) $12,603,840
Credit Suisse First Boston (time deposit) $ 5,184,317
Deutsche Bank (time deposit) $ 5,924,933
Jeffries Group, Inc.(common stock) $ 2,921,248
JPMorgan Chase & Co. (common stock) $ 9,721,878
Merrill Lynch & Co., Inc. (common stock) $10,267,764
Morgan Stanley (common stock) $17,487,374
State Street Corp. (common stock) $ 4,042,836
UBS AG (time deposit) $ 5,924,933
Wachovia Corp. (common stock) $ 4,001,184
MainStay MidCap Growth Fund Credit Suisse First Boston (time deposit) $ 838,443
Deutsche Bank (time deposit) $ 958,221
UBS AG (time deposit) $ 958,221
UBS Finance Delaware LLC (commercial paper) $ 1,940,000
MainStay MidCap Value Fund Credit Suisse First Boston (time deposit) $ 953,157
Deutsche Bank (time deposit) $ 1,089,322
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FUND BROKER-DEALER MARKET VALUE
---- ------------- ------------
Goldman Sachs Group, Inc. (commercial paper) $ 2,608,608
Merrill Lynch & Co., Inc. (commercial paper) $ 4,853,259
UBS Finance Delaware LLC (commercial paper) $ 5,890,000
UBS AG (time deposit) $ 1,089,322
MainStay Money Market Fund American Express Credit Corp.(medium term note) $ 6,000,000
American Express Credit Corp.(medium term note) $ 4,807,256
Bank of America Corp. (corporate bond) $ 5,112,898
Citigroup, Inc. (corporate bond) $ 5,004,102
Citigroup, Inc. (corporate bond) $ 4,502,920
Deutsche Bank (certificate of deposit) $ 4,999,848
Goldman Sachs Group, Inc. (commercial paper) $ 4,999,542
Goldman Sachs Group, Inc. (commercial paper) $ 4,990,054
Merrill Lynch & Co., Inc. (medium term note) $ 4,505,572
Merrill Lynch & Co., Inc. (medium term note) $ 5,009,931
Morgan Stanley Group (medium term note) $ 5,005,888
Morgan Stanley Dean Witter (commercial paper) $ 4,946,873
Morgan Stanley Dean Witter (commercial paper) $ 1,989,387
Prudential Funding LLC (commercial paper) $ 4,723,420
Prudential Funding LLC (commercial paper) $ 4,977,279
UBS Finance Delaware LLC (commercial paper) $ 4,996,967
UBS Finance Delaware LLC (commercial paper) $ 4,980,113
Wachovia Corp. (corporate bond) $ 5,021,057
MainStay Small Cap Growth Fund Credit Suisse First Boston (time deposit) $ 1,559,708
Deutsche Bank (time deposit) $ 1,782,523
Jeffries Group, Inc.(common stock) $ 3,341,602
UBS AG (time deposit) $ 1,782,523
UBS Finance Delaware LLC (commercial paper) $ 1,330,000
MainStay Small Cap Value Fund Credit Suisse First Boston (time deposit) $ 453,329
Deutsche Bank (time deposit) $ 518,091
UBS AG (time deposit) $ 518,091
MainStay Total Return Fund American Express Co. (common stock) $ 4,215,519
Citigroup, Inc. (common stock) $12,607,812
Bank of America Corp. (common stock) $ 9,224,941
Bank of America Commercial Mortgage (mortgage
backed securities) $ 305,915
Bank of America Commercial Mortgage (mortgage
backed securities) $ 1,166,155
Bear Stearns Cos., Inc. (The) (corporate bond) $ 1,060,766
Citigroup Commercial Mortgage Trust (mortgage
backed securities) $ 1,068,162
Citigroup/Deutsche Bank (mortgage backed
securities) $ 890,231
Citigroup, Inc. (corporate bond) $ 1,091,907
Credit Suisse First Boston (time deposit) $ 1,536,980
Deutsche Bank (time deposit) $ 1,756,548
Goldman Sachs Group, Inc. (commercial paper) $ 1,895,799
Goldman Sachs Group, Inc. (common stock) $ 3,993,292
Goldman Sachs Group, Inc. (convertible preferred) $ 3,001,950
Goldman Sachs Group, Inc. (corporate bond) $ 40,111
Goldman Sachs Group, L.P. (corporate bond) $ 1,536,458
JPMorgan Chase & Co. (common stock) $ 4,890,381
LB-UBS Commercial Mortgage Trust (mortgage
backed securities) $ 1,474,809
LB-UBS Commercial Mortgage Trust (mortgage
backed securities) $ 1,329,241
LB-UBS Commercial Mortgage Trust (mortgage
backed securities) $ 920,088
Merrill Lynch & Co., Inc. (commercial paper) $ 4,468,795
Merrill Lynch & Co., Inc. (common stock) $ 4,933,188
Merrill Lynch Mortgage Trust (mortgage backed
securities) $ 1,197,059
|
FUND BROKER-DEALER MARKET VALUE
---- ------------- ------------
Merrill Lynch Mortgage Trust (mortgage backed
securities) $ 2,170,818
Morgan Stanley Capital I (mortgage backed
securities) $ 837,157
Morgan Stanley (commercial paper) $ 5,636,381
Morgan Stanley (common stock) $ 2,377,717
Morgan Stanley (corporate bond) $ 718,973
State Street Corp. (common stock) $ 5,059,068
UBS AG (time deposit) $ 1,756,548
UBS Finance Delaware LLC (commercial paper) $10,000,000
Wachovia Bank Commercial Mortgage Trust
(mortgage backed sec.) $ 467,397
Wachovia Corp. (common stock) $ 4,662,996
MainStay Value Fund Bank of America Corp. (common stock) $22,343,529
Citigroup, Inc. (common stock) $30,524,548
Credit Suisse First Boston (time deposit) $ 1,836,035
Deutsche Bank (time deposit) $ 2,098,326
Goldman Sachs Group, Inc. (commercial paper) $ 6,858,196
Goldman Sachs Group, Inc. (common stock) $ 9,692,579
JPMorgan Chase & Co. (common stock) $13,867,701
Merrill Lynch & Co., Inc. (commercial paper) $ 4,996,067
Merrill Lynch & Co., Inc. (commercial paper) $ 8,147,324
Merrill Lynch & Co., Inc. (common stock) $13,116,324
Morgan Stanley (common stock) $ 7,916,655
State Street Corp. (common stock) $12,553,779
UBS AG (time deposit) $ 2,098,326
UBS Finance Delaware LLC (commercial paper) $ 7,280,000
Wachovia Corp. (common stock) $11,377,104
|
A Fund's portfolio turnover rate is calculated by dividing the lesser of sales or purchases of portfolio securities by the average monthly value of the Fund's portfolio securities. For purposes of this calculation, portfolio securities will exclude purchases and sales of debt securities having a maturity at the date of purchase of one year or less.
The turnover rate for a Fund will vary from year-to-year and depending on market conditions, turnover could be greater in periods of unusual market movement and volatility. A higher turnover rate generally would result in greater brokerage commissions, particularly in the case of equity oriented Funds, or other transactional expenses that must be borne, directly or indirectly, by the Fund and, ultimately, by the Fund's shareholders. High portfolio turnover may result in increased brokerage commissions and in the realization of a substantial increase in net short-term capital gains by the Fund that, when distributed to non-tax exempt shareholders, will be treated as dividends (ordinary income).
NET ASSET VALUE
The Trust determines the NAV per share of each class of each Fund on each day the New York Stock Exchange ("NYSE") is open for trading. NAV per share is calculated as of the close of the first session of the NYSE (usually 4:00 pm, New York time) for each class of shares of each Fund, by dividing the current market value (amortized cost, in the case of the Money Market Fund) of the total assets less liabilities attributable to that class, by the total number of shares of that class of the Fund that are issued and outstanding.
HOW PORTFOLIO SECURITIES ARE VALUED
Portfolio securities of the Money Market Fund are valued at their amortized cost (in accordance with the Trust's Rule 2a-7 Procedures adopted to implement the requirements of Rule 2a-7 under the 1940 Act), which does not take into account unrealized securities gains or losses. This method involves initially valuing an instrument at its cost and thereafter assuming a constant amortization to maturity of any premium paid or discount received. While this method provides certainty in valuation, it may result in periods during which value, as determined by amortized cost, is higher or lower than the price the Fund would receive if it sold the instrument. During such periods, the yield to an investor in the Fund may differ somewhat than that obtained in a similar investment company that uses available market quotations to value all of its portfolio securities. During periods of declining interest rates, the
quoted yield on shares of the Money Market Fund may tend to be higher than a computation made by a fund with identical investments utilizing a method of valuation based upon prevailing market prices and estimates of such market prices for all of its portfolio instruments. Thus, if the use of amortized costs by the Money Market Fund resulted in a lower aggregate portfolio value on a particular day, a prospective investor in the Fund would be able to obtain a somewhat higher yield if he or she purchased shares of the Fund on that day, than would result from investing in a fund utilizing solely market values, and existing shareholders in the Fund would receive less investment income. The converse would apply in a period of rising interest rates.
Portfolio securities of each of the other Funds are valued:
(a) by appraising common and preferred stocks that are traded on the NYSE or other exchanges and the National Association of Securities Dealers National Market System ("NMS") at the last sale price of the exchange on that day or, if no sale occurs on such exchange, at the last quoted sale price up to the time of valuation on any other national securities exchange; if no sale occurs on that day, the stock shall be valued at the mean between the closing bid price and asked price on the NYSE (NOTE: excessive spreads or infrequent trading may indicate a lack of readily available market quotations that may then be "fair valued" in accordance with fair valuation policies established by the Board);
(b) by appraising over-the-counter common and preferred stocks quoted on the National Association of Securities Dealers NASDAQ system (but not listed on the NMS) at the NASDAQ Official Closing Price ("NOCP") supplied through such system;
(c) by appraising over-the-counter and foreign traded common and preferred stocks not quoted on the NASDAQ system and foreign securities traded on certain foreign exchanges whose operations are similar to the U.S. over-the-counter market at prices supplied by a recognized pricing agent selected by a Fund's Manager or Subadvisor, or if the prices are deemed by the Manager or the Subadvisor not to be representative of market values, the security is to be "fair valued" in accordance with fair valuation policies established by the Board;
(d) by appraising debt securities and all other liquid securities and other liquid assets at prices supplied by a pricing agent or broker-dealer, selected by the Manager, in consultation with a Fund's Subadvisor, if any, approved by the Valuation Sub-Committee and ratified by the Valuation Committee if those prices are deemed by a Fund's Manager or Subadvisor to be representative of market values at the close of the NYSE;
(e) by appraising exchange-traded options and futures contracts at the last posted settlement price on the market where any such option or futures contract is principally traded;
(f) by appraising forward foreign currency exchange contracts held by the Funds at their respective fair market values determined on the basis of the mean between the last current bid and asked prices based on dealer or exchange quotations; and
(g) securities that cannot be valued by the methods set forth above and all other assets, are valued in good faith at "fair value" in accordance with valuation policies established by the Board.
Portfolio securities traded on more than one U.S. national securities exchange or foreign exchange are valued at the last sale price on the business day as of which such value is being determined on the close of the exchange representing the principal market for such securities and should there be no sale price on that exchange, such securities should then be valued at the last sale price on any other exchange that the Manager may designate. If there were no sales on any exchange, the securities shall be valued at the mean between the closing bid price and asked price. Prior to the daily calculation of each Fund's NAV, the value of all assets and liabilities expressed in foreign currencies will be converted into U.S. dollar values at the foreign exchange bid rate of such currencies against U.S. dollars as determined by quotes supplied by the pricing agent. If such quotations are not available, the rate of exchange will be determined in accordance with fair valuation policies established by the Board. For financial accounting purposes, the Trust recognizes dividend income and other distributions on the ex-dividend date, except certain dividends from foreign securities that are recognized as soon as the Trust is informed on or after the ex-dividend date.
A significant event occurring after the close of trading but before the calculation of the Fund's NAV may mean that the closing price for a security may not constitute a readily available market quotation and accordingly require that the security be priced at its fair value in accordance with the fair valuation procedures established by the Board. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the NYSE generally will not be reflected in a Fund's calculation of its NAV. The Subadvisor, if any, and the Manager will continuously monitor for significant events that may call into question the
reliability of market quotations. Such events may include: situations relating to a single issue in a market sector; significant fluctuations in U.S. or foreign markets; natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. However, where the Manager, in consultation with the Subadvisor, if any, may, in its judgment, determine that an adjustment to a Fund's NAV should be made because intervening events have caused the Fund's NAV to be materially inaccurate, the Manager will seek to have the security "fair valued" in accordance with fair valuation procedures established by the Board.
Because the Guarantee regarding the Equity Index Fund is payable to shareholders directly (and not payable to the Equity Index Fund), and because it represents only a contingent liability of New York Life Inc. rather than an agreement to pay a definite amount on the Guarantee Date, the Board believes that the Guarantee should have no impact in determining the Equity Index Fund's NAV.
The proceeds received by each Fund for each issue or sale of its shares, and all net investment income, realized and unrealized gain and proceeds thereof, subject only to the rights of creditors, will be specifically allocated to such Fund and constitute the underlying assets of that Fund. The underlying assets of each Fund will be maintained on the books of account, and will be charged with the liabilities in respect to such Fund and with a share of the general liabilities of the Trust. Expenses with respect to any two or more Funds will be allocated in proportion to the NAVs of the respective Funds except where allocation of direct expenses can otherwise be fairly made in the judgment of the Manager or the Subadvisor.
To the extent that any newly organized fund or class of shares receives, on or before December 31, any seed capital, the NAV of such fund(s) or class(es) will be calculated as of December 31.
SHAREHOLDER INVESTMENT ACCOUNT
A Shareholder Investment Account is established for each investor in the Funds, under which a record of the shares of each Fund held is maintained by MainStay Investments. Whenever a transaction takes place in a Fund (other than the Money Market Fund), the shareholder will be mailed a confirmation showing the transaction. Shareholders will be sent a quarterly statement showing the status of the Account. In addition, shareholders of the Money Market Fund will be sent a monthly statement for each month in which a transaction occurs.
SHAREHOLDER TRANSACTIONS
MainStay Investments may accept requests in writing or telephonically from at least one of the owners of a Shareholder Investment Account for the following account transactions and/or maintenance:
- dividend and capital gain changes (including moving dividends between account registrations);
- address changes;
- certain Systematic Investment Plan and Systematic Withdrawal Plan changes (including increasing or decreasing amounts and plan termination);
- exchange requests between identical registrations; and
- redemptions less than $100,000 to the record address only.
In addition, MainStay Investments may accept requests from at least one of the owners of a Shareholder Investment Account through the Trust's internet website for account transactions and/or maintenance involving address changes, certain Systematic Investment Plan and Systematic Withdrawal Plan changes (including increasing or decreasing amounts and plan termination) and for redemptions by wire of amounts less than $250,000.
PURCHASE, REDEMPTION, EXCHANGES AND REPURCHASE
HOW TO PURCHASE SHARES OF THE FUNDS
GENERAL INFORMATION
Each class of shares of a Fund represents an interest in the same portfolio of investments of the Fund, has the same rights and are identical in all respects, except that, to the extent applicable, each class bears its own service and distribution expenses and may bear incremental transfer agency costs resulting from its sales arrangements. Class A, Class B, Class C, Class R2 and Class R3 shares of each Fund have exclusive voting rights with respect to provisions of the Rule 12b-1 plan for such class of a Fund pursuant to which its distribution and service fees are paid, and each class has similar exchange privileges. As compared to Class A shares, the net income attributable to Class B and Class C shares and the dividends payable on Class B and Class C shares will be reduced by the amount of the higher Rule 12b-1 fee and incremental expenses associated with such class. Likewise, the NAV of the Class B and Class C shares generally will be reduced by such class specific expenses (to the extent the Fund has undistributed net income) and investment performance of Class B and Class C shares will be lower than that of Class A shares. As compared to Class A shares, the Class R1 shares have lower on-going expenses than Class A shares and are not subject to a front-end sales charge. The investment performance of Class R1 shares will generally be higher than that of Class A shares. As compared to Class R1 shares, the Class R2 and Class R3 shares have higher class specific expenses, including a distribution and service fee payable pursuant to a Rule 12b-1 plan. As a result of the differences of these expenses between these classes, the investment performance of Class R3 shares will generally be lower than that of Class R2 shares, and the investment performance of Class R2 shares will generally be lower than that of Class R1 shares. Class I shares have the lowest on-going expenses and are not subject to an initial or contingent sales charge. Class I, Class R1, Class R2 and Class R3 shares of the Funds are available only to eligible investors, as set forth in the Prospectus and may be changed from time to time. For additional information on the features of Class A, Class B and Class C shares, see "Alternative Sales Arrangements." Financial intermediaries may not offer all share classes of a Fund. If the share class that is most economical for you, given your individual financial circumstances and goals, is not offered through your financial intermediary and you are otherwise eligible to invest in that share class, you can open an account and invest directly with the Fund by submitting an application form to MainStay Investments.
The Funds' Class B share conversion feature provides that Class B shares will convert to Class A shares at the end of the calendar quarter eight years after purchase.
If a shareholder purchases Class B shares of a Fund on more than one date and holds Class B shares of the Fund long enough for the Class B shares to convert, the shareholder may hold both Class A shares of the Fund (acquired as a result of conversion) and Class B shares of the Fund (those that have not been held for the full holding period). If a partial conversion of a shareholder's Class B shares to Class A shares of a Fund results in a shareholder holding Class B shares of that Fund with an aggregate value of $499.99 or less, the Fund will automatically convert the remaining Class B shares to Class A shares. Shareholders will not be charged a contingent deferred sales charge in connection with such conversion of the Class B shares prior to the completion of the full holding period.
BY MAIL
Initial purchases of shares of the Funds should be made by mailing the completed application form to the investor's registered representative. Shares of any Fund, except the Money Market Fund, may be purchased at the NAV per share next determined after receipt in good order of the purchase order by that Fund plus any applicable sales charge. In the case of the Money Market Fund (which seeks to maintain a constant NAV of $1.00 per share), the share purchase is effected at the NAV next determined after receipt in good order of the purchase order by Boston Financial Data Services, Inc., the sub-transfer agent for the Funds.
BY TELEPHONE
For all Funds, other than the Money Market Fund, an investor may make an initial investment in the Funds by having his or her registered representative telephone MainStay Investments between 8:00 am and 6:00 pm, eastern time, on any day the NYSE is open. The purchase will be effected at the NAV per share next determined following receipt of the telephone order as described above plus any applicable sales charge. An application and payment must be received in good order by MainStay Investments within three business days. All telephone calls are recorded to protect shareholders and MainStay Investments. For a description of certain
limitations on the liability of the Funds and MainStay Investments for transactions effected by telephone, see "Buying and Selling MainStay Shares" in the Prospectus.
BY WIRE
An investor may open an account and invest by wire by having his or her registered representative telephone MainStay Investments between 8:00 am and 6:00 pm, eastern time, to obtain an account number and instructions. For both initial and subsequent investments, federal funds should be wired to:
STATE STREET BANK AND TRUST COMPANY
ABA NO. 011-0000-28
ATTN: CUSTODY AND SHAREHOLDER SERVICES
FOR CREDIT: MAINSTAY ________________ FUND-CLASS______
SHAREHOLDER NAME _______________________________
SHAREHOLDER ACCOUNT NO. _____________________________
DDA ACCOUNT NUMBER 99029415
AN APPLICATION MUST BE RECEIVED BY MAINSTAY INVESTMENTS WITHIN THREE BUSINESS DAYS.
The investor's bank may charge the investor a fee for the wire. To make a purchase effective the same day, the registered representative must call MainStay Investments by 12:00 noon eastern time, and federal funds must be received by MainStay Investments before 4:00 pm eastern time.
Wiring money to the Funds will reduce the time a shareholder must wait before redeeming or exchanging shares, because when a shareholder purchases by check or by Automated Clearing House ("ACH") payment, the Trust may withhold payment for up to 10 days from the date the check or ACH purchase is received.
ADDITIONAL INVESTMENTS
Additional investments in a Fund may be made at any time by mailing a check payable to The MainStay Funds, P.O. Box 8401, Boston, Massachusetts 02266-8401. The shareholder's account number and the name of the Fund and class of shares must be included with each investment. Purchases will be effected at the NAV per share plus any applicable sales charge as described above.
The Trust's officers may waive the initial and subsequent investment minimums for certain purchases when they deem it appropriate, including, but not limited to, purchases through certain qualified retirement plans; purchases by the Trustees; New York Life and its subsidiaries and their employees, officers, directors, agents or former employees (and immediate family members); through financial services firms that have entered into an agreement with the Funds or the Distributor; New York Life employee and agent investment plans; investments resulting from distributions by other New York Life products and NYLIFE Distributors LLC products; and purchases by certain individual participants.
SYSTEMATIC INVESTMENT PLANS
Investors whose bank is a member of the ACH may purchase shares of a Fund through AutoInvest. AutoInvest facilitates investments by using electronic debits, authorized by the shareholder, to a checking or savings account, for share purchases. When the authorization is accepted (usually within two weeks of receipt) a shareholder may purchase shares by calling MainStay Investments, toll free at 1-800-MAINSTAY (1-800-624-6782) (between 8:00 am and 4:00 pm, eastern time). The investment will be effected at the NAV per share next determined after receipt in good order of the order, plus any applicable sales charge, and normally will be credited to the shareholder's Fund account within two business days thereafter. Shareholders whose bank is an ACH member also may use AutoInvest to automatically purchase shares of a Fund on a scheduled basis by electronic debit from an account designated by the shareholder on an application form. The initial investment must be in accordance with the investment amounts previously mentioned. Subsequent minimum investments are $50 monthly, $100 quarterly, $250 semiannually, or $500 annually. The investment day may be any day from the first through the twenty-eighth of the respective month. Redemption proceeds from Fund shares purchased by AutoInvest may not be paid until 10 days or more after the purchase date. Fund shares may not be redeemed by AutoInvest.
PURCHASES IN KIND
Investors, including certain clients of the Manager and the Subadvisors, may, subject to the approval of the Trust, the Distributor, the Manager and the Subadvisors, if applicable, purchase shares of a Fund with liquid securities that are eligible for purchase by that Fund and that have a value that is readily ascertainable (and not established only by valuation procedures) as evidenced by a listing on a bona fide domestic or foreign exchange and that would be eligible for purchase by the Fund (consistent with such Fund's investment policies and restrictions). These transactions will be effected only if the Manager or Subadvisor intends to retain the security in the Fund as an investment. The Trust reserves the right to amend or terminate this practice at any time. Assets so purchased by a Fund will be valued in generally the same manner as they would be valued for purposes of pricing the Fund's shares, IF SUCH ASSETS WERE INCLUDED IN THE Fund's assets at the time of the purchase. An investor must call MainStay at 1-800-MAINSTAY (1-800-624-6782) before sending any securities. The Funds reserve the right to amend or terminate this practice at any time.
ALTERNATIVE SALES ARRANGEMENTS
INITIAL SALES CHARGE ALTERNATIVE CLASS A SHARES
The sales charge on Class A shares of the Funds is a variable percentage of the public offering price depending upon the investment orientation of the Fund and the amount of the sale. There is no sales charge on purchases of shares in the Money Market Fund.
The sales charge applicable to an investment in Class A shares of the Capital Appreciation Fund, Common Stock Fund, Convertible Fund, International Equity Fund, Large Cap Growth Fund, MAP Fund, Mid Cap Growth Fund, Mid Cap Value Fund, Small Cap Growth Fund, Small Cap Value Fund, Total Return Fund, and Value Fund will be determined according to the following table:
SALES CHARGE AS A SALES CHARGE AS A
PERCENTAGE OF: PERCENTAGE OF OFFERING PRICE:
------------------- -----------------------------
NET RETAINED
OFFERING AMOUNT RETAINED BY THE
AMOUNT OF PURCHASE PRICE INVESTED BY DEALER DISTRIBUTOR
------------------ -------- -------- --------- -----------
Less than $50,000 5.50% 5.82% 4.75% 0.75%
$50,000 to $99,999 4.50% 4.71% 4.00% 0.50%
$100,000 to $249,999 3.50% 3.63% 3.00% 0.50%
$250,000 to $499,999 2.50% 2.56% 2.00% 0.50%
$500,000 to $999,999 2.00% 2.04% 1.75% 0.25%
$1,000,000 or more* None None See Below* None
|
The sales charge applicable to an investment in Class A shares of the Diversified Income Fund, Global High Income Fund, Government Fund, High Yield Corporate Bond Fund, and Tax Free Bond Fund will be determined according to the following table:
SALES CHARGE AS A SALES CHARGE AS A
PERCENTAGE OF: PERCENTAGE OF OFFERING PRICE:
------------------- -----------------------------
NET RETAINED
OFFERING AMOUNT RETAINED BY THE
AMOUNT OF PURCHASE PRICE INVESTED BY DEALER DISTRIBUTOR
------------------ -------- -------- --------- -----------
Less than $100,000 4.50% 4.71% 4.00% 0.50%
$100,000 to $249,999 3.50% 3.63% 3.00% 0.50%
$250,000 to $499,999 2.50% 2.56% 2.00% 0.50%
$500,000 to $999,999 2.00% 2.04% 1.75% 0.25%
$1,000,000 or more* None None See Below* None
|
The sales charge for Class A Shares of the Equity Index Fund will be determined according to the following table:
SALES CHARGE AS A SALES CHARGE AS A
PERCENTAGE OF: PERCENTAGE OF OFFERING PRICE:
------------------- -----------------------------
NET RETAINED
OFFERING AMOUNT RETAINED BY THE
AMOUNT OF PURCHASE PRICE INVESTED BY DEALER DISTRIBUTOR
------------------ -------- -------- --------- -----------
Less than $100,000 3.00% 3.09% 2.75% 0.25%
$100,000 to $249,999 2.50% 2.56% 2.25% 0.25%
$250,000 to $499,999 2.00% 2.04% 1.75% 0.25%
$500,000 to $999,999 1.50% 1.52% 1.25% 0.25%
$1,000,000 or more* None None See Below* None
|
* No sales charge applies on investments of $1 million or more, but a contingent deferred sales charge of 1% may be imposed on certain redemptions of such shares within one year of the date of purchase. See "Reduced Sales Charges on Class A Shares -- Contingent Deferred Sales Charge, Class A."
Although an investor will not pay an initial sales charge on investments of $1,000,000 or more, the Distributor may pay, from its own resources, a commission to dealers on such investments. See "Purchases at Net Asset Value" below for more information.
The Distributor may allow the full sales charge to be retained by dealers. The amount retained may be changed from time to time. The Distributor, at its expense, also may from time to time provide additional promotional incentives to dealers who sell Fund shares. A selected dealer who receives a reallowance in excess of 90% of such a sales charge may be deemed to be an "underwriter" under the 1933 Act.
Set forth below is an example of the method of computing the offering price of Class A shares of the Equity Index Fund. The example assumes a purchase of Class A shares of the Fund aggregating less than $100,000 subject to the schedule of sales charges set forth above at a price based upon the NAV of Class A shares of the Fund on October 31, 2005.
NAV per Class A Share at October 31, 2005 $41.13 Per Share Sales Charge - 3.00% of offering price (3.09% of NAV per share) $ 1.27 Class A Per Share Offering Price to the Public $42.40 |
The sales charge applicable to an investment in Class A shares of the Diversified Income Fund, Global High Income Fund, Government Fund, High Yield Corporate Bond Fund, and Tax Free Bond Fund will be 4.50% of the offering price per share (4.71% of the NAV per share). Set forth below is an example of the method of computing the offering price of the Class A shares of these Funds. The example assumes a purchase of Class A shares of the High Yield Corporate Bond Fund aggregating less than $100,000 at a price based upon the NAV of Class A shares of the High Yield Corporate Bond Fund on October 31, 2005. The offering price of shares of each of the other listed Funds can be calculated using the same method.
NAV per Class A Share at October 31, 2005 $6.22 Per Share Sales Charge - 4.50% of offering price (4.71% of NAV per share) $0.29 Class A Per Share Offering Price to the Public $6.51 |
The sales charge applicable to an investment in Class A shares of the Capital Appreciation Fund, Common Stock Fund, Convertible Fund, International Equity Fund, MAP Fund, Mid Cap Growth Fund, Mid Cap Value Fund, Small Cap Value Fund, Total Return Fund, and Value Fund will be 5.50% of the offering price per share (5.82% of NAV per share). Set forth below is an example of the method of computing the offering price of the Class A shares of the Funds. The example assumes a purchase of Class A shares of the Capital Appreciation Fund aggregating less than $50,000 at a price based upon the NAV of Class A shares of the Capital Appreciation Fund on October 31, 2005. The offering price of the Class A shares of each of the other listed Funds can be calculated using the same method.
NAV per Class A Share at October 31, 2005 $30.08 Per Share Sales Charge - 5.50% of offering price (5.82% of NAV per share) $ 1.75 Class A Per Share Offering Price to the Public $31.83 |
PURCHASES AT NET ASSET VALUE
Purchases of Class A shares in an amount equal to $1 million or more will not be subject to an initial sales charge, but may be subject to a contingent deferred sales charge of 1% on shares redeemed within one year of the date of purchase. See "Reduced Sales Charges on Class A Shares-Contingent Deferred Sales Charge, Class A."
A Fund's Class A shares may be purchased at NAV, without payment of any sales charge, by its Trustees; New York Life and its subsidiaries and their employees, officers, directors, or agents or former employees (and immediate family members); employees (and immediate family members) of Markston, Jennison and Winslow Capital Management Inc.; respectively. Also, any employee or registered representative of an authorized broker-dealer (and immediate family members) and any employee of Boston Financial Data Services that is assigned to the Fund may purchase a Fund's shares at NAV without payment of any sales charge. Class A shares of the Funds are sold at NAV to the CollegeSense 529 Plan.
In addition, Class A share purchases of Funds in an amount less than $1,000,000 by defined contribution plans, other than 403(b) plans, that are sponsored by employers with 50 or more employees are treated as if such purchases were equal to an amount more than
$1,000,000 but less than $2,999,999. Such purchases by defined contribution plans may be subject to a contingent deferred sales charge of 1% on shares redeemed within one year of the date of purchase. See "Reduced Sales Charges on Class A Shares-Contingent Deferred Sales Charge, Class A."
Class A shares of the Funds also may be purchased at NAV, without payment of any sales charge, by shareholders who owned Service Class shares of a series of the Eclipse Funds or Eclipse Funds Inc., each an open-end investment company registered with the SEC under the 1940 Act, as of December 31, 2003 or if purchased through financial services firms such as broker-dealers, investment advisers and other financial institutions that have entered into an agreement with the Funds or the Distributor that provides for the sale and/or servicing of Fund shares in respect of beneficial owners that are clients of the financial services firms or intermediaries contracting with such firms. Sales and/or servicing agreements with third parties also have been established on behalf of Class B and Class C shares. The Funds, the Distributor, MainStay Investments or affiliates may pay fees to such firms and/or intermediaries in connection with these arrangements on behalf of Class A, B and/or C shares.
Class I shares of the Funds are sold at NAV. Class I shares may be purchased by (i) existing Class I shareholders, (ii) individuals investing at least $5 million in a Fund, and (iii) institutional investors. For purposes of Class I share eligibility, the term "institutional investors" includes, but is not limited to, (i) individuals purchasing through certain "wrap fee" or other programs sponsored by a financial intermediary firm (such as a broker-dealer, investment adviser or financial institution) with a contractual arrangement with NYLIFE Distributors LLC, (ii) individuals purchasing through certain registered investment advisory firms or related group of firms, which in the aggregate own, invest, or manage at least $100 million in securities of unaffiliated issuers, provided that the average individual investment in a Fund by such a firm's client accounts is at least $250,000, (iii) certain employer-sponsored, association or other group retirement or employee benefit plans or trusts having a service arrangement with NYLIM Retirement Plan Services, NYLIFE Distributors LLC, or their affiliates, (iv) certain financial institutions, endowments, foundations or corporations having a service arrangement with NYLIFE Distributors LLC or its affiliates, (v) certain investment advisers, dealers or registered investment companies (including the MainStay Asset Allocation Funds) purchasing for their own account or for the account of other institutional investors.
Although an investor will not pay a sales charge on Class I shares or on Class A share investments of $1,000,000 or more, the Distributor may pay, from its own resources, a commission to dealers on such investments. The Distributor may pay up to 0.10% of the value of Class I shares of certain Funds, at the time of sale and/or annually on Class I shares held, to dealers with which the Distributor has a service arrangement. With respect to Class A share investments of $1,000,000 or more in certain Funds, other than the MainStay Money Market Fund, the dealer may receive a commission of up to 1.00% on the portion of a sale from $1,000,000 to $2,999,999, up to 0.50% of any portion from $3,000,000 to $4,999,999 and up to 0.40% on any portion of $5,000,000 or more. Commissions will be calculated on a calendar year basis. Such commissions will be paid only on those purchases that were not previously subject to a front-end sales charge and dealer concession.
REDUCED SALES CHARGES ON CLASS A SHARES
Under a right of accumulation, purchases of one or more Funds by a "Qualified Purchaser" will be aggregated for purposes of computing the sales charge. "Qualified Purchaser" includes (i) an individual and his/her spouse and their children under the age of 21; and (ii) any other organized group of persons, whether incorporated or not, which is itself a shareholder of the Fund, including group retirement and benefit plans (other than IRAs and non-ERISA 403(b) plans) whether incorporated or not, provided the organization has been in existence for at least six months and has some purpose other than the purchase at a discount of redeemable securities of a registered investment company.
LETTER OF INTENT (LOI)
Qualified Purchasers may obtain reduced sales charges by signing an LOI. The LOI is a nonbinding obligation on the Qualified Purchaser to purchase the full amount indicated in the LOI. The sales charge is based on the total amount to be invested during a 24-month period. A 90-day backdated period can be used to include earlier purchases, the 24-month period would then begin on the date of the first purchase during the 90-day period. For more information, call your registered representative or MainStay at 1-800-MAINSTAY (1-800-624-6782).
On the initial purchase, if required (or, on subsequent purchases if necessary), 5% of the dollar amount specified in the LOI will be held in escrow by MainStay Investments in shares registered in the shareholder's name in order to assure payment of the proper sales charge. If total purchases pursuant to the LOI (less any dispositions and exclusive of any distribution on such shares automatically reinvested) are less than the amount specified, MainStay Investments will notify the shareholder prior to the expiration of the LOI that
the total purchases toward the LOI were not met and will state the amount that needs to be invested in order to meet the dollar amount specified by the LOI. If not remitted within 20 days after the written request, MainStay Investments will process an LOI adjustment.
CONTINGENT DEFERRED SALES CHARGE, CLASS A
In order to recover commissions paid to dealers on qualified investments of $1 million or more, a contingent deferred sales charge of 1% may be imposed on redemptions of such investments made within one year of the date of purchase. Purchases of Class A shares at NAV through financial services firms or by certain persons that are affiliated with or have a relationship with New York Life or its affiliates (as described above) will not be subject to a contingent deferred sales charge.
Class A shares that are redeemed will not be subject to a contingent deferred sales charge to the extent that the value of such shares represents: (i) capital appreciation of Fund assets; (ii) reinvestment of dividends or capital gains distributions; or (iii) Class A shares redeemed more than one year after their purchase. The contingent deferred sales charge on subject Class A shares may be waived for: (i) withdrawals from qualified retirement plans and nonqualified deferred compensation plans resulting from separation of service, loans, hardship withdrawals, Qualified Domestic Relations Orders (QDROs) and required excess contribution returns pursuant to applicable IRS rules; and Required Minimum Distributions at age 70-1/2 for IRA and 403(b)(7) TSA participants; (ii) withdrawals related to the termination of a retirement plan where no successor plan has been established; (iii) transfers within a retirement plan where the proceeds of the redemption are invested in any guaranteed investment contract written by New York Life or any of its affiliates, transfers to products offered within a retirement plan which uses NYLIM Service Company LLC or an affiliate as the recordkeeper; as well as participant transfers or rollovers from a retirement plan to a MainStay IRA; (iv) required distributions by charitable trusts under Section 664 of the Code; (v) redemptions following the death of the shareholder or the beneficiary of a living revocable trust or within one year following the disability of a shareholder occurring subsequent to the purchase of shares; (vi) redemptions under the Systematic Withdrawal Plan used to pay scheduled monthly premiums on insurance policies issued by New York Life or an affiliate; (vii) continuing, periodic monthly or quarterly withdrawals within one year of the date of the initial purchase, under the Systematic Withdrawal Plan, up to an annual total of 10% of the value of a shareholder's Class A shares in a Fund; (viii) redemptions by New York Life or any of its affiliates or by accounts managed by New York Life or any of its affiliates; (ix) redemptions effected by registered investment companies by virtue of transactions with a Fund; (x) redemptions by shareholders of shares purchased with the proceeds of a settlement payment made in connection with the liquidation and dissolution of a limited partnership sponsored by New York Life or one of its affiliates; and (xi) continuing, periodic monthly or quarterly withdrawals, under the Systematic Withdrawal Plan for IRA and 403(b)(7) TSA participants for normal distributions based on their life expectancy. The contingent deferred sales charge may be waived on other sales or redemptions to promote goodwill and/or because the sales effort, if any, involved in making such sales is negligible. Class A shares of a Fund that are purchased without an initial front-end sales charge may be exchanged for Class A shares of another MainStay Fund without the imposition of a contingent deferred sales charge, although, upon redemption, contingent deferred sales charges may apply to the Class A shares that were acquired through an exchange if such shares are redeemed within one year of the date of the initial purchase.
The contingent deferred sales charge will be applicable to amounts invested pursuant to a right of accumulation or an LOI to the extent that (a) an initial front-end sales charge was not paid at the time of the purchase and (b) any shares so purchased are redeemed within one year of the date of purchase.
For federal income tax purposes, the amount of the contingent deferred sales charge generally will reduce the gain or increase the loss, as the case may be, recognized upon redemption.
CONTINGENT DEFERRED SALES CHARGE, CLASS B
A contingent deferred sales charge will be imposed on redemptions of Class B shares of the Funds, in accordance with the table below, at the time of any redemption by a shareholder that reduces the current value of the shareholder's Class B account in any Fund to an amount which is lower than the amount of all payments by the shareholder for the purchase of Class B shares in that Fund during the preceding six years. However, no such charge will be imposed to the extent that the aggregate NAV of the Class B shares redeemed does not exceed (1) the current aggregate NAV of Class B shares of that Fund purchased more than six years prior to the redemption, plus (2) the current aggregate NAV of Class B shares of that Fund purchased through reinvestment of dividends or distributions, plus (3) increases in the NAV of the investor's Class B shares of that Fund above the total amount of payments for the purchase of Class B shares of that Fund made during the preceding six years.
Proceeds from the contingent deferred sales charge are paid to, and are used in whole or in part by, the Distributor to defray its expenses of providing distribution related services to the Funds in connection with the sale of the Class B shares, such as the payment
of compensation to selected dealers and agents. The combination of the contingent deferred sales charge and the distribution fee facilitates the ability of the Fund to sell the Class B shares without a sales charge being deducted at the time of purchase.
The amount of the contingent deferred sales charge, if any, paid by a redeeming shareholder will vary depending on the number of years from the time of payment for the purchase of Class B shares of any Fund (other than the Money Market Fund) until the time of redemption of such shares. Solely for purposes of determining the number of years from the time of payment for the purchase of shares, all payments during a month will be aggregated and deemed to have been made on the first day of the month.
The following table sets forth the rates of the contingent deferred sales charge:
CONTINGENT DEFERRED SALES
YEAR SINCE PURCHASE CHARGE AS A PERCENTAGE OF AMOUNT
PAYMENT MADE REDEEMED SUBJECT TO THE CHARGE
------------------- --------------------------------
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Thereafter None
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In determining the rate of any applicable contingent deferred sales charge, it will be assumed that a redemption is made of shares held by the shareholder for the longest period of time. This will result in any such charge being imposed at the lowest possible rate.
The contingent deferred sales charge will be waived in connection with the
following redemptions: (i) withdrawals from qualified retirement plans and
nonqualified deferred compensation plans resulting from separation of service,
loans, hardship withdrawals, QDROs and required excess contribution returns
pursuant to applicable IRS rules; and Required Minimum Distributions at age
70-1/2 for IRA and 403(b)(7) TSA participants; (ii) withdrawals related to the
termination of a retirement plan where no successor plan has been established;
(iii) transfers within a retirement plan where the proceeds of the redemption
are invested in any guaranteed investment contract written by New York Life or
any of its affiliates, transfers to products offered within a retirement plan
which uses NYLIM Service Company LLC as the recordkeeper; as well as participant
transfers or rollovers from a retirement plan to a MainStay IRA; (iv) required
distributions by charitable trusts under Section 664 of the Internal Revenue
Code; (v) redemptions following the death of the shareholder or the beneficiary
of a living revocable trust or within one year following the disability of a
shareholder occurring subsequent to the purchase of shares; (vi) redemptions
under the Systematic Withdrawal Plan used to pay scheduled monthly premiums on
insurance policies issued by New York Life or an affiliate; (vii) continuing,
periodic monthly or quarterly withdrawals, under the Systematic Withdrawal Plan,
up to an annual total of 10% of the value of a shareholder's Class B shares in a
Fund; (viii) redemptions by New York Life or any of its affiliates or by
accounts managed by New York Life or any of its affiliates; (ix) redemptions
effected by registered investment companies by virtue of transactions with a
Fund; (x) redemptions by shareholders of shares purchased with the proceeds of a
settlement payment made in connection with the liquidation and dissolution of a
limited partnership sponsored by New York Life or one of its affiliates; and
(xi) continuing, periodic monthly or quarterly withdrawals, under the Systematic
Withdrawal Plan for IRA and 403(b)(7) TSA participants for normal distributions
based on their life expectancy.. The contingent deferred sales charge is waived
on such sales or redemptions to promote goodwill and because the sales effort,
if any, involved in making such sales is negligible.
ADDITIONAL CDSC WAIVERS APPLICABLE TO ACCOUNTS ESTABLISHED BEFORE JANUARY 1, 1998. In addition to the categories outlined above, the CDSC will be waived in connection with the following redemptions of Class B shares by accounts established before January 1, 1998: (1) withdrawals from IRS qualified and nonqualified retirement plans, individual retirement accounts, tax sheltered accounts, and deferred compensation plans, where such withdrawals are permitted under the terms of the plan or account (e.g., attainment of age 59-1/2, separation from service, death, disability, loans, hardships, withdrawals of required excess contribution returns pursuant to applicable IRS rules, withdrawals based on life expectancy under applicable IRS rules); (2) preretirement transfers or rollovers within a retirement plan where the proceeds of the redemption are invested in proprietary products offered or distributed by New York Life or its affiliates; (3) living revocable trusts on the death of the beneficiary; (4) redemptions made within one year following the death or disability or a shareholder; (5) redemptions by directors, Trustees, officers and employees (and immediate family members) of the Trust and of New York Life and its affiliates where no commissions have been paid; (6) redemptions by employees of any dealer that has a soliciting dealer agreement with the Distributor, and by any trust, pension, profit-sharing or benefit plan for the benefit of such persons where no commissions have been paid; (7) redemptions by tax-exempt employee benefit plans resulting from the adoption or promulgation of any law or regulation; (8) redemptions by any state, country or
city, or any instrumentality, department, authority or agency thereof and by trust companies and bank trust departments; and (9) transfers to other funding vehicles sponsored or distributed by New York Life or an affiliated company.
Shareholders should notify MainStay Investments, the Funds' transfer agent, at the time of requesting such redemptions that they are eligible for a waiver of the contingent deferred sales charge. Class B shares upon which the contingent deferred sales charge may be waived may not be resold, except to the Trust. Shareholders who are making withdrawals from retirement plans and accounts or other tax-sheltered or tax-deferred accounts should consult their tax advisors regarding the tax consequences of such withdrawals.
CONTINGENT DEFERRED SALES CHARGE, CLASS C
A contingent deferred sales charge of 1% of the NAV of Class C shares will be imposed on redemptions of Class C shares of the Funds at the time of any redemption by a shareholder that reduces the current value of the shareholder's Class C account in any Fund to an amount that is lower than the amount of all payments by the shareholder for the purchase of Class C shares in that Fund during the preceding one year.
Class C shares that are redeemed will not be subject to a contingent
deferred sales charge to the extent that the value of such shares represents:
(i) capital appreciation of Fund assets; (ii) reinvestment of dividends or
capital gains distributions; or (iii) Class C shares redeemed more than one year
after their purchase. The contingent deferred sales charge on subject Class C
shares may be waived for: (i) withdrawals from qualified retirement plans and
nonqualified deferred compensation plans resulting from separation of service,
loans, hardship withdrawals, QDROs and required excess contribution returns
pursuant to applicable IRS rules; and Required Minimum Distributions at age
70-1/2 for IRA and 403(b)(7) TSA participants; (ii) withdrawals related to the
termination of a retirement plan where no successor plan has been established;
(iii) transfers within a retirement plan where the proceeds of the redemption
are invested in any guaranteed investment contract written by New York Life or
any of its affiliates, transfers to products offered within a retirement plan
which uses NYLIM Service Company LLC or an affiliate as the recordkeeper; as
well as participant transfers or rollovers from a retirement plan to a MainStay
IRA; (iv) required distributions by charitable trusts under Section 664 of the
Code; (v) redemptions following the death of the shareholder or the beneficiary
of a living revocable trust or within one year following the disability of a
shareholder occurring subsequent to the purchase of shares; (vi) redemptions
under the Systematic Withdrawal Plan used to pay scheduled monthly premiums on
insurance policies issued by New York Life or an affiliate; (vii) continuing,
periodic monthly or quarterly withdrawals within one year of the date of the
initial purchase, under the Systematic Withdrawal Plan, up to an annual total of
10% of the value of a shareholder's Class C shares in a Fund; (viii) redemptions
by New York Life or any of its affiliates or by accounts managed by New York
Life or any of its affiliates; (ix) redemptions effected by registered
investment companies by virtue of transactions with a Fund; (x) redemptions by
shareholders of shares purchased with the proceeds of a settlement payment made
in connection with the liquidation and dissolution of a limited partnership
sponsored by New York Life or one of its affiliates; and (xi) continuing,
periodic monthly or quarterly withdrawals, under the Systematic Withdrawal Plan
for IRA and 403(b)(7) TSA participants for normal distributions based on their
life expectancy. The contingent deferred sales charge may be waived on other
sales or redemptions to promote goodwill and/or because the sales effort, if
any, involved in making such sales is negligible. Class C shares of a Fund may
be exchanged for Class C shares of another MainStay Fund without the imposition
of a contingent deferred sales charge, although, upon redemption, contingent
deferred sales charges may apply to the Class C shares that were acquired
through an exchange if such shares are redeemed within one year of the date of
the initial purchase.
Proceeds from the contingent deferred sales charge are paid to, and are used in whole or in part by, the Distributor to defray its expenses related to providing distribution related services to the Funds in connection with the sale of the Class C shares, such as the payment of compensation to selected dealers and agents. The combination of the contingent deferred sales charge and the distribution fee facilitates the ability of the Fund to sell the Class C shares without a sales charge being deducted at the time of purchase.
PURCHASES AND REDEMPTIONS
Shares may be redeemed directly from a Fund or through your registered representative. Shares redeemed will be valued at the NAV per share next determined after MainStay Investments receives the redemption request in "good order." "Good order" with respect to a redemption request generally means that for certificated shares, a stock power or certificate must be endorsed, and for uncertificated shares a letter must be signed, by the record owner(s) exactly as the shares are registered, and the signature(s) must be guaranteed by a Medallion Signature Guarantee. In cases where redemption is requested by a corporation, partnership, trust, fiduciary or any other person other than the record owner, written evidence of authority acceptable to MainStay Investments must be submitted before the redemption request will be accepted. The requirement for a signed letter may be waived on a redemption of $100,000 or less that is payable to the shareholder(s) of record and mailed to the address of record, or under such other circumstances as the Trust may allow. Send your written request to The MainStay Funds, P.O. Box 8401, Boston, Massachusetts 02266-8401.
Upon the redemption of shares the redeeming Fund will make payment in cash, except as described below, of the NAV of the shares next determined after such redemption request was received, less any applicable contingent deferred sales charge.
In times when the volume of telephone redemptions is heavy, additional phone lines will be added by MainStay Investments. However, in times of very large economic or market changes, redemptions may be difficult to implement by telephone. When calling MainStay Investments to make a telephone redemption, shareholders should have available their account number and Social Security or Taxpayer I.D. numbers.
The value of the shares redeemed from a Fund may be more or less than the shareholder's cost, depending on portfolio performance during the period the shareholder owned the shares.
Purchases and redemptions for Class A, Class B, Class C, Class I, Class R1, Class R2 and Class R3 shares are discussed in the Prospectus under the heading "Shareholder Guide," and that information is incorporated herein by reference.
Certain clients of the Manager and the Subadvisors may purchase shares of a Fund with liquid assets with a value which is readily ascertainable (and not established only by valuation procedures) as evidenced by a listing on a bona fide domestic or foreign exchange and which would be eligible for purchase by the Fund (consistent with such Fund's investment policies and restrictions). These transactions will be effected only if the Fund's Manager or Subadvisor intends to retain the security in the Fund as an investment. Assets so purchased by a Fund will be valued in generally the same manner as they would be valued for purposes of pricing the Fund's shares, if such assets were included in the Fund's assets at the time of the purchase. The Fund reserves the right to amend or terminate this practice at any time.
The net asset value per share of each Fund is determined on each day the New York Stock Exchange is open for trading. (See "Net Asset Value" below.) Shares of each Fund are redeemable at net asset value, at the option of the Fund's shareholders.
The Funds reserve the right to suspend or postpone redemptions during any period when: (a) trading on the New York Stock Exchange is restricted, as determined by the SEC, or that Exchange is closed for other than customary weekend and holiday closings; (b) the SEC has by order permitted such suspension; or (c) an emergency, as determined by the SEC, exists, making disposal of portfolio securities or valuation of net assets of one or more of the Funds not reasonably practicable.
The Trust and the Distributor reserve the right to redeem shares of any shareholder who has failed to provide the Trust with a certified Taxpayer I.D. number or such other tax-related certifications as the Trust may require. A notice of redemption, sent by first class mail to the shareholder's address of record, will fix a date not less than 30 days after the mailing date, and shares will be redeemed at the NAV determined as of the close of business on that date unless a certified Taxpayer I.D. number (or such other information as the Trust has requested) has been provided.
REDEMPTION FEE
The International Equity Fund and High Yield Corporate Bond Fund each impose a redemption fee of 2.00% of the total redemption amount (calculated at market value), on redemptions (including exchanges) of Class A, B, C, and I shares of those Funds made within 60 days of purchase. The redemption fee is paid directly to the Fund and is implemented as a 2% reduction in the proceeds that would otherwise be received by a redeeming shareholder. The fee is designed to offset out-of-pocket administrative costs associated with short-term trading. For purposes of determining whether the redemption fee applies, the shares that were held the longest will be redeemed first. The redemption fee will not apply to shares acquired through the reinvestment of dividends or
distributions paid by the Fund. The redemption fee does not apply on redemptions effected through an MainStay Investments Systematic Withdrawal/Exchange Plan. The redemption fee may not apply on redemptions of certain benefit plan accounts such as 401(k) plans, section 529 qualified tuition plans, or on redemptions of shares held at the time of death or the initial determination of a permanent disability of a shareholder.
Please contact MainStay Investments at 1-800-MAINSTAY (1-800-624-6782) if you have any questions as to whether the redemption fee applies to some or all of your shares.
SYSTEMATIC WITHDRAWAL PLAN
MainStay Investments acts as agent for the shareholder in redeeming sufficient full and fractional shares to provide the amount of the systematic withdrawal payment and any contingent deferred sales charge, if applicable. See the Prospectus for more information.
REDEMPTIONS IN KIND
The Trust has agreed to redeem shares of each Fund solely in cash up to the lesser of $250,000 or 1% of the NAV of the Fund during any 90-day period for any one shareholder. The Trust reserves the right to pay other redemptions, either total or partial, by a distribution in kind of securities (instead of cash) from the applicable Fund's portfolio. The securities distributed in such a distribution would be valued at the same value as that assigned to them in calculating the NAV of the shares being redeemed. If a shareholder receives a distribution in kind, he or she should expect to incur transaction costs when he or she converts the securities to cash.
SUSPENSION OF REDEMPTIONS
The Trust may suspend the right of redemption of shares of any Fund and may postpone payment for any period: (1) during which the NYSE is closed other than customary weekend and holiday closings or during which trading on the NYSE is restricted; (2) when the SEC determines that a state of emergency exists that may make payment or transfer not reasonably practicable; (3) as the SEC may by order permit for the protection of the security holders of the Trust; or (4) at any other time when the Trust may, under applicable laws and regulations, suspend payment on the redemption or repurchase of its shares.
EXCHANGE PRIVILEGES
Exchanges will be based upon each Fund's NAV per share next determined following receipt of a properly executed exchange request.
Subject to the conditions and limitations described herein, Class A, Class B, Class C, Class I, Class R1, Class R2 and Class R3 shares of a Fund may be exchanged for shares of an identical class of a MainStay Fund registered for sale in the state of residence of the investor or where an exemption from registration is available and only with respect to Funds that are available for sale to new investors. In addition, each class of shares of a Fund also may be exchanged for shares of an identical class of a series of Eclipse Funds or Eclipse Funds, Inc. that is registered for sale in the state of residence of the investor and that is available for sale to new investors. All exchanges are subject to a minimum investment requirement and a minimum balance requirement. An exchange may be made by either writing to MainStay Investments at the following address: The MainStay Funds, P.O. Box 8401, Boston, Massachusetts 02266-8401, or by calling MainStay Investments at 1-800-MAINSTAY (1-800-624-6782) (8:00 am to 6:00 pm eastern time).
REDEMPTION BY CHECK
The Money Market Fund and State Street Bank and Trust Company (the "Bank") each reserve the right at any time to suspend the procedure permitting redemption by check and intend to do so in the event that federal legislation or regulations impose reserve requirements or other restrictions deemed by the Trustees to be adverse to the interest of other shareholders of the Money Market Fund. Shareholders who arrange to have checkwriting privileges will be subject to the rules and regulations of the Bank pertaining to this checkwriting privilege as amended from time to time. The applicable rules and regulations will be made available by the Bank upon request when a shareholder establishes checkwriting privileges.
INVESTORS SHOULD READ THE PROSPECTUS CAREFULLY BEFORE THEY PLACE AN EXCHANGE REQUEST.
Generally, shareholders may exchange their Class A shares of a Fund for Class A shares of another MainStay Fund, without the imposition of a sales charge. Any such exchanges will be based upon each Fund's NAV per share next determined following receipt of a properly executed exchange request. However, where a shareholder seeks to exchange Class A shares of the Money Market Fund for Class A shares of another MainStay Fund that are subject to a front-end sales charge, the applicable sales charge will be imposed on the exchange unless the shareholder has previously paid a sales charge with respect to such shares.
Shares of a Fund that are subject to a contingent deferred sales charge may be exchanged for the same class of shares of another MainStay Fund at the NAV next determined following receipt of a properly executed exchange request, without the payment of a contingent deferred sales charge; the sales charge will be assessed, if applicable, when the shareholder redeems his or her shares without a corresponding purchase of shares of another MainStay Fund. For purposes of determining the length of time a shareholder owned shares prior to redemption or repurchase in order to determine the applicable contingent deferred sales charge, if any, shares will be deemed to have been held from the date of original purchase of the shares, regardless of exchanges of those shares into the Money Market Fund from another MainStay Fund, the applicable contingent deferred sales charge will be assessed when the shares are redeemed from the Money Market Fund even though the Money Market Fund does not otherwise assess a contingent deferred sales charge on redemptions. Class B and Class C shares of a Fund acquired as a result of subsequent investments, except reinvested dividends and distributions, will be subject to the contingent deferred sales charge when ultimately redeemed or repurchased without purchasing shares of another MainStay Fund. In addition, if shares of a Fund that are subject to a contingent deferred sales charge are exchanged into shares of the Money Market Fund, the holding period for purposes of determining the contingent deferred sales charge (and conversion into Class A shares with respect to Class B shares) stops until the shares are exchanged back into shares of another MainStay Fund.
In times when the volume of telephone exchanges is heavy, additional phone lines will be added by MainStay Investments. However, in times of very large economic or market changes, the telephone exchange privilege may be difficult to implement. When calling MainStay Investments to make a telephone exchange, shareholders should have available their account number and Social Security or Taxpayer I.D. numbers. Under the telephone exchange privilege, shares may only be exchanged among accounts with identical names, addresses and Social Security or Taxpayer I.D. numbers. Shares may be transferred among accounts with different names, addresses and Social Security or Taxpayer I.D. numbers only if the exchange request is in writing and is received in "good order." If the dealer permits, the dealer representative of record may initiate telephone exchanges on behalf of a shareholder, unless the shareholder notifies the Fund in writing not to permit such exchanges. There will be no exchanges during any period in which the right of exchange is suspended or date of payment is postponed because the NYSE is closed or trading on the NYSE is restricted or the SEC deems an emergency to exist.
It is the policy of the Trust to discourage frequent trading by shareholders among the Funds in response to market fluctuations. Accordingly, in order to maintain a stable asset base in each Fund and to reduce administrative expenses borne by each Fund, except for systematic exchanges, exchanges processed via MainStay's automated system and as to certain accounts for which tracking data is not available, after five exchanges per calendar year a $10 fee will be imposed on each trade date on which a shareholder makes an exchange and additional exchange requests may be denied.
For federal income tax purposes, an exchange is treated as a sale on which an investor may realize a gain or loss. See "Understand the Tax Consequences" for information concerning the federal income tax treatment of a disposition of shares.
The exchange privilege may be modified or withdrawn at any time upon prior notice.
DISTRIBUTIONS AND REDEMPTIONS FOR EQUITY INDEX FUND
For the Equity Index Fund, Distributions will be paid in additional shares based on the NAV at the close of business on the payment date of the distribution, unless the shareholder elects to receive such distributions in cash. Receipt of dividends in cash by a shareholder will have the effect of reducing the number of Guaranteed Shares held by that shareholder, and, therefore, the value of the Guarantee to that shareholder. If, however, the Fund pays a dividend in cash to all shareholders for the purpose of assuring the Fund's compliance with applicable provisions of the Code, any such amounts paid in cash will reduce the Guaranteed Amount applicable to each Guaranteed Share in the amount of the dividend paid.
For shareholder convenience in monitoring the number and value of a shareholder's Guaranteed Shares, the Fund currently intends, through reverse share splits, to combine any additional shares received by a shareholder as dividends and distributions from the Fund with each originally purchased share of the Fund to which such dividends and distributions relate, so that a Guaranteed Share of the Fund will mean a single share of the Fund as purchased and include in its NAV the value of all dividends and distributions attributable
to such originally purchased share and paid up to that point in time. Following a reverse share split, a shareholder who has elected to reinvest dividends and distributions from the Fund will hold the same number of Guaranteed Shares in the Fund as the shareholder held prior to the reverse share split, but each share will have a higher NAV (reflecting the added value of the dividends paid). Shareholders who elect to receive their dividends and distributions from the Fund in cash will, following a reverse share split, own fewer Guaranteed Shares of the Fund, but those shares will have the same higher per share NAV as all other Fund shares. IN EITHER CASE, THE OVERALL VALUE OF A SHAREHOLDER'S INVESTMENT IN THE FUND WILL BE UNAFFECTED BY A REVERSE SHARE SPLIT. If reverse share splits are not authorized, a Guaranteed Share shall mean, on a given date, that number of shares of the Fund that a shareholder would hold on that date if he had bought a single share and then held it, plus all shares issued as dividends and distributions attributable to such share through the Guarantee Date. This single share and all other shares issued through the reinvestment of any dividends and distributions attributable to such share will be treated as a single unit to which the Guaranteed Amount will apply as described above for a Guaranteed Share. Shareholders who elect to receive dividends and distributions in cash would hold fewer shares of the Fund and, consequently, fewer units as to which the Guaranteed Amount would apply. Equity Index Fund shares may be redeemed by shareholders prior to their Guaranteed Date. However, any such redeemed shares will lose the benefit of the Guarantee. Redemptions will be made of shares held by the shareholder for the longest period of time. For more information regarding the redemption procedures for the Equity Index Fund, see "Additional Information About Certain Funds -- The Equity Index Fund Guarantee."
Within seven days after acceptance of a redemption request, the Equity Index Fund is required to make payment of the NAV of the shares on the date the order was received in proper form, except that where a request is made at least 30 days prior to a dividend or distribution record date to redeem the dividend shares immediately upon issuance (to effectively receive the dividend in cash), redemption and payment will occur at that time.
TAX-DEFERRED RETIREMENT PLANS
CASH OR DEFERRED PROFIT SHARING PLANS UNDER SECTION 401(K) FOR
CORPORATIONS AND SELF-EMPLOYED INDIVIDUALS
Shares of a Fund, except the Tax Free Bond Fund, may also be purchased as an investment under a cash or deferred profit sharing plan intended to qualify under Section 401(k) of the Code (a "401(k) Plan") adopted by a corporation, a self-employed individual (including sole proprietors and partnerships), or other organization. All Funds, except the Tax Free Bond Fund, may be used as funding vehicles for qualified retirement plans including 401(k) plans, which may be administered by third-party administrator organizations. NYLIFE Distributors does not sponsor or administer such qualified plans at this time.
INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
Shares of a Fund, except the Tax Free Bond Fund, may also be purchased as an underlying investment for an IRA made available by NYLIFE Distributors. Two types of IRAs are available -- a traditional IRA and the Roth IRA. MainStay also offers the Coverdell Education Savings Account.
TRADITIONAL IRAs. An individual may contribute as much as $4,000 of his or
her earned income to a traditional IRA. A married individual filing a joint
return may also contribute to a traditional IRA for a nonworking spouse. The
maximum deduction allowed for a contribution to a spousal IRA is the lesser of
(1) $4,000, or (2) the sum of (i) the compensation includible in the working
spouse's gross income plus (ii) any compensation includible in the gross income
of the nonworking spouse, reduced by the amount of the deduction taken by the
working spouse. The maximum deduction for an IRA contribution by a married
couple is $8,000. The maximum deduction for an IRA contribution (including
catch-up contributions discussed below) by an individual over 50 is $,5000 and
by a married couple is $10,000.
Eligible individuals age 50 and older may make additional contributions to their traditional IRAs in the form of catch-up contributions. The maximum limit for a catch-up contribution is $1,000 for 2006 and beyond.
An individual who has not attained age 70-1/2 may make a contribution to a traditional IRA that is deductible for federal income tax purposes. For the 2005 tax year, a contribution is deductible only if the individual (and his or her spouse, if applicable) has an adjusted gross income below a certain level ($70,000-$80,000 for married individuals filing a joint return and $50,000 - $60,000 for single filers). In addition, a married individual may make a deductible IRA contribution even though the individual's spouse is an active participant in a qualified employer's retirement plan, subject to a phase-out for adjusted gross income between $150,000 - $160,000 ($0 - $10,000 for non-participant spouses filing a separate return). However, an individual not permitted to make a
deductible contribution to an IRA may nonetheless make nondeductible contributions up to the maximum contribution limit for that year. The deductibility of IRA contributions under state law varies from state to state.
Distributions from IRAs (to the extent they are not treated as a tax-free return of nondeductible contributions) are taxable under federal income tax laws as ordinary income. There are special rules for determining how withdrawals are to be taxed if an IRA contains both deductible and nondeductible amounts. In general, all traditional IRAs are aggregated and treated as one IRA, all withdrawals are treated as one withdrawal, and then a proportionate amount of the withdrawal will be deemed to be made from nondeductible contributions; amounts treated as a return of nondeductible contributions will not be taxable. Certain early withdrawals are subject to an additional penalty tax. However, there are exceptions for certain withdrawals, including: withdrawals up to a total of $10,000 for qualified first-time home buyer expenses or withdrawals used to pay "qualified higher education expenses" of the taxpayer or his or her spouse, child or grandchild. There are also special rules governing when IRA distributions must begin and the minimum amount of such distributions; failure to comply with these rules can result in the imposition of an excise tax.
ROTH IRAs. Roth IRAs are a form of individual retirement account that
feature nondeductible contributions that may be made even after the individual
attains the age of 70-1/2. In certain cases, distributions from a Roth IRA may
be tax free. The Roth IRA, like the traditional IRA, is subject to a $4,000
($8,000 for a married couple, $5,000 for individuals over age 50, and $10,000
for a married couple over age 50) contribution limit (taking into account both
Roth IRA and traditional IRA contributions). The maximum contribution that can
be made is phased-out for taxpayers with adjusted gross income between $95,000
and $110,000 ($150,000 - $160,000 if married filing jointly). If the Roth IRA
has been in effect for five years, and distributions are (1) made on or after
the individual attains the age of 59-1/2; (2) made after the individual's death;
(3) attributable to disability; or (4) used for "qualified first-time home buyer
expenses," they are not taxable. If these requirements are not met,
distributions are treated first as a return of contributions and then as taxable
earnings. Taxable distributions may be subject to the same excise tax described
above with respect to traditional IRAs. All Roth IRAs, like traditional IRAs,
are treated as one IRA for this purpose. Unlike the traditional IRA, Roth IRAs
are not subject to minimum distribution requirements during the account owner's
lifetime. However, the amount in a Roth IRA is subject to required distribution
rules after the death of the account owner.
Eligible individuals age 50 and older may make additional contributions to their Roth IRAs in the form of catch-up contributions. The maximum limit for a catch-up contribution is $1,000 for 2006 and beyond.
COVERDELL EDUCATION SAVINGS ACCOUNTS. A taxpayer may make nondeductible contributions of up to $2,000 per year per beneficiary to a Coverdell Education Savings Account. Contributions cannot be made after the beneficiary becomes 18 years old unless the beneficiary qualifies as a special needs beneficiary. The maximum contribution is phased out for taxpayers with adjusted gross income between $95,000 and $110,000 ($190,000 - $220,000 if married filing jointly). Earnings are tax-deferred until a distribution is made. If a distribution does not exceed the beneficiary's "qualified higher education expenses" for the year, no part of the distribution is taxable. If part of a distribution is taxable, a penalty tax will generally apply as well. Any balance remaining in a Coverdell Education Savings Account when the beneficiary becomes 30 years old must be distributed and any earnings will be taxable and subject to a penalty tax upon distribution.
All income and capital gains deriving from IRA investments in the Fund are reinvested and compounded tax-deferred until distributed from the IRA. The combination of annual contributions to a traditional IRA, which may be deductible, and tax-deferred compounding can lead to substantial retirement savings. Similarly, the combination of tax free distributions from a Roth IRA or Coverdell Education Savings Account combined with tax-deferred compounded earnings on IRA investments can lead to substantial retirement and/or education savings.
403(B)(7) TAX SHELTERED ACCOUNT
Shares of a Fund, except the Tax Free Bond Fund, may also be purchased as
the underlying investment for tax sheltered custodial accounts (403(b)(7) TSA
plans) made available by the Distributor. In general, employees of tax-exempt
organizations described in Section 501(c)(3) of the Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a
403(b)(7) TSA plan.
GENERAL INFORMATION
Shares of a Fund, except the Tax Free Bond Fund, may also be a permitted investment under profit sharing, pension, and other retirement plans, IRAs, Coverdell Education Savings Accounts (CESAs) and tax-deferred annuities other than those offered by the
Fund depending on the provisions of the relevant plan. Third-party administrative services, available for some corporate plans, may limit or delay the processing of transactions.
The custodial agreements and forms provided by the Funds' custodian and transfer agent designate New York Life Trust Company as custodian for IRAs, CESAs and 403(b)(7) TSA plans (unless another trustee or custodian is designated by the individual or group establishing the plan) and contain specific information about the plans. Each plan provides that dividends and distributions will be reinvested automatically. For further details with respect to any plan, including fees charged by New York Life Trust Company, tax consequences and redemption information, see the specific documents for that plan.
The federal tax laws applicable to retirement plans, IRAs, CESAs and
403(b)(7) TSA plans are extremely complex and change from time to time.
Therefore, an investor should consult with his or her own professional tax
advisor before establishing any of the tax-deferred retirement plans described
above.
Certain of the Funds have entered into a committed line of credit with The Bank of New York as agent, and various other lenders from whom a Fund may borrow up to 5% of its net assets in order to honor redemptions. The credit facility is expected to be utilized in periods when the Funds experience unusually large redemption requests. A mutual fund is considered to be using leverage whenever it borrows an amount more than 5% of its assets. None of the Funds intend to borrow for the purpose of purchasing securities using the credit facility or any other source of borrowed funds.
TAX INFORMATION
The discussion herein relating to certain federal income tax considerations is presented for general informational purposes only. Since the tax laws are complex and tax results can vary depending upon specific circumstances, investors should consult their own tax adviser regarding an investment in a Fund, including the tax consequences arising under the laws of any state, foreign country, or other taxing jurisdiction. The discussion is based upon provisions of the Code, the regulations promulgated thereunder, and judicial and administrative rulings, all of which are subject to change, which change may be retroactive.
TAXATION OF THE FUNDS
Each Fund intends to qualify annually and elect to be treated as a regulated investment company ("RIC") under Subchapter M of the Code. If a Fund so qualifies and elects, it generally will not be subject to federal income tax on its investment company taxable income (which includes, among other items, dividends, interest, and the excess, if any, of net short term capital gains over net long-term capital losses) and its net capital gains (net long-term capital gains in excess of net short term capital losses) that it distributes to its shareholders.
Each Fund intends to distribute, at least annually, to its shareholders substantially all of its investment company taxable income and its net capital gains. In determining amounts of capital gains to be distributed, any capital loss carryovers from prior years will be applied against capital gains.
To qualify for treatment as a regulated investment company, a Fund generally must, among other things: (a) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of securities or foreign currencies, net income derived from certain qualified publicly traded partnerships, and other income (including gains from certain options, futures, and forward contracts) derived with respect to its business of investing in stock, securities or foreign currencies; (b) diversify its holdings so that at the end of each quarter of the taxable year, (i) at least 50% of the market value of a Fund's assets is represented by cash, cash items, U.S. government securities, the securities of other regulated investment companies and other securities, that with respect to any one issuer do not represent more than 5% of the value of the Fund's total assets nor more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities (other than U.S. government securities or the securities of other regulated investment companies) of any one issuer , or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses or related trades or businesses, or in the securities of one or more qualified publicly traded partnerships; and (c) distribute in each taxable year at least 90% of the sum of its investment company taxable income and its net tax-exempt interest income.
If a Fund does not meet all of these Code requirements, it will be taxed as an ordinary corporation and its distributions (to the extent of available earnings and profits) will be taxed to shareholders as ordinary income (except to the extent a shareholder is exempt from tax).
The Treasury Department is authorized to issue regulations to provide that foreign currency gains that are not directly related to a Fund's principal business of investing in stock or securities (or options and futures with respect to stock or securities) may be excluded from qualifying income for purposes of the 90% gross income requirement described above. To date, however, no such regulations have been issued.
The diversification requirements relating to the qualification of a Fund as a regulated investment company may limit the extent to which a Fund will be able to engage in certain investment practices, including transactions in futures contracts and other types of derivative securities transactions. In addition, if a Fund were unable to dispose of portfolio securities due to settlement problems relating to foreign investments or due to the holding of illiquid securities, the Fund's ability to qualify as a regulated investment company might be affected.
Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax. To prevent imposition of the excise tax, a Fund must distribute for the calendar year an amount equal to the sum of (1) at least 98% of its ordinary taxable income (excluding any capital gains or losses) for the calendar year, (2) at least 98% of the excess of its capital gains over capital losses (adjusted for certain ordinary losses) for the one-year period ending October 31 of such year, and (3) all ordinary taxable income and capital gain net income (adjusted for certain ordinary losses) for previous years that were not distributed by the Fund or taxed to the Fund during such years. To prevent application of the excise tax, the Funds intend to make distributions in accordance with the calendar year distribution requirement.
CHARACTER OF DISTRIBUTIONS TO SHAREHOLDERS -- GENERAL
Distributions of investment company taxable income, including distributions of net short-term capital gains, are characterized as ordinary income. Distributions of a Fund's net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, designated by a Fund as capital gain dividends, will generally be taxable to shareholders as long-term capital gains, regardless of how long a shareholder has held the Fund's shares. All distributions are includable in the gross income of a shareholder whether reinvested in additional shares or received in cash. Shareholders receiving distributions in the form of additional shares will have a cost basis for federal income tax purposes in each share received equal to the net asset value of a share of a Fund on the reinvestment date. Shareholders will be notified annually as to the federal tax status of distributions.
Under recently enacted tax legislation, the maximum individual tax rate on income from qualified dividends is currently 15%. Each of the Funds that invest in stock will be able to designate a portion of its ordinary income distributions as qualified dividends to the extent that the Fund derives income from qualified dividends. A more than 60 day holding period requirement must be satisfied by both the Fund and the shareholder with respect to each qualified dividend in order to be eligible for the reduced tax rate.
If a portion of a Fund's net investment income is derived from dividends from domestic corporations, then a portion of such distributions may also be eligible for the corporate dividends-received deduction. Capital gain distributions will not be eligible for the corporate dividends-received deduction. The dividends-received deduction is reduced to the extent shares of a Fund are treated as debt-financed under the Code and is generally eliminated unless such shares are deemed to have been held for more than 45 days during a specified period. In addition, the entire dividend (including the deducted portion) is includable in the corporate shareholder's alternative minimum taxable income.
A Fund's distributions with respect to a given taxable year may exceed its current and accumulated earnings and profits available for distribution. In that event, distributions in excess of such earnings and profits would be characterized as a return of capital to shareholders for federal income tax purposes, thus reducing each shareholder's cost basis in his Fund shares. Distributions in excess of a shareholder's cost basis in his shares would be treated as a gain realized from a sale of such shares.
Distributions by a Fund (other than the Money Market Fund) reduce the net asset value of the Fund's shares. Should a distribution reduce the net asset value below a shareholder's cost basis, such distribution, nevertheless, would be taxable to the shareholder as ordinary income or capital gain as described above, even though, from an investment standpoint, it may constitute a partial return of capital. In particular, investors should be careful to consider the tax implications of buying shares just prior to a distribution by a Fund. The price of shares purchased at that time includes the amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of their investment upon such distribution, which will nevertheless generally be taxable to them.
A distribution will be treated as paid on December 31 of the calendar year if it is declared by a Fund in October, November or December of that year to shareholders on a record date in such a month and paid by the Fund during January of the following calendar year. Such a distribution will be includable in the gross income of shareholders in the calendar year in which it is declared, rather than the calendar year in which it is received.
CHARACTER OF DISTRIBUTIONS TO SHAREHOLDERS -- THE TAX FREE BOND FUND
The Internal Revenue Code permits the character of tax-exempt interest distributed by a regulated investment company to "flow through" as tax-exempt interest to its shareholders, provided that 50% or more of the value of its assets at the end of each quarter of its taxable year is invested in state, municipal or other obligations the interest on which is exempt under Section 103(a) of the Internal Revenue Code. The Tax Free Bond Fund intends to satisfy the 50% requirement to permit its distributions of tax-exempt interest to be treated as such for regular Federal income tax purposes in the hands of its shareholders. Exempt-interest dividends must be taken into account by individual shareholders in determining whether their total incomes are large enough to result in taxation of up to 85% of their social security benefits and certain railroad retirement benefits. None of the income distributions of the Tax Free Bond Funds will be eligible for the deduction for dividends received by corporations.
Although a significant portion of the distributions by the Tax Free Bond Fund generally is expected to be exempt from federal taxes, the Fund may under certain circumstances invest in obligations the interest from which is fully taxable, or, although exempt from the regular federal income tax, is subject to the alternative minimum tax. Similarly, gains from the sale or exchange of obligations the interest on which is exempt from regular Federal income tax will constitute taxable income to the Fund. Taxable income or gain may also arise from securities lending transactions, repurchase agreements and options and futures transactions. Accordingly, it is possible that a significant portion of the distributions of the Fund will constitute taxable rather than tax-exempt income in the hands of a shareholder. Furthermore, investors should be aware that tax laws may change, and issuers may fail to follow applicable laws, causing a tax-exempt item to become taxable.
In addition, as discussed below, a sale of shares in the Fund (including a redemption of such shares and an exchange of shares between two mutual funds) will be a taxable event, and may result in a taxable gain or loss to a shareholder. Shareholders should be aware that redeeming shares of the Fund after tax-exempt interest has been accrued by the Fund but before that income has been declared as a dividend may be disadvantageous. This is because the gain, if any, on the redemption will be taxable, even though such gains may be attributable in part to the accrued tax-exempt interest which, if distributed to the shareholder as a dividend rather than as redemption proceeds, might have qualified as an exempt-interest dividend.
Exempt-interest dividends from the Tax Free Bond Fund, ordinary dividends from the Tax Free Funds, if any, capital gains distributions from the Tax Free Bond Fund and any capital gains or losses realized from the sale or exchange of shares may be subject to state and local taxes. However, the portion of a distribution of the Fund's tax-exempt income that is attributable to state and municipal securities issued within the shareholder's own state may not be subject, at least in some states, to state or local taxes.
Distributions derived from interest on certain private activity bonds which is exempt from regular federal income tax are treated as a tax preference item and may subject individual or corporate shareholders to liability (or increased liability) for the alternative minimum tax. In addition, because a portion of the difference between adjusted current earnings, as defined in the Internal Revenue Code, and alternative minimum taxable income is an addition to the alternative minimum tax base, all distributions derived from interest which is exempt from regular federal income tax are included in adjusted current earnings and may subject corporate shareholders to or increase their liability for the alternative minimum tax.
Opinions relating to the validity of municipal securities and the exemption of interest thereon from federal income tax are rendered by bond counsel to the issuers. The Tax Free Bond Fund, the Subadvisor and its affiliates, and the Fund's counsel make no review of proceedings relating to the issuance of state or municipal securities or the bases of such opinions.
Due to the lack of adequate supply of certain types of tax-exempt obligations, and other reasons, various instruments are being marketed which are not "pure" state and local obligations, but which are thought to generate interest excludable from taxable income under Internal Revenue Code section 103. While the Fund may invest in such instruments, it does not guarantee the tax-exempt status of the income earned thereon or from any other investment. Thus, for example, were the Fund to invest in an instrument thought to give rise to tax-exempt interest but such interest ultimately were determined to be taxable, the Fund might have invested more than
20% of its assets in taxable instruments. In addition, it is possible in such circumstances that the Fund will not have met the 50% investment threshold, described above, necessary for it to pay exempt-interest dividends.
Section 147(a) of the Internal Revenue Code prohibits exemption from taxation of interest on certain governmental obligations to persons who are "substantial users" (or persons related thereto) of facilities financed thereby. No investigation as to the users of the facilities financed by bonds in the portfolio of the Tax Free Bond Fund has been made by the Fund. Persons who may be "substantial users" (or "related persons" of substantial users) of facilities financed by private activity bonds should consult their tax advisors before purchasing shares of the Fund since the acquisition of shares of the Tax Free Bond Fund may result in adverse tax consequences to them.
FEDERAL INCOME TAX CAPITAL LOSS CARRYFORWARDS
A Fund is permitted to carry forward a net capital loss from any year to offset its capital gains, if any, realized during the eight years following the year of the loss. A Fund's capital loss carry-forward is treated as a short-term capital loss in the year to which it is carried. If future capital gains are offset by carried-forward capital losses, such future capital gains are not subject to Fund-level federal income taxation, regardless of whether they are distributed to shareholders. Accordingly, the RICs do not expect to distribute such capital gains. The Funds cannot carry back or carry forward any net operating losses. As of October 31, 2005, the following Funds had capital loss carry-forwards approximating the amount indicated for federal income tax purposes, expiring in the year indicated:
YEAR CAPITAL LOSS
FUND EXPIRES CARRYFORWARDS
---- ------- -------------
CAPITAL APPRECIATION FUND 2009 $ 23,983
2010 104,708
2011 49,074
2012 60,521
COMMON STOCK FUND 2010 $ 11,364
2011 2,355
CONVERTIBLE FUND 2010 $ 41,599
2011 5,003
DIVERSIFIED INCOME FUND 2008 $ 1,293
2009 864
2010 1,161
2011 523
EQUITY INDEX FUND* 2010 $ 89,854
2011 29,198
2012 3,294
GLOBAL HIGH INCOME FUND 2007 $ 512
2008 337
2012 309
2013 102
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YEAR CAPITAL LOSS
FUND EXPIRES CARRYFORWARDS
---- ------- -------------
GOVERNMENT FUND 2007 $ 29,405
2008 6,930
2012 3,458
HIGH YIELD CORPORATE BOND FUND 2009 $122,690
2010 169,119
2011 306,034
INTERNATIONAL EQUITY FUND N/A N/A
LARGE CAP GROWTH FUND 2007 $ 9,625
2008 99,425
2009 53,277
2010 5,418
2013 1,157
MAP FUND N/A N/A
MID CAP GROWTH FUND 2011 $ 2,605
MID CAP VALUE FUND N/A N/A
MONEY MARKET FUND 2013 $ 5
SMALL CAP GROWTH FUND 2009 $108,332
2010 40,252
2011 2,925
SMALL CAP VALUE FUND N/A N/A
TAX FREE BOND FUND 2007 $ 7,997
2008 15,453
2011 8,117
2012 478
TOTAL RETURN FUND N/A N/A
VALUE FUND N/A N/A
|
* As of November 30, 2004
DISPOSITIONS OF FUND SHARES
Upon redemption, sale or exchange of shares of a Fund, a shareholder will realize a taxable gain or loss, depending on whether the gross proceeds are more or less than the shareholder's tax basis for the shares. Any gain or loss generally will be a capital gain or loss if the shares of a Fund are capital assets in the hands of the shareholder, and generally will be taxable to shareholders as long-term capital gains if the shares had been held for more than one year.
A loss realized by a shareholder on the redemption, sale or exchange of shares of a Fund with respect to which capital gain dividends have been paid will, to the extent of such capital gain dividends, be treated as long-term capital loss if such shares have been held by the shareholder for six months or less at the time of their disposition. Furthermore, a loss realized by a shareholder on the
redemption, sale or exchange of shares of a Fund with respect to which exempt-interest dividends have been paid will, to the extent of such exempt-interest dividends, be disallowed if such shares have been held by the shareholder for six months or less at the time of their disposition. A loss realized on a redemption, sale or exchange also will be disallowed to the extent the shares disposed of are replaced (whether through reinvestment of distributions, or otherwise) within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Individual shareholders may generally deduct in any year only $3,000 of capital losses that are not offset by capital gains and any remaining losses may be carried over to future years. Corporations may generally deduct losses only to the extent of capital gains with certain carryovers for excess losses.
Under certain circumstances, the sales charge incurred in acquiring shares of either Fund may not be taken into account in determining the gain or loss on the disposition of those shares. This rule applies where shares of a Fund are exchanged within 90 days after the date they were purchased and new shares are acquired without a sales charge or at a reduced sales charge pursuant to a right acquired upon the initial purchase of shares. In that case, the gain or loss recognized on the exchange will be determined by excluding from the tax basis of the shares exchanged all or a portion of the sales charge incurred in acquiring those shares. The portion of the sales charge affected by this rule will be treated as a sales charge paid for the new shares and will be reflected in their basis.
FOREIGN CURRENCY GAINS AND LOSSES
Under the Internal Revenue Code, gains or losses attributable to fluctuations in exchange rates which occur between the time a Fund accrues income or other receivables or accrues expenses or other liabilities denominated in a foreign currency and the time a Fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, on the disposition of debt securities denominated in a foreign currency and on the disposition of certain options, futures, forward and other contracts, gain or loss attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition also are treated as ordinary gain or loss. These gains or losses, referred to under the Internal Revenue Code as "Section 988" gains or losses, may increase or decrease the amount of a Fund's net investment income to be distributed to its shareholders. If Section 988 losses exceed other investment company taxable income (which includes, among other items, dividends, interest and the excess, if any, of net short-term capital gains over net long-term capital losses) during the taxable year, a Fund would not be able to make any ordinary dividend distributions, and distributions made before the losses were realized would be recharacterized as a return of capital to shareholders or, in some cases, as capital gain, rather than as an ordinary dividend.
DISCOUNT
Certain of the bonds purchased by the Funds, such as zero coupon bonds, may be treated as bonds that were originally issued at a discount. Original issue discount represents interest for federal income tax purposes and can generally be defined as the difference between the price at which a security was issued (or the price at which it was deemed issued for federal income tax purposes) and its stated redemption price at maturity. Original issue discount is treated for federal income tax purposes as income earned by a Fund over the term of the bond, and therefore is subject to the distribution requirements of the Code. The annual amount of income earned on such a bond by a Fund generally is determined on the basis of a constant yield to maturity which takes into account the semiannual compounding of accrued interest. Certain bonds purchased by the Funds may also provide for contingent interest and/or principal. In such a case, rules similar to those for original issue discount bonds would require the accrual of income based on an assumed yield that may exceed the actual interest payments on the bond.
In addition, some of the bonds may be purchased by a Fund at a discount which exceeds the original issue discount on such bonds, if any. This additional discount represents market discount for federal income tax purposes. The gain realized on the disposition of any bond having market discount generally will be treated as taxable ordinary income to the extent it does not exceed the accrued market discount on such bond (unless a Fund elects to include market discount in income in tax years to which it is attributable). Realized accrued market discount on obligations that pay tax-exempt interest is nonetheless taxable. Generally, market discount accrues on a daily basis for each day the bond is held by a Fund at a constant rate over the time remaining to the bond's maturity. In the case of any debt security having a fixed maturity date of not more than one year from date of issue, the gain realized on disposition will be treated as short-term capital gain.
TAXATION OF OPTIONS, FUTURES AND SIMILAR INSTRUMENTS
Many of the options, futures contracts and forward contracts entered into by a Fund will be classified as "Section 1256 contracts." Generally, gains or losses on Section 1256 contracts are considered 60% long-term and 40% short-term capital gains or losses ("60/40"). Also, certain Section 1256 contracts held by a Fund are "marked-to-market" at the times required pursuant to the Internal
Revenue Code with the result that unrealized gains or losses are treated as though they were realized. The resulting gain or loss generally is treated as 60/40 gain or loss, except for foreign currency gain or loss on such contracts, which generally is ordinary in character.
Distribution of Fund gains from hedging transactions will be taxable to shareholders. Generally, hedging transactions and certain other transactions in options, futures and forward contracts undertaken by a Fund may result in "straddles" for federal income tax purposes. The straddle rules may affect the character of gains (or losses) realized by a Fund. In addition, losses realized by a Fund on positions that are part of a straddle may be deferred under the straddle rules rather than being taken into account in the taxable year in which such losses are realized.
Furthermore, certain transactions (including options, futures contracts, notional principal contracts, short sales and short sales against the box) with respect to an "appreciated position" in certain financial instruments may be deemed a constructive sale of the appreciated position, requiring the immediate recognition of gain as if the appreciated position were sold.
Because only a few regulations implementing the straddle rules have been promulgated, and regulations relating to constructive sales of appreciated positions have yet to be promulgated, the tax consequences of transactions in options, futures and forward contracts to a Fund are not entirely clear. The hedging transactions in which a Fund engages may increase the amount of short-term capital gain realized by a Fund which is taxed as ordinary income when distributed to shareholders.
A Fund may make one or more of the elections available under the Internal Revenue Code which are applicable to straddles. If a Fund makes any of the elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections may accelerate the recognition of gains or losses from the affected straddle positions.
Because application of the straddle rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle positions, the amount which must be distributed to shareholders and which will be taxed to shareholders as ordinary income or long-term capital gain, may be increased or decreased substantially as compared to a Fund that did not engage in such hedging transactions.
The diversification requirements applicable to a Fund's status as a regulated investment company may limit the extent to which a Fund will be able to engage in transactions in options, futures contracts or forward contracts.
Regarding the Tax Free Bond Fund, gains from certain transactions, including, for example, transactions in options, futures, and other instruments, and from obligations the interest on which is not exempt from Federal income tax, will be taxable income to those Funds.
The Diversified Income Fund and International Equity Fund may engage in swap transactions. The tax treatment of swap agreements is not entirely clear in certain respects. Accordingly, while the Funds intend to account for such transactions in a manner they deem to be appropriate, the IRS might challenge such treatment. If such a challenge were successful, status of a Fund as a regulated investment company might be affected. The Funds intend to monitor developments in this area.
FOREIGN TAXES
Investment income and gains received by a Fund from sources outside the United States may be subject to foreign taxes which were paid or withheld at the source. The payment of such taxes will reduce the amount of dividends and distributions paid to the Funds' shareholders. Since the percentage of each Fund's total assets (with the exception of the International Equity Fund and possibly the Global High Income Fund) which will be invested in foreign stocks and securities will not be more than 50%, any foreign tax credits or deductions associated with such foreign taxes will not be available for use by its shareholders. The effective rate of foreign taxes to which a Fund will be subject depends on the specific countries in which each Fund's assets will be invested and the extent of the assets invested in each such country and, therefore, cannot be determined in advance.
The International Equity Fund and the Global High Income Fund may qualify for and make the election permitted under Section 853 of the Code, provided that more than 50% of the value of the total assets of the Fund at the close of the taxable year consists of securities of foreign corporations. Pursuant to this election, a shareholder will be required to include in gross income (in addition to taxable dividends actually received) his pro rata share of the foreign income and similar taxes paid by a Fund, and will be entitled either to claim a deduction (as an itemized deduction) for his pro rata share of such foreign taxes in computing his taxable income or
to use it as a foreign tax credit against his U.S. federal income taxes, subject to limitations. Foreign taxes may not be deducted by a shareholder that is an individual in computing the alternative minimum tax. Each shareholder will be notified within 60 days after the close of a Fund's taxable year whether the foreign taxes paid by the Fund will "pass-through" for that year and, if so, such notification will designate (a) the shareholder's portion of the foreign taxes paid to each such country and (b) the portion of the dividend which represents income derived from sources within each such country.
The foreign tax credit and deduction available to shareholders is subject to certain limitations imposed by the Code, including a holding period requirement with respect to Fund shares. Generally, a credit for foreign taxes is subject to the limitation that it may not exceed the shareholder's U.S. tax attributable to his total foreign source taxable income. For this purpose, if a Fund makes the election described in the preceding paragraph, the source of a Fund's income flows through to its shareholders. With respect to the Funds, gains from the sale of securities generally will be treated as derived from U.S. sources and section 988 gains generally will be treated as ordinary income derived from U.S. sources. The limitation on the foreign tax credit is applied separately to foreign source passive income (as defined for purposes of the foreign tax credit), including foreign source passive income received from a Fund. In addition, the foreign tax credit may offset only 90% of the alternative minimum tax imposed on corporations and individuals. If a Fund is not eligible to make the election described above, the foreign income and similar taxes it pays generally will reduce investment company taxable income and distributions by a Fund will be treated as United States source income.
It should also be noted that a tax-exempt shareholder, like other shareholders, will be required to treat as part of the amounts distributed its pro rata portion of the income taxes paid by the Fund to foreign countries. However, that income will generally be exempt from taxation by virtue of such shareholder's tax-exempt status, and such a shareholder will not be entitled to either a tax credit or a deduction with respect to such income.
The foregoing is only a general description of the foreign tax credit under current law. Because application of the credit depends on the particular circumstances of each shareholder, shareholders are advised to consult their own tax advisers.
PASSIVE FOREIGN INVESTMENT COMPANIES
Certain of the Funds may invest in shares of foreign corporations which may be classified under the Internal Revenue Code as passive foreign investment companies ("PFICs"). In general, a foreign corporation is classified as a PFIC if at least one-half of its assets constitute investment-type assets or 75% or more of its gross income is investment-type income. If a Fund receives a so-called "excess distribution" with respect to PFIC stock, the Fund itself may be subject to a tax on a portion of the excess distribution, whether or not the corresponding income is distributed by the Fund to shareholders. In general, under the PFIC rules, an excess distribution is treated as having been realized ratably over the period during which the Fund held the PFIC shares. The Fund itself will be subject to tax on the portion, if any, of an excess distribution that is so allocated to prior Fund taxable years and an interest factor will be added to the tax, as if the tax had been payable in such prior taxable years. Certain distributions from a PFIC as well as gain from the sale of PFIC shares are treated as excess distributions. Excess distributions are characterized as ordinary income even though, absent application of the PFIC rules, certain excess distributions might have been classified as capital gain.
A Fund may be eligible to elect alternative tax treatment with respect to PFIC shares. Under an election that currently is available in some circumstances, a Fund generally would be required to include in its gross income its share of the earnings of a PFIC on a current basis, regardless of whether distributions are received from the PFIC in a given year. If this election were made, the special rules, discussed above, relating to the taxation of excess distributions, would not apply.
Alternatively, a Fund may elect to mark to market its PFIC shares at the end of each taxable year, with the result that unrealized gains would be treated as though they were realized and reported as ordinary income. Any mark-to-market losses would be deductible as ordinary losses to the extent of any net mark-to-market gains included in income in prior years.
Because the application of the PFIC rules may affect, among other things, the character of gains, the amount of gain or loss and the timing of the recognition of income with respect to PFIC shares, as well as subject a Fund itself to tax on certain income from PFIC shares, the amount that must be distributed to shareholders, and which will be taxed to shareholders as ordinary income or long-term capital gain, may be increased or decreased substantially as compared to a fund that did not invest in PFIC shares.
TAX REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
All distributions, whether received in shares or cash, must be reported by each shareholder on his or her federal income tax return. Shareholders are also required to report tax-exempt interest.
Redemptions of shares, including exchanges for shares of another MainStay Fund, may result in tax consequences (gain or loss) to the shareholder and generally are also subject to these reporting requirements.
Under the federal income tax law, a Fund will be required to report to the IRS all distributions of income (other than exempt-interest dividends) and capital gains as well as gross proceeds from the redemption or exchange of Fund shares (other than shares of the Money Market Fund), except in the case of certain exempt shareholders.
Each distribution is accompanied by a brief explanation of the form and character of the distribution. In January of each year, each Fund will issue to each shareholder a statement of the federal income tax status of all distributions, including, in the case of the Tax Free Bond Fund, a statement of the percentage of the prior calendar year's distributions which the Fund has designated as tax-exempt, the percentage of such tax-exempt distributions treated as a tax-preference item for purposes of the alternative minimum tax, and in, the case of the Tax Free Bond Fund, the source on a state-by-state basis of all distributions.
Under the backup withholding provisions of the Code, all taxable distributions and proceeds from the redemption or exchange of a Fund's shares may be subject to withholding of federal income tax at the rate of 28% in the case of nonexempt shareholders in the case of non-exempt shareholders if (1) the shareholder fails to furnish the Fund with and to certify the shareholder's correct taxpayer identification number, (2) the IRS notifies the Fund or shareholder that the shareholder has failed to report properly certain interest and dividend income to the IRS, or (3) when required to do so, the shareholder fails to certify that he is not subject to backup withholding. If the withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in shares, will be reduced by the amounts required to be withheld. Backup withholding is not an additional tax and any amounts withheld are creditable against the shareholder's U.S. Federal tax liability. Investors may wish to consult their tax advisors about the applicability of the backup withholding provisions.
STATE AND LOCAL TAXES
Distributions by the Funds also may be subject to state and local taxes and their treatment under state and local income tax laws may differ from the federal income tax treatment. Shareholders should consult their tax advisors with respect to particular questions of federal, state and local taxation.
Shareholders of the Tax Free Bond Fund may be subject to state and local taxes on distributions from the Fund, including distributions which are exempt from federal income taxes. Some states exempt from the state personal income tax distributions from the Fund derived from interest on obligations issued by the U.S. government or by such state or its municipalities or political subdivisions. Each investor should consult his or her own tax advisor to determine the tax status of distributions from the Fund in his or her own state and locality.
FOREIGN SHAREHOLDERS
The foregoing discussion relates only to U.S. federal income tax law as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic corporations, partnerships, trusts and estates). Shareholders who are not U.S. persons should consult their tax advisers regarding U.S. and foreign tax consequences of ownership of shares of the Funds including the likelihood that distributions to them would be subject to withholding of U.S. tax at a rate of 30% (or at a lower rate under a tax treaty). An investment in a Fund may also result in the imposition of U.S. estate tax with respect to such investment.
ADDITIONAL INFORMATION REGARDING THE EQUITY INDEX FUND
The Equity Index Fund believes the following is a reasonable construction of the federal tax rules applicable to treatment of the Guarantee for federal income tax purposes. However, since these rules are subject to differing interpretations, investors should consult their tax advisors regarding their investment in the Equity Index Fund.
Receipt of amounts pursuant to the Guarantee should be treated as a payment by NYLIFE in the nature of insurance rather than a distribution from the Equity Index Fund. As such, the payments will not be eligible for the dividends received deduction available to corporations and will also not be eligible for treatment as a qualified dividend by individual shareholders. The Equity Index Fund believes that recipients may treat receipt of the proceeds as reimbursement for the loss of the value of their Fund's shares and reduce the basis of their Fund shares in the amount of the guarantee payment rather than treating the payment as gross income.`
Shareholders of the Equity Index Fund may have to allocate the amount paid for their Fund shares between the Guarantee and the shares acquired in determining the tax basis of their Fund shares for purposes of determining gain or loss on sale, redemption, or other disposition of those shares.
It is anticipated that capital gain or loss from the disposition of shares will be eligible for treatment as long-term or short-term capital gain or loss depending upon the shareholder's actual holding period for the shares. Investors should be aware that, under IRS regulations, as a result of the Guarantee, a shareholder's holding period for shares in the Equity Index Fund might be deemed not to commence until the Guarantee is paid or expires. In that event, the capital gain or loss on the disposition of Fund shares would be short-term capital gain or loss until such time as the shares have been held continuously by the shareholder for the requisite long-term holding period (currently more than one year for federal income tax purposes) after the expiration or payment of the Guarantee. The holding period for shares received from reinvestment of dividends and distributing will commence no earlier than the reinvestment date, but could be delayed as described previously in this paragraph as a result of the Guarantee.
OTHER INFORMATION
ORGANIZATION AND CAPITALIZATION
The Funds are separate series of the Trust, an open-end investment company established under the laws of The Commonwealth of Massachusetts by a Declaration of Trust dated January 9, 1986, as amended. The Tax Free Bond Fund was originally formed as the MacKay-Shields MainStay Tax Free Bond Fund pursuant to a Declaration of Trust on January 9, 1986 and became a series of the Trust pursuant to a reorganization that occurred on May 29, 1987. The Total Return Fund commenced operations on December 29, 1987. The Equity Index Fund commenced operations on December 20, 1990. The International Equity Fund commenced operations on September 13, 1994. The Strategic Income Fund commenced operations on February 28, 1997, 1997 and was renamed the Diversified Income Fund effective January 1, 2004. The Small Cap Value Fund, Small Cap Growth Fund, Equity Income Fund and Global High Yield Fund commenced operations on June 1, 1998. Effective January 1, 2004, the Equity Income Fund, Growth Opportunities Fund and Global High Yield Fund were renamed the Mid Cap Value Fund, Common Stock Fund and Global High Income Fund, respectively. The MAP Fund was originally formed as the Mutual Benefit Fund, a Delaware corporation. The Fund was renamed the MAP-Equity Fund in 1995. The shareholders of the MAP-Equity Fund approved an Agreement and Plan of Reorganization at their June 3, 1999 meeting, and the MAP-Equity Fund was reorganized as the MainStay MAP Fund-Class I shares on June 9, 1999. The Fund was renamed the MAP Fund effective June 10, 2002. The Mid Cap Growth Fund was formed pursuant to an Establishment and Designation of Series on December 11, 2000. The Large Cap Growth Fund, which commenced operations on April 1, 2005, was established in connection with an Agreement and Plan of Reorganization pursuant to which the FMI Winslow Growth Fund, a series of FMI Mutual Funds, Inc. (the "Winslow Fund") was reorganized with and into the Fund effective March 31, 2005 ("Reorganization"). As a result of the Reorganization, shares of the Winslow Fund were designated as Class A shares of the Fund and the Fund adopted the Winslow Fund's performance and financial history. The organizational expenses of each Fund (except the MAP Fund) will be amortized and deferred over a period not to exceed 60 months. The Declaration of Trust and By-laws authorize the Trustees to establish additional series or "Funds" as well as additional classes of shares.
VOTING RIGHTS
Shares entitle their holders to one vote per share; however, separate votes will be taken by each Fund or class on matters affecting an individual Fund or a particular class of shares issued by a Fund. Shares have noncumulative voting rights, which means that holders of more than 50% of the shares voting for the election of Trustees can elect all Trustees and, in such event, the holders of the remaining shares voting for the election of Trustees will not be able to elect any person or persons as Trustees. Shares have no preemptive or subscription rights and are transferable.
SHAREHOLDER AND TRUSTEE LIABILITY
Under certain circumstances, shareholders of the Funds may be held personally liable as partners under Massachusetts law for obligations of the trust. The Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Trust. Notice of such disclaimer will normally be given in each agreement, obligation or instrument entered into or executed by the
Trust or the Trustees. The Declaration of Trust provides for indemnification by the relevant Fund for any loss suffered by a shareholder as a result of an obligation of the Fund. The Declaration of Trust also provides that the Trust shall, upon request, assume the defense of any claim made against any shareholder for any act or obligation of the Trust and satisfy any judgment thereon. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which a Fund would be unable to meet its obligations. The Trustees believe that, in view of the above, the risk of personal liability of shareholders is remote.
The Declaration of Trust further provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law, but nothing in the Declaration of Trust protects a Trustee against any liability to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the Trust's registration statement filed with the SEC under the 1933 Act, as amended with respect to the securities offered hereby, certain portions of which have been omitted pursuant to the rules and regulations of the SEC. The registration statement, including the exhibits filed therewith, may be examined at the offices of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any contract or other documents referred to are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other documents filed as an exhibit to the registration statement, each such statement being qualified in all respects by such reference.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP, 1601 Market Street, Philadelphia, Pennsylvania 19103-2499, has been selected as the Trust's independent registered public accounting firm. KPMG LLP examines the financial statements of the Funds and provides other audit, tax, and related services as pre-approved by the Audit and Compliance Committee.
TRANSFER AGENT
NYLIM Service Company, LLC ("NYLIM SC"), an affiliate of the Manager, serves as the transfer agent and dividend disbursing agent for The MainStay Funds. NYLIM SC has its principal office and place of business at 169 Lackawanna Avenue, Parsippany, New Jersey 07054. Pursuant to its Amended and Restated Transfer Agency and Service Agreement dated August 1, 2002 with the Trust, NYLIM SC provides transfer agency services, such as the receipt of purchase and redemption orders, the receipt of dividend reinvestment instructions, the preparation and transmission of dividend payments and the maintenance of various records of accounts. The Trust pays NYLIM SC fees in the form of per account charges, as well as out-of-pocket expenses and advances incurred by NYLIM SC. NYLIM SC has entered into a Sub-Transfer Agency and Service Agreement with Boston Financial Data Services, Inc. ("BFDS") located at 66 Brooks Drive, Braintree, Massachusetts 02184-3839 and pays to BFDS per account, and transaction fees and out-of-pocket expenses for performing certain transfer agency and shareholder recordkeeping services.
Transfer agent fees and expenses are charged to the Funds based on the number of accounts being serviced. Although the fees and expenses charged on this basis are generally in line with the average of other fund complexes, certain Funds or Classes have smaller average account sizes than the mutual fund industry average. As a result, when expressed as a percentage of assets, the transfer agent fees and expenses and gross total operating expenses of those Funds or Classes are relatively higher. The Trust may, from time to time, consider and implement measures intended to increase average shareholder account size and/or reduce the Trust's transfer agent fees and expenses.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, P.O. Box 9130, Boston, Massachusetts 02116, is custodian of cash and securities of the Funds of the Trust and has subcustodial agreements for holding such Funds' foreign assets.
LEGAL COUNSEL
Legal advice regarding certain matters relating to the Federal securities laws has been provided by Dechert LLP, 1775 I Street, N.W., Washington, D.C. 20006.
CONTROL PERSONS AND BENEFICIAL SHARE OWNERSHIP OF THE FUNDS
As of March 31, 2006, the Trustees and officers of the Trust as a group owned less than 1% of the outstanding shares of any class of beneficial interest of each of the Funds. The following table sets forth information concerning beneficial and record ownership, as of JanuaryMarch 31, 2006, of the Funds' shares by each person who beneficially or of record owned more than 5% of the voting securities of any Fund. The table also sets forth information concerning beneficial and record ownership, as of JanuaryMarch 31, 2006 of the Funds' shares by each person who beneficially or of record owned more than 25% of the voting securities of any Fund. The Class R3 shares of the International Equity Fund, Large Cap Growth Fund, MAP Fund and Mid Cap Growth Fund were first offered on April 28, 2006. Therefore, there were no Class R3 shares outstanding as of the date of this SAI.
PERCENTAGE OF
FUND NAME AND CLASS SHAREHOLDER NAME AND ADDRESS BENEFICIAL SHARES OWNED CLASS (%)
------------------- ------------------------------------------- ----------------------- -------------
MAINSTAY CAPITAL APPRECIATION FUND CITIGROUP GLOBAL MARKETS INC 42,525.9210 17.46%
CLASS C HOUSE ACCOUNT
ATTN PETER BOOTH 7TH FLOOR
333 W 34TH ST
NEW YORK NY 10001-2402
MAINSTAY CAPITAL APPRECIATION FUND MERRILL LYNCH PIERCE FENNER & SMITH INC - 33,510.3690 13.76%
CLASS C FOR THE SOLE BENEFIT OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE EAST 3RD FL
JACKSONVILLE FL 32246-6484
MAINSTAY CAPITAL APPRECIATION FUND NYLIFE DISTRIBUTORS INC 35.1120 100.00%
CLASS I AL LEIER - CVP
AUDIT ACCOUNT
169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY COMMON STOCK FUND NEW YORK LIFE INSURANCE COMPANY 1,009,683.7330 27.68%
CLASS A ATTN THOMAS MAHON ROOM 201
51 MADISON AVENUE
NEW YORK NY 10010-1603
MAINSTAY COMMON STOCK FUND NEW YORK LIFE TRUST COMPANY CLIENT ACCOUNTS 432,585.2570 11.86%
CLASS A 169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY COMMON STOCK FUND THERESA COLLINS USUFRUCT 11,938.1960 5.42%
CLASS C JAMES N COLLINS & GENE M COLLINS
KAREN T COLLINS & JOHN W COLLINS
4006 WALNUT DR
NEW IBERIA LA 70563-3342
MAINSTAY COMMON STOCK FUND MAINSTAY MODERATE GROWTH ALLOC FUND 1,562,390.0130 20.44%
CLASS I C/O TONY ELAVIA
470 PARK AVE S RM VM
NEW YORK NY 10016-6819
MAINSTAY COMMON STOCK FUND MAINSTAY CONSERV ALLOCATION FUND 507,350.1470 6.64%
CLASS I C/O MAGGIE GOODMAN
EIG GROUP 2ND FLOOR
51 MADISON AVENUE
NEW YORK NY 10010-1603
MAINSTAY COMMON STOCK FUND MAINSTAY MODERATE ALLOCATION FUND 1,402,491.7700 18.35%
CLASS I C/O TONY ELAVIA
1180 AVENUE OF THE AMERICAS FL 22
NEW YORK NY 10036-8401
MAINSTAY COMMON STOCK FUND MAINSTAY GROWTH ALLOCATION FUND 644,288.1110 8.43%
CLASS I C/O TONY ELAVIA
470 PARK AVE S RM VM
NEW YORK NY 10016-6819
|
PERCENTAGE OF
FUND NAME AND CLASS SHAREHOLDER NAME AND ADDRESS BENEFICIAL SHARES OWNED CLASS (%)
------------------- ------------------------------------------- ----------------------- -------------
MAINSTAY COMMON STOCK FUND EVERGREEN INVESTMENT SERVICES, INC 942,365.8730 12.33%
CLASS I THE CONSERVATIVE PORTFOLIO -
COLLEGESENSE-WI4E
C/O JIM HALL, 18TH FLOOR
200 BERKELEY STREET
BOSTON MA 02116-5022
MAINSTAY COMMON STOCK FUND EVERGREEN INVESTMENT SERVICES, INC 1,051,753.5440 13.76%
CLASS I THE MODERATE PORTFOLIO -
COLLEGESENSE-WI4D
C/O JIM HALL, 18TH FLOOR
200 BERKELEY STREET
BOSTON MA 02116-5022
MAINSTAY COMMON STOCK FUND EVERGREEN INVESTMENT SERVICES, INC 593,127.6540 7.76%
CLASS I THE MODERATELY AGGRESSIVE PORTFOLIO -
COLLEGESENSE-WI4B
C/O JIM HALL, 18TH FLOOR
200 BERKELEY STREET
BOSTON MA 02116-5022
MAINSTAY COMMON STOCK FUND EVERGREEN INVESTMENT SERVICES, INC 748,221.1990 9.79%
CLASS I THE AGGRESSIVE PORTFOLIO -
COLLEGESENSE-WI3A
C/O JIM HALL, 18TH FLOOR
200 BERKELEY STREET
BOSTON MA 02116-5022
MAINSTAY CONVERTIBLE FUND CITIGROUP GLOBAL MARKETS INC 2,215,852.3400 8.81%
CLASS A HOUSE ACCOUNT
ATTN PETER BOOTH 7TH FLOOR
333 W 34TH ST
NEW YORK NY 10001-2402
MAINSTAY CONVERTIBLE FUND CITIGROUP GLOBAL MARKETS INC 646,410.5660 6.79%
CLASS B HOUSE ACCOUNT
ATTN PETER BOOTH 7TH FLOOR
333 W 34TH ST
NEW YORK NY 10001-2402
MAINSTAY CONVERTIBLE FUND CITIGROUP GLOBAL MARKETS INC 152,696.8680 8.73%
CLASS C HOUSE ACCOUNT
ATTN PETER BOOTH 7TH FLOOR
333 W 34TH ST
NEW YORK NY 10001-2402
MAINSTAY CONVERTIBLE FUND MERRILL LYNCH PIERCE FENNER & SMITH INC - 273,964.5010 15.66%
CLASS C FOR THE SOLE BENEFIT OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE EAST 3RD FL
JACKSONVILLE FL 32246-6484
MAINSTAY DIVERSIFIED INCOME FUND NYLIFE DISTRIBUTORS INC 884,846.6230 11.95%
CLASS A ATTN AL LEIER
169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY DIVERSIFIED INCOME FUND MERRILL LYNCH PIERCE FENNER & SMITH INC - 175,032.4360 11.81%
CLASS C FOR THE SOLE BENEFIT OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE EAST 3RD FL
JACKSONVILLE FL 32246-6484
MAINSTAY DIVERSIFIED INCOME FUND NEW YORK LIFE TRUST CO 1,910.1210 6.48%
CLASS I CUST FOR THE IRA OF
PAUL STEIGER
8351 DUOMO CIR
BOYNTON BEACH FL 33437-7131
MAINSTAY DIVERSIFIED INCOME FUND NEW YORK LIFE TRUST COMPANY 3,213.4880 10.90%
CLASS I CUST FOR THE IRA OF
OLLIE CHRISTENE EDWARDS (POA)
FBO DONALD R EDWARDS
5606 NASHVILLE AVE
LUBBOCK TX 79413-4642
MAINSTAY DIVERSIFIED INCOME FUND NEW YORK LIFE TRUST CO 4,848.2410 16.45%
CLASS I CUST FOR THE IRA OF
FBO DOLORES R NEUREITER
323 E RIDGEWOOD AVE
RIDGEWOOD NJ 07450-3301
|
PERCENTAGE OF
FUND NAME AND CLASS SHAREHOLDER NAME AND ADDRESS BENEFICIAL SHARES OWNED CLASS (%)
------------------- ------------------------------------------- ----------------------- -------------
MAINSTAY DIVERSIFIED INCOME FUND NEW YORK LIFE TRUST COMPANY 2,553.8880 8.67%
CLASS I CUST FOR THE IRA OF
LILLIAN FARHI
JOSEPH FARHI POA
1330 212TH ST
BAYSIDE NY 11360-1112
MAINSTAY DIVERSIFIED INCOME FUND NORTH EAST MEDICAL SERVICES 10,664.3660 36.19%
CLASS I PROFIT SHARING PLAN
C/O LINDA BIEN
1520 STOCKTON STREET
SAN FRANCISCO CA 94133-3354
MAINSTAY EQUITY INDEX FUND CITIGROUP GLOBAL MARKETS INC 797,538.6290 6.52%
CLASS A HOUSE ACCOUNT
ATTN PETER BOOTH 7TH FLOOR
333 W 34TH ST
NEW YORK NY 10001-2402
MAINSTAY GLOBAL HIGH INCOME FUND NEW YORK LIFE INSURANCE COMPANY 999,216.7100 9.25%
CLASS A ATTN THOMAS MAHON ROOM 201
51 MADISON AVENUE
NEW YORK NY 10010-1603
MAINSTAY GLOBAL HIGH INCOME FUND NYLIFE DISTRIBUTORS INC 596,413.9900 5.52%
CLASS A ATTN AL LEIER
169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY GLOBAL HIGH INCOME FUND CITIGROUP GLOBAL MARKETS INC 200,918.3020 5.22%
CLASS B HOUSE ACCOUNT
ATTN PETER BOOTH 7TH FLOOR
333 W 34TH ST
NEW YORK NY 10001-2402
MAINSTAY GLOBAL HIGH INCOME FUND CITIGROUP GLOBAL MARKETS INC 325,542.8870 10.84%
CLASS C HOUSE ACCOUNT
ATTN PETER BOOTH 7TH FLOOR
333 W 34TH ST
NEW YORK NY 10001-2402
MAINSTAY GLOBAL HIGH INCOME FUND MERRILL LYNCH PIERCE FENNER & SMITH INC - 312,849.0910 10.41%
CLASS C FOR THE SOLE BENEFIT OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE EAST 3RD FL
JACKSONVILLE FL 32246-6484
MAINSTAY GOVERNMENT FUND SUPPLEMENTAL INCOME PLAN TRUST FUND 3,182,102.7890 10.18%
CLASS A PO BOX 8338
BOSTON MA 02266-8338
MAINSTAY GOVERNMENT FUND NYLIFE DISTRIBUTORS INC 125.5980 6.38%
CLASS I AL LEIER - CVP
AUDIT ACCOUNT
169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY GOVERNMENT FUND NEW YORK LIFE TRUST COMPANY 1,760.8640 89.39%
CLASS I CUST FOR THE IRA OF
LILLIAN FARHI
JOSEPH FARHI POA
1330 212TH ST
BAYSIDE NY 11360-1112
MAINSTAY HIGH YIELD CORPORATE BOND FUND CITIGROUP GLOBAL MARKETS INC 15,816,775.3510 8.18%
CLASS B HOUSE ACCOUNT
ATTN PETER BOOTH 7TH FLOOR
333 W 34TH ST
NEW YORK NY 10001-2402
MAINSTAY HIGH YIELD CORPORATE BOND FUND CITIGROUP GLOBAL MARKETS INC 11,501,494.5610 17.65%
CLASS C HOUSE ACCOUNT
ATTN PETER BOOTH 7TH FLOOR
333 W 34TH ST
NEW YORK NY 10001-2402
MAINSTAY HIGH YIELD CORPORATE BOND FUND MERRILL LYNCH PIERCE FENNER & SMITH INC - 10,700,231.4990 16.42%
CLASS C FOR THE SOLE BENEFIT OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE EAST 3RD FL
JACKSONVILLE FL 32246-6484
MAINSTAY HIGH YIELD CORPORATE BOND FUND MAINSTAY MODERATE ALLOCATION FUND 766,543.7740 5.56%
CLASS I C/O TONY ELAVIA
1180 AVENUE OF THE AMERICAS FL 22
NEW YORK, NY 10036-8401
|
PERCENTAGE OF
FUND NAME AND CLASS SHAREHOLDER NAME AND ADDRESS BENEFICIAL SHARES OWNED CLASS (%)
------------------- ------------------------------------------- ----------------------- -------------
MAINSTAY HIGH YIELD CORPORATE BOND FUND MAINSTAY MODERATE GROWTH ALLOC FD 824,624.9060 5.98%
CLASS I C/O TONY ELAVIA
470 PARK AVE S RM VM
NEW YORK, NY 10016-6819
MAINSTAY HIGH YIELD CORPORATE BOND FUND RAYMOND JAMES & ASSOC INC 2,708,925.4950 19.65%
CLASS I FBO HELIOS EDUCATION
880 CARILLON PKWY
ST PETERSBURG FL 33716-1100
MAINSTAY HIGH YIELD CORPORATE BOND FUND EVERGREEN INVESTMENT SERVICES, INC 843,928.4500 6.12%
CLASS I THE CONSERVATIVE PORTFOLIO - COLLEGESENSE-
WI4E
C/O JIM HALL, 18TH FLOOR
200 BERKELEY STREET
BOSTON MA 02116-5022
MAINSTAY HIGH YIELD CORPORATE BOND FUND EVERGREEN INVESTMENT SERVICES, INC 1,075,371.9220 7.80%
CLASS I THE MODERATE PORTFOLIO - COLLEGESENSE- WI4D
C/O JIM HALL, 18TH FLOOR
200 BERKELEY STREET
BOSTON MA 02116-5022
MAINSTAY HIGH YIELD CORPORATE BOND FUND EVERGREEN INVESTMENT SERVICES, INC 1,220,836.2960 8.86%
CLASS I THE MODERATELY AGGRESSIVE PORTFOLIO -
COLLEGESENSE- WI4B
C/O JIM HALL, 18TH FLOOR
200 BERKELEY STREET
BOSTON MA 02116-5022
MAINSTAY HIGH YIELD CORPORATE BOND FUND EVERGREEN INVESTMENT SERVICES, INC 1,279,116.2760 9.28%
CLASS I THE AGGRESSIVE PORTFOLIO - COLLEGESENSE-
WI3A
C/O JIM HALL, 18TH FLOOR
200 BERKELEY STREET
BOSTON MA 02116-5022
MAINSTAY HIGH YIELD CORPORATE BOND FUND NEW YORK LIFE TRUST COMPANY CLIENT ACCOUNTS 1,930,283.68000 14.00%
CLASS I 169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY HIGH YIELD CORPORATE BOND FUND MERRILL LYNCH PIERCE FENNER & SMITH INC - 1,493,708.8740 10.83%
CLASS I FOR THE SOLE BENEFIT OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE EAST 3RD FL
JACKSONVILLE FL 32246-6484
MAINSTAY INTERNATIONAL EQUITY FUND NEW YORK LIFE TRUST COMPANY CLIENT ACCOUNTS 1,361,694.4030 14.83%
CLASS A 169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY INTERNATIONAL EQUITY FUND MERRILL LYNCH PIERCE FENNER & SMITH INC - 113,848.2680 11.64%
CLASS C FOR THE SOLE BENEFIT OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE EAST 3RD FL
JACKSONVILLE FL 32246-6484
MAINSTAY INTERNATIONAL EQUITY FUND BOWEN DAVID & CO 5,038,425.2720 19.71
CLASS I PO BOX 55806
BOSTON, MA 02205-5806
MAINSTAY INTERNATIONAL EQUITY FUND DENGEL & CO 2,330,870.1420 9.12%
CLASS I C/O FIDUCIARY TRUST CO INTL
PO BOX 3199
NEW YORK NY 10008-3199
MAINSTAY INTERNATIONAL EQUITY FUND NEW YORK LIFE PROGRESS-SHARING 2,141,711.3610 8.38%
CLASS I INVESTMENT PLAN PROGRAM
C/O ANNE POLLACK
51 MADISON AVE RM 1305
NEW YORK NY 10010-1603
MAINSTAY INTERNATIONAL EQUITY FUND NEW YORK LIFE TRUST COMPANY CLIENT ACCOUNTS 246,300.3870 99.96%
CLASS R1 169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY INTERNATIONAL EQUITY FUND WATER TECHNOLOGY, INC. 401(K) 10,619.3350 39.87%
CLASS R2 CHARLES M. NEUMAN
N8205 CTY. TK. W
BEAVER DAM WI 53916
MAINSTAY INTERNATIONAL EQUITY FUND WATER TECHNOLOGY, INC. 401(K) 1,478.39200 5.55%
CLASS R2 TERRI L. TRIMMER
W9631 ROSE CIRCLE
BEAVER DAM WI 53916-9232
MAINSTAY INTERNATIONAL EQUITY FUND LICHTE INSURANCE AGENCY, INC MPP 1,388.1810 5.21%
CLASS R2 DONALD A LICHTE
1400 LANCER CT
REEDSBURG WI 53959-1422
|
PERCENTAGE OF
FUND NAME AND CLASS SHAREHOLDER NAME AND ADDRESS BENEFICIAL SHARES OWNED CLASS (%)
------------------- ------------------------------------------- ----------------------- -------------
MAINSTAY INTERNATIONAL EQUITY FUND LICHTE INSURANCE AGENCY, INC MPP 3,888.6810 14.60%
CLASS R2 DONALD H LICHTE
610 N WEBB AVE
REEDSBURG WI 53959-1267
MAINSTAY LARGE CAP GROWTH FUND CITIGROUP GLOBAL MARKETS INC 98,936.0320 5.10
CLASS C HOUSE ACCOUNT
ATTN PETER BOOTH 7TH FLOOR
333 W 34TH ST
NEW YORK NY 10001-2402
MAINSTAY LARGE CAP GROWTH FUND MERRILL LYNCH PIERCE FENNER & SMITH INC - 240,981.2830 12.41%
CLASS C FOR THE SOLE BENEFIT OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE EAST 3RD FL
JACKSONVILLE FL 32246-6484
MAINSTAY LARGE CAP GROWTH FUND NEW YORK LIFE TRUST COMPANY CLIENT ACCOUNTS 4,067,005.2330 15.88%
CLASS I 169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY LARGE CAP GROWTH FUND MAINSTAY MODERATE GROWTH ALLOC FUND 3,732,122.5500 14.57%
CLASS I C/O TONY ELAVIA
470 PARK AVE S RM VM
NEW YORK NY 10016-6819
MAINSTAY LARGE CAP GROWTH FUND MAINSTAY MODERATE ALLOCATION FUND 2,511,793.5220 9.81%
CLASS I C/O TONY ELAVIA
470 PARK AVE S RM VM
NEW YORK NY 10016-6819
MAINSTAY LARGE CAP GROWTH FUND MAINSTAY GROWTH ALLOCATION FUND 2,478,467.5190 9.68%
CLASS I C/O TONY ELAVIA
470 PARK AVE S RM VM
NEW YORK NY 10016-6819
MAINSTAY LARGE CAP GROWTH FUND EVERGREEN INVESTMENT SERVICES, INC 2,383,883.5630 9.31%
CLASS I THE MODERATELY AGGRESSIVE PORTFOLIO -
COLLEGE SENSE WI4B
C/O JIM HALL, 18TH FLOOR
200 BERKELEY STREET
BOSTON MA 02116-5022
MAINSTAY LARGE CAP GROWTH FUND EVERGREEN INVESTMENT SERVICES, INC 4,730,351.7970 18.47%
CLASS I THE AGGRESSIVE PORTFOLIO - COLLEGE
SENSE WI4A
C/O JIM HALL, 18TH FLOOR
200 BERKELEY STREET
BOSTON MA 02116-5022
MAINSTAY LARGE CAP GROWTH FUND CHARLES SCHWAB & COMPANY INC 1,936,201.2880 7.67%
CLASS I ATTN MUTUAL FUND DEPT
101 MONTGOMERY STREET
SAN FRANCISCO CA 94104-4122
MAINSTAY LARGE CAP GROWTH FUND NYLIFE DISTRIBUTORS INC 414.2930 100.00%
CLASS R1 AL LEIER - CVP
AUDIT ACCOUNT
169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY LARGE CAP GROWTH FUND MG TRUST COMPANY CUST FBO 326.4870 44.07%
CLASS R2 PINNACLE ENGINEERING INC 401K P&T
700 17TH ST STE 300
DENVER CO 80202-3531
MAINSTAY LARGE CAP GROWTH FUND NYLIFE DISTRIBUTORS INC 414.2940 55.93%
CLASS R2 AL LEIER - CVP
AUDIT ACCOUNT
169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY MAP FUND MERRILL LYNCH PIERCE FENNER & SMITH INC - 862,673.0490 6.51%
CLASS A FOR THE SOLE BENEFIT OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE EAST 3RD FL
JACKSONVILLE FL 32246-6484
MAINSTAY MAP FUND CITIGROUP GLOBAL MARKETS INC 532,978.3950 5.30%
CLASS B HOUSE ACCOUNT
ATTN PETER BOOTH 7TH FLOOR
333 W 34TH ST
NEW YORK NY 10001-2402
MAINSTAY MAP FUND CITIGROUP GLOBAL MARKETS INC 1,123,963.3770 18.09%
CLASS C HOUSE ACCOUNT
ATTN PETER BOOTH 7TH FLOOR
333 W 34TH ST
NEW YORK NY 10001-2402
|
PERCENTAGE OF
FUND NAME AND CLASS SHAREHOLDER NAME AND ADDRESS BENEFICIAL SHARES OWNED CLASS (%)
------------------- ------------------------------------------- ----------------------- -------------
MAINSTAY MAP FUND MERRILL LYNCH PIERCE FENNER & SMITH INC - 1,103,477.8070 17.76%
CLASS C FOR THE SOLE BENEFIT OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE EAST 3RD FL
JACKSONVILLE FL 32246-6484
MAINSTAY MAP FUND NEW YORK LIFE TRUST COMPANY CLIENT ACCOUNTS 5,291,613.9050 54.94%
CLASS I 169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY MAP FUND RAYMOND JAMES & ASSOC INC 575,845.5390 5.98%
CLASS I FBO HELIOS EDUCATION
880 CARILLON PKWY
ST PETERSBURG FL 33716-1100
MAINSTAY MAP FUND NEW YORK LIFE PROGRESS-SHARING INVESTMENT 1,616,322.1170 16.78%
CLASS I PLAN PROGRAM
C/O LYNNE M COHN
51 MADISON AVE RM 513
NEW YORK NY 10010-1603
MAINSTAY MAP FUND NEW YORK LIFE TRUST COMPANY CLIENT ACCOUNTS 389,527.0710 99.81%
CLASS R1 169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY MAP FUND PIMS/PRUDENTIAL RETIREMENT AS NOMINEE FOR 6,711.4710 8.25%
CLASS R2 THE TTEE/CUST PL 007 ANTIMITE
401(K) PLAN
7365 HELLMAN AVE
RANCHO CUCAMONGA CA 91730-1302
MAINSTAY MAP FUND NEW YORK LIFE TRUST COMPANY CLIENT ACCOUNTS 62,455.4760 76.78%
CLASS R2 169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY MID CAP GROWTH FUND MERRILL LYNCH PIERCE FENNER & SMITH INC - 878,956.8870 9.57%
CLASS A FOR THE SOLE BENEFIT OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE EAST 3RD FL
JACKSONVILLE FL 32246-6484
MAINSTAY MID CAP GROWTH FUND CITIGROUP GLOBAL MARKETS INC 311,539.9530 11.18%
CLASS C HOUSE ACCOUNT
ATTN PETER BOOTH 7TH FLOOR
333 W 34TH ST
NEW YORK NY 10001-2402
MAINSTAY MID CAP GROWTH FUND MERRILL LYNCH PIERCE FENNER & SMITH INC - 1,113,196.6370 39.96%
CLASS C FOR THE SOLE BENEFIT OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE EAST 3RD FL
JACKSONVILLE FL 32246-6484
MAINSTAY MID CAP GROWTH FUND MAINSTAY MODERATE GROWTH ALLOC FUND 303,414.8170 39.59%
CLASS I C/O TONY ELAVIA
470 PARK AVE S RM VM
NEW YORK NY 10016-6819
MAINSTAY MID CAP GROWTH FUND MAINSTAY MODERATE ALLOCATION FUND 183,376.0880 24.06%
CLASS I C/O TONY ELAVIA
1180 AVENUE OF THE AMERICAS FL 22
NEW YORK NY 10036-8401
MAINSTAY MID CAP GROWTH FUND MAINSTAY CONSERV ALLOCATION FUND 48,423.6100 6.32%
CLASS I C/O MAGGIE GOODMAN
EIG GROUP 2ND FL
51 MADISON AVE
NEW YORI, NY 10010-1603
MAINSTAY MID CAP GROWTH FUND MAINSTAY GROWTH ALLOCATION FUND 224,338.3320 29.28%
CLASS I C/O TONY ELAVIA
470 PARK AVE S RM VM
NEW YORK NY 10016-6819
MAINSTAY MID CAP VALUE FUND MERRILL LYNCH PIERCE FENNER & SMITH INC - 301,023.6000 12.08%
CLASS C FOR THE SOLE BENEFIT OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE EAST 3RD FL
JACKSONVILLE FL 32246-6484
MAINSTAY MID CAP VALUE FUND CITIGROUP GLOBAL MARKETS INC 505,352.1180 20.28%
CLASS C HOUSE ACCOUNT
ATTN PETER BOOTH 7TH FLOOR
333 W 34TH ST
NEW YORK NY 10001-2402
MAINSTAY MID CAP VALUE FUND PATTIE A CLAY INFIRMARY 35,639.7030 97.99%
CLASS I ASSOCIATION INC
C/O ROBERT J HUDSON
EASTERN BY-PASS
PO BOX 1600
RICHMOND KY 40476-2603
|
PERCENTAGE OF
FUND NAME AND CLASS SHAREHOLDER NAME AND ADDRESS BENEFICIAL SHARES OWNED CLASS (%)
------------------- ------------------------------------------- ----------------------- -------------
MAINSTAY MID CAP VALUE FUND NYLIFE DISTRIBUTORS INC 73.2630 100.00%
CLASS R1 AL LEIER - CVP
AUDIT ACCOUNT
169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY MID CAP VALUE FUND NEW YORK LIFE TRUST COMPANY CLIENT ACCOUNTS 97,142.1660 44.73%
CLASS R2 169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY MONEY MARKET FUND NEW YORK LIFE TRUST COMPANY CLIENT ACCOUNTS 11,837,992.1400 5.35%
CLASS A 169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY SMALL CAP VALUE FUND NEW YORK LIFE TRUST COMPANY CLIENT ACCOUNTS 400,999.6090 9.52%
CLASS A 169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY SMALL CAP VALUE FUND MERRILL LYNCH PIERCE FENNER & SMITH INC - 265,531,7620 6.31%
CLASS A FOR THE SOLE BENEFIT OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE EAST 3RD FL
JACKSONVILLE FL 32246-6484
MAINSTAY SMALL CAP VALUE FUND CITIGROUP GLOBAL MARKETS INC 67,330.0710 7.44%
CLASS C HOUSE ACCOUNT
ATTN PETER BOOTH 7TH FLOOR
333 W 34TH ST
NEW YORK NY 10001-2402
MAINSTAY SMALL CAP VALUE FUND MERRILL LYNCH PIERCE FENNER & SMITH INC - 181,917.9680 20.09%
CLASS C FOR THE SOLE BENEFIT OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE EAST 3RD FL
JACKSONVILLE FL 32246-6484
MAINSTAY SMALL CAP VALUE FUND EVERGREEN INVESTMENT SERVICES, INC 228,206.9920 13.63%
CLASS I THE CUSTOM CHOICE EQUITY FUNDS
PORTFOLIO-COLLEGESENSE-WI4G
C/O JIM HALL, 18TH FLOOR
200 BERKELEY STREET
BOSTON MA 02116-5022
MAINSTAY SMALL CAP VALUE FUND EVERGREEN INVESTMENT SERVICES, INC 154,200.3790 9.02%
CLASS I THE CONSERVATIVE PORTFOLIO -
COLLEGESENSE-WI4E
C/O JIM HALL, 18TH FLOOR
200 BERKELEY STREET
BOSTON MA 02116-5022
MAINSTAY SMALL CAP VALUE FUND EVERGREEN INVESTMENT SERVICES, INC 445,498.4280 26.05%
CLASS I THE MODERATELY AGGRESSIVE PORTFOLIO -
COLLEGESENSE-WI4B
C/O JIM HALL, 18TH FLOOR
200 BERKELEY STREET
BOSTON MA 02116-5022
MAINSTAY SMALL CAP VALUE FUND EVERGREEN INVESTMENT SERVICES, INC 294,325.1310 17.21%
CLASS I THE MODERATE PORTFOLIO -
COLLEGESENSE-WI4D
C/O JIM HALL, 18TH FLOOR
200 BERKELEY STREET
BOSTON MA 02116-5022
MAINSTAY SMALL CAP VALUE FUND EVERGREEN INVESTMENT SERVICES, INC 583,100.1650 34.09%
CLASS I THE AGGRESSIVE PORTFOLIO -
COLLEGESENSE-WI3A
C/O JIM HALL, 18TH FLOOR
200 BERKELEY STREET
BOSTON MA 02116-5022
MAINSTAY TAX FREE BOND FUND NFS LLC FEBO R LOCKE BELL 34,906.4990 5.39%
CLASS C PO BOX 481
GASTONIA NC 28053-0481
MAINSTAY TAX FREE BOND FUND MERRILL LYNCH PIERCE FENNER & SMITH INC - 100,488.5600 15.51%
CLASS C FOR THE SOLE BENEFIT OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE EAST 3RD FL
JACKSONVILLE FL 32246-6484
MAINSTAY TOTAL RETURN FUND CITIGROUP GLOBAL MARKETS INC 51,245.0200 26.99%
CLASS C HOUSE ACCOUNT
ATTN PETER BOOTH 7TH FLOOR
333 W 34TH ST
NEW YORK NY 10001-2402
|
PERCENTAGE OF
FUND NAME AND CLASS SHAREHOLDER NAME AND ADDRESS BENEFICIAL SHARES OWNED CLASS (%)
------------------- ------------------------------------------- ----------------------- -------------
MAINSTAY TOTAL RETURN FUND NYLIFE DISTRIBUTORS INC 60.5890 10.97%
CLASS I AL LEIER - CVP
AUDIT ACCOUNT
169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY TOTAL RETURN FUND F&M BANK NO VIRGINIA CUST FBO IPC PROTOTYPE 491.6260 89.03%
CLASS I PLAN
C/O JOHN AMES
PO BOX 8095
VIRGINIA BCH VA 23450-8095
MAINSTAY VALUE FUND MERRILL LYNCH PIERCE FENNER & SMITH INC - 258,410.7550 43.19%
CLASS C FOR THE SOLE BENEFIT OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE EAST 3RD FL
JACKSONVILLE FL 32246-6484
MAINSTAY VALUE FUND NYLIFE DISTRIBUTORS INC 57.2320 100.00%
CLASS I AL LEIER - CVP
AUDIT ACCOUNT
169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY VALUE FUND NYLIFE DISTRIBUTORS INC 57.1790 100.00%
CLASS R1 AL LEIER - CVP
AUDIT ACCOUNT
169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
MAINSTAY VALUE FUND NEW YORK LIFE TRUST COMPANY CLIENT ACCOUNTS 185,307.4300 31.51%
CLASS R2 169 LACKAWANNA AVE
PARSIPPANY NJ 07054-1007
|
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
MOODY'S INVESTORS SERVICE, INC.
Corporate and Municipal Bond Ratings Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations, (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating classified from Aa through Caa. The modifier 1 indicates that the issue ranks in the higher end of its generic rating category; the modifier 2 indicates a midrange ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category.
Advance refunded issues that are secured by escrowed funds held in cash, held in trust, reinvested in direct noncallable United States government obligations or noncallable obligations unconditionally guaranteed by the U.S. government are identified with a hatchmark (#) symbol, i.e., #Aaa.
Moody's assigns conditional ratings to bonds for which the security depends upon the completion of some act or the fulfillment of some condition. These are bonds secured by: (a) earnings of projects under construction; (b) earnings of projects unseasoned in operating experience; (c) rentals that begin when facilities are completed; or (d) payments to which some other limiting condition
attaches. The parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of condition, e.g., Con.(Baa).
MUNICIPAL SHORT-TERM LOAN RATINGS
MIG 1/VMIG 1: This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
MIG 3/VMIG 3: This designation denotes favorable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
MIG 4/VMIG 4: This designation denotes adequate quality. Protection commonly regarded as required of an investment security is present and although not distinctly or predominantly speculative, there is specific risk.
SG: This designation denotes speculative quality. Debt instruments in this category lack margins of protection.
CORPORATE SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations which have an original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR'S
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
AA: Debt rated AA differs from the highest rated issues only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
A: Debt rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
BBB: Debt rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having significant speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC: Debt rated CCC is currently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor. In the event of adverse business, financial or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may be used to cover a situation where a bankruptcy petition has been filed or a similar action has been taken, but debt service payments are continued.
D: Debt rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating will also be used upon the filing of a bankruptcy petition, or the taking of similar action, if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
Debt obligations of issuers outside the United States and its territories are rated on the same basis as domestic corporate and municipal issues. The ratings measure the creditworthiness of the obligor but do not take into account currency exchange and related uncertainties.
SHORT-TERM RATING DEFINITIONS
A-1: A short-term obligation rated `A-1' is rated in the highest category by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong.
A-2: A short-term obligation rated `A-2' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated `A-3' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
B: A short-term obligation rated `B' is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
C: A short-term obligation rated `C' is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation.
D: A short-term obligation rated `D' is in payment default. The `D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The `D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
FITCH INVESTORS SERVICES, INC.
TAX-EXEMPT BONDS
Fitch investment grade bond ratings provide a guide to investors in determining the credit risk associated with a particular security. The ratings represent Fitch's assessment of the issuer's ability to meet the obligations of a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, the current and prospective financial condition and operating performance of the issuer and any guarantor, as well as the economic and political environment that might affect the issuer's future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by insurance policies or financial guaranties unless otherwise indicated.
Bonds that have the same rating are of similar but not necessarily identical credit quality since the rating categories do not fully reflect small differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other obligors, underwriters, their experts and other sources Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of such information. Ratings may be changed, suspended, or withdrawn as a result of changes in, or the unavailability of, information or for other reasons.
AAA: Bonds considered to be investment grade and of the highest grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated F-1+.
A: Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong but may be more vulnerable to adverse economic conditions and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the AAA category.
TAX-EXEMPT NOTES AND COMMERCIAL PAPER
Fitch's short-term ratings apply to debt obligations that are payable on demand or have original maturities of generally up to three years, including commercial paper, certificates of deposit, medium-term notes, and municipal and investment notes.
The short-term rating places greater emphasis than a long-term rating on the existences of liquidity necessary to meet the issuer's obligations in a timely manner.
F-1+: Exceptionally strong credit quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment.
F-1: Very strong credit quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than F-1+ issues.
F-2: Good credit quality. Issues assigned this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as for issue assigned F-1+ and F-1 ratings.
F-3: Far credit quality. Issues assigned this rating have characteristics suggesting that the degree of assurance for timely payment is adequate; however, near-term adverse changes can cause these securities to be rated below investment grade.
APPENDIX B
NYLIFE LLC AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
Report of Independent Auditors
To the Board of Managers and Member of NYLIFE LLC:
In our opinion, the accompanying consolidated statement of financial position
and related consolidated statements of operations and comprehensive income
(loss), of changes in member's equity and of cash flows present fairly, in all
material respects, the financial position of NYLIFE LLC and its subsidiaries
(affiliates of New York Life Insurance Company) (the "Company") at December 31,
2005 and 2004 and the results of their operations and their cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As disclosed in Note 8 to the financial statements, NYLIFE LLC has significant transactions with New York Life Insurance Company and its affiliates. Because of these relationships, it is possible that the terms of the transactions are not the same as those that would result from transactions among wholly unrelated parties.
/s/ PricewaterhouseCoopers LLP New York, New York FEBRUARY 20, 2006 |
NYLIFE LLC AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
December 31
---------------------
2005 2004
---------- --------
(in thousands)
ASSETS
Investments
Affiliated equity securities (equity method) $ 89,049 $ 80,156
Fixed maturities
Available for sale at fair value (amortized cost
of $16,852 and $19,470, respectively) 16,652 19,498
Held to maturity 4,775 4,775
MainStay funds at fair value 601 576
Other investments 12,578 7,989
Cash and cash equivalents 30,498 22,561
Cash held in escrow 13,381 22,520
Accounts and other receivables 8,649 8,204
Fixed assets (net of accumulated depreciation of
$7,023 and $6,651, respectively) 743 1,051
Receivable from New York Life Insurance Company 765,118 532,076
Net receivable from other affiliates 4,952 235,848
Net income taxes receivable 197 --
Net deferred tax asset 128,132 19,022
Goodwill 27,526 11,244
Other assets 3,338 3,647
---------- --------
Total assets $1,106,189 $969,167
========== ========
LIABILITIES AND MEMBER'S EQUITY
Notes payable $ 708,881 $704,254
Derivative financial instruments 401,570 94,140
Accrued expenses 9,263 7,230
Payable to New York Life Insurance Company 4,407 6,373
Net income taxes payable -- 1,481
Other liabilities 17,262 16,499
---------- --------
Total liabilities 1,141,383 829,977
---------- --------
Member's equity 130,699 131,199
Accumulated deficit (178,111) (5,927)
Accumulated other comprehensive income
Net unrealized losses on investments (net of tax
benefit of $82 and $3, respectively) (118) (8)
Cumulative translation adjustment 12,336 13,926
---------- --------
Total member's equity (35,194) 139,190
---------- --------
Total liabilities and member's equity $1,106,189 $969,167
========== ========
|
The accompanying notes are an integral part of these consolidated financial statements.
NYLIFE LLC AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Years ended December 31,
------------------------
2005 2004
--------- --------
(in thousands)
Income
Affiliated
Commission income $ 140,271 $148,334
Interest and dividend income 24,664 17,350
Equity in earnings 25,014 16,673
Fee income 2,714 2,787
Non-affiliated
Commission income 26,409 24,378
Interest and dividend income 4,957 2,559
Fee income 18,144 13,591
Net realized and unrealized investment gains (losses) (306,921) 107,182
Other income 738 1,035
--------- --------
Total income (loss) (64,010) 333,889
--------- --------
Expenses
Commission and selling expenses 132,282 136,928
Administrative and other expenses 50,122 47,761
Interest 30,273 22,796
Expenses to affiliates 5,855 5,787
Depreciation and amortization 1,686 3,503
--------- --------
Total expenses 220,218 216,775
--------- --------
Net income (loss) from operations before income taxes (284,228) 117,114
Income tax benefit (expense) 112,044 (37,187)
--------- --------
Net income (loss) $(172,184) $ 79,927
Other comprehensive income (loss)
Net unrealized holding gains (losses) on investments (net of
income tax (benefit) expense of $(79) and $6, respectively) (110) 19
Cumulative translation adjustments (1,590) (240)
--------- --------
Comprehensive income (loss) $(173,884) $ 79,706
========= ========
|
The accompanying notes are an integral part of these consolidated financial statements.
NYLIFE LLC AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN MEMBER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
Accumulated
Other
Member's Accumulated Comprehensive
Equity Deficit Income Total
-------- ----------- ------------- ---------
Balance at December 31, 2003 $ 93,357 $ 28,676 $14,139 $ 136,172
Capital contributions 38,842 -- -- 38,842
Return of capital (1,000) -- -- (1,000)
Net income -- 79,927 -- 79,927
Distribution -- (114,530) -- (114,530)
Net unrealized gains on investments -- -- 19 19
Cumulative translation adjustment -- -- (240) (240)
-------- --------- ------- ---------
Balance at December 31, 2004 131,199 (5,927) 13,918 139,190
Return of capital (500) -- -- (500)
Net income -- (172,184) -- (172,184)
Net unrealized gains on investments -- -- (110) (110)
Cumulative translation adjustment -- -- (1,590) (1,590)
-------- --------- ------- ---------
Balance at December 31, 2005 $130,699 $(178,111) $12,218 $ (35,194)
======== ========= ======= =========
|
The accompanying notes are an integral part of these consolidated financial statements.
NYLIFE LLC AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended
December 31,
---------------------
2005 2004
--------- ---------
(in thousands)
Cash flow provided by (used in) operating activities:
Net income (loss) $(172,184) $ 79,927
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 808 853
Net realized and unrealized investment (gains) losses 307,635 (107,182)
Equity in earnings of affiliates (25,014) (16,673)
Provision for deferred income tax expense (benefit) (109,017) 39,818
Net amortization of interest expense 5,269 5,151
Change in assets and liabilities, net of changes from
acquisitions or sales of subsidiaries:
Accounts and other receivables (446) (1,195)
Other assets (144) (75)
Net receivable from New York Life Insurance Company (236,252) 701,656
Net receivable from other affiliates 230,894 (232,604)
Notes payable (618) (469,322)
Accrued expenses 2,199 957
Net income taxes payable (1,666) 1,935
Other liabilities 1,715 2,966
--------- ---------
Net cash provided by (used in) operating activities 3,179 6,212
--------- ---------
Cash flow provided by (used in) investing activities:
Capital expenditures (65) (11,968)
Proceeds from cash held in escrow 6,756 --
Proceeds from sale of investments 23,051 30,663
Proceeds from maturity of investments 2,629 --
Proceeds from sale of subsidiary, net of expenses paid -- 114,509
Purchase of investments (27,941) (43,228)
--------- ---------
Net cash provided by (used in) investing activities 4,430 89,976
--------- ---------
Cash flow provided by (used in) financing activities:
Receipts on capitalized lease 1,244 207
Capital contributions -- 25,611
Return of capital (500) (1,000)
Distribution -- (114,530)
--------- ---------
Net cash provided by (used in) financing activities 744 (89,712)
--------- ---------
Effect of exchange rates on cash (416) (301)
--------- ---------
Net increase in cash and cash equivalents 7,937 6,175
Cash and cash equivalents at beginning of year 22,561 16,386
--------- ---------
Cash and cash equivalents at end of year $ 30,498 $ 22,561
========= =========
Supplemental disclosure of cash flow information:
Cash paid (received) during the year for:
Income taxes $ 5,086 $ (4,527)
Interest expense $ 22,768 $ 17,260
Supplemental disclosure of non-cash investing and financing activities:
Capital lease $ -- $ (24,885)
Capital expenditures $ -- $ (13,231)
Capital contributions $ -- $ 13,231
|
The accompanying notes are an integral part of these consolidated financial statements.
NYLIFE LLC AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
NYLIFE LLC (the "Company") is a wholly owned subsidiary of New York Life Insurance Company ("New York Life"). The Company was originally incorporated under the laws of New York in 1984 as NYLIFE Inc., and was converted to a Delaware limited liability company on September 30, 1999. The Company is a holding company for certain of New York Life's subsidiaries. The Company through its subsidiaries, offers securities brokerage, financial planning and investment advisory services, trust services and capital financing.
The accompanying financial statements reflect the consolidation of the Company and its subsidiaries, each of which is wholly owned:
ACTIVE SUBSIDIARIES
Eagle Strategies Corp. ("Eagle")
New York Life Capital Corporation ("Capital Corporation")
New York Life International Investment, Inc.
NYL Management Limited ("NYL Management")
New York Life Irrevocable Trust of 1996
New York Life Settlement Corporation
New York Life Trust Company ("NYL Trust")
NYL Executive Benefits LLC
NYLIFE Securities Inc. ("NYLIFE Securities")
NYLINK Insurance Agency Incorporated ("NYLINK")
NYLUK I Company ("NYLUK I")
NYLUK II Company
INACTIVE/SOLD/DISSOLVED SUBSIDIARIES
Avanti Corporate Health Systems, Inc. (Dissolved in 2005)
Monetary Research Limited
New York Life International Investment Asia Ltd (Sold in 2005)
New York Life Trust Company, FSB ("Trust FSB") (Discontinued in 2004)
New York Life (U.K.) Limited ("NYLUK") (Sold in 2004)
WellPath of Arizona Reinsurance Company (Dissolved in 2005)
The Company also owns a 6% interest in Express Scripts Inc. ("ESI"), which is accounted for under the equity method (Note 2). ESI offers pharmacy benefit management services in the United States and Canada, including network claims processing, mail pharmacy services, benefit design consultation, drug utilization review, formulary management, disease management, medical and drug data analysis services and medical information management services.
New York Life's career agency force offers securities products through NYLIFE Securities, a broker-dealer registered with the Securities and Exchange Commission and a member of the National Association of Securities Dealers, Inc. NYLIFE Securities registered representatives offer proprietary and non-proprietary mutual funds and variable life and annuity products, as well as general securities products (e.g., stocks, bonds and options). NYLIFE Securities receives commissions for the sale of open-ended mutual fund products under various contractual agreements. NYLIFE Securities also receives commissions for acting as the introducing broker for clients and uses a non-affiliated clearing broker, on a fully disclosed basis, to perform trade execution, clearance, settlement and related activities. NYLIFE Securities' sales of proprietary products are discussed more fully in Note 8.
Eagle, a SEC-registered investment advisor, provides financial planning and investment advisory services through associated investment advisor representatives ("IARs"). All Eagle's IARs are members of New York Life's career agency force and are registered representatives of NYLIFE Securities.
Trust services are offered through NYL Trust and Trust FSB (see Note 3 regarding the decision to dissolve the operations of Trust FSB). NYL Trust is a limited purpose trust company chartered by the New York State Banking Department and acts primarily as a fiduciary for pension, profit sharing and other employee benefit plans. NYL Trust's responsibilities include acting as a directed trustee or custodian for 401(k) plans and Individual Retirement Accounts. Trust FSB, regulated by the Office of Thrift Supervision, obtained its charter from the United States Federal Government. Trust FSB provided personal trust and investment management services for clients. Examples of such services included Irrevocable Life Insurance Trusts, Revocable and Irrevocable Trusts, IRA Rollovers, and Investment Management Accounts.
NYLINK is a registered insurance agency which facilitates the sale of non-proprietary insurance products - group and variable annuities and variable life - by New York Life agents.
Capital financing operations are conducted through Capital Corporation, which issues commercial paper and borrows from other sources for the purpose of making loans to New York Life and its affiliates.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. All significant intercompany transactions have been eliminated in consolidation.
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
BUSINESS RISKS AND UNCERTAINTIES
The Company has significant transactions with New York Life and its affiliates; termination of such relationships would have an adverse effect on the operation of the Company.
INVESTMENTS
Equity securities represent the Company's investment in ESI, which is accounted
for under the equity method of accounting, whereby the Company's pro-rata share
of ESI's net earnings or losses are included in net income and unrealized gains
(losses), net of deferred tax, and Cumulative Translation Adjustments ("CTA")
are included in other comprehensive income. The Company's pro-rata share of
ESI's net earnings or losses include estimated results for the fourth quarter.
The Company continues to use the equity method to account for its 6% investment
in ESI since it has the ability to exercise significant influence through its
relationship with New York Life, which owns an additional 10% of ESI's voting
stock and one executive and one former executive, who retained a one year board
position with a wholly owned subsidiary, currently holds two seats on ESI's
Board of Directors.
Fixed maturities are classified as either held to maturity and reported at amortized cost or available for sale and reported at estimated fair value, with unrealized gains and losses reported as a separate component of member's equity, net of deferred tax. The investments in the MainStay Funds are recorded at fair value and realized and unrealized gains (losses) are included in net income.
CASH AND CASH EQUIVALENTS
Short-term investments with original maturities of three months or less are considered cash equivalents. The carrying value of cash and cash equivalents approximates fair value.
OTHER INVESTMENTS
Other investments primarily include the Company's investment in the New York Life Short Term Fund ("STIF"). The STIF is a co-mingled fund managed by New York Life Investment Management LLC ("NYLIM"), an indirect wholly owned subsidiary of New York Life, where all participants are New York Life and certain subsidiaries or affiliates.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying value of accounts receivable and accrued expenses approximates fair
value due to the short-term maturities of these instruments. The carrying value
of cash held in escrow approximates fair value and is discussed in Note 10. The
carrying value of notes payable approximates fair value and is discussed in Note
6. Fair values for derivative financial instruments are included in Note 7.
OTHER ASSETS AND OTHER LIABILITIES
Other assets include deferred financing fees from the issuance of notes payable (Note 6). Deferred financing fees are amortized using the straight-line method over the ten-year life of the note. Other liabilities include funded benefit payments to plaintiffs of structured settlements, the fair value of an obligation assumed under a guarantee and lease obligations on property no longer utilized by the Company or its subsidiaries.
FIXED ASSETS
Furniture, equipment, computer hardware and software are recorded at cost and depreciated beginning in the month placed in service using the straight line method over an estimated useful life of three to seven years. Leasehold improvements are amortized over the shorter of the remaining term of the lease or the life of the asset.
GOODWILL
Goodwill is primarily associated with the Company's 6% equity investment in ESI and is adjusted when ESI issues additional shares or purchases treasury shares at a market price per share that differs from the book value per share of ESI recorded by the Company.
INCOME TAXES
Deferred tax assets and liabilities are recognized based on temporary differences between the financial statement basis and tax basis of assets and liabilities using presently enacted tax rates.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currency have been translated into U.S. dollars at the respective year-end exchange rates. Operating results are translated at the monthly average exchange rate. Foreign currency translation gains and losses are credited or charged directly to the CTA account in member's equity. The change in the CTA account is due to the current year effect of the translation adjustment. Foreign currency transaction gains and losses are included in net income.
FEE INCOME
Through its subsidiaries, the Company accrues fee income when earned and consulting fees as services are rendered.
EXPENSES
Expenses are recognized when incurred and include allocations of overhead expenses such as salary, legal, accounting and other administrative charges from New York Life and NYLIM. These overhead allocations are reported in their natural expense category.
NET REALIZED AND UNREALIZED INVESTMENT GAINS (LOSSES)
Realized gains (losses) on sale of investments are determined on the basis of
specific identification. Costs of investments are adjusted for impairments
considered other than temporary. Factors considered in evaluating whether a
decline in value is other than temporary include: 1) whether the decline is
substantial; 2) the amount of time that the fair value has been less than cost;
3) the financial condition and near-term prospects of the issuer; and 4) the
Company's ability and intent to retain the investment for the period of time
sufficient to allow for an anticipated recovery in value. Unrealized gains
(losses) of NYLIFE Securities are included in net income in accordance with
specialized accounting practices for broker-dealers.
Unrealized gains (losses) on derivative instruments that do not qualify as a hedge are also included in net income in accordance with Statement of Financial Accounting Standards No. 149 ("SFAS 149"), "Amendment of Statement 133 on Derivative Instruments and Hedging Activities".
NEW ACCOUNTING PRONOUNCEMENTS
During November 2005, the Financial Accounting Standards Board issued Staff Position Paper No. 115-1 ("FSP 115-1"), "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments". FSP 115-1 addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. It also includes accounting considerations subsequent to the recognition of an other-than temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than temporary impairments. The provisions of FSP 115-1 are effective January 1, 2006, and it is not expected to have a material impact on the Company's consolidated statements at the date of adoption.
In March 2004, the Emerging Issues Task Force reached further consensus on Issue No. 03-1 ("EITF 03-1"), "The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments". EITF 03-1 provides accounting guidance regarding the determination of when an impairment of debt and marketable equity securities and investments accounted for under the cost method
should be considered other-than-temporary and recognized in income. An EITF 03-1 consensus reached in November 2003 also requires certain quantitative and qualitative disclosures for debt and marketable equity securities classified as available-for-sale or held-to-maturity under Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", that have unrealized losses at the balance sheet date but for which an other-than-temporary impairment has not been recognized. The Company has complied with the disclosure requirements of EITF 03-1, which are currently effective.
RECLASSIFICATIONS
Certain 2004 amounts in the financial statements and accompanying notes have been reclassified to conform to the 2005 presentation. These reclassifications had no effect on net earnings or member's equity as previously reported.
NOTE 3 - DISPOSITION
TRUST FSB
On December 24, 2004, Trust FSB's Board of Directors authorized the officers of Trust FSB to take any and all actions required to dissolve Trust FSB. During 2005, Trust FSB paid $47,000 of dissolution expenses, which were accrued at December 31, 2004. Trust FSB is in the process of transferring its clients to either NYL Trust or an unaffiliated trustee. The dissolution is anticipated to be completed in 2006.
The financial position and results of discontinued operations of Trust FSB for the years ended December 31, 2005 and 2004 are summarized below:
2005 2004
------- -------
(in thousands)
Assets $20,618 $20,733
Liabilities 740 1,137
------- -------
Stockholder's equity $19,878 $19,596
======= =======
Income $ 869 $ 857
Expenses 524 890
------- -------
Net income (loss) before taxes 345 (33)
Income tax benefit (69) (13)
------- -------
Net income (loss) $ 414 $ (20)
======= =======
|
NYLUK
On August 24, 2004, along with the other equity shareholders of Life Assurance Holding Corporation ("LAHC"), NYLUK I entered into a purchase sale agreement with Swiss Re GB plc ("Swiss Re") to sell 100% of its interest in LAHC. As part of the sale, Swiss Re purchased 100% of the share capital of NYLUK, a subsidiary of NYLUK I, whose sole asset was a 23% interest in LAHC. For the year ended December 31, 2004, the Company recognized a realized gain of $84,500,000 after payment of transaction costs, establishment of a provision for indemnities (Note 10) and income taxes.
NOTE 4 - INVESTMENTS
AFFILIATED EQUITY SECURITIES
Affiliated unconsolidated equity investments at December 31, 2005 and 2004 totaled $89,049,000 and $80,156,000, respectively. These represent the Company's investment in ESI at 6% interest (9,000,000 shares split-adjusted). The financial position and results of operations of ESI for the years ended December 31, 2005 and 2004, are summarized below:
2005 2004
----------- -----------
(in thousands)
Assets $ 5,493,000 $ 3,600,086
Liabilities 4,028,000 2,403,772
----------- -----------
Stockholder's equity $ 1,465,000 $ 1,196,314
=========== ===========
Income $ 6,277,000 $15,118,565
Expenses 15,662,000 14,667,922
----------- -----------
|
2005 2004
----------- -----------
(in thousands)
Net income before taxes 615,000 450,643
Income tax expense 215,000 172,436
----------- -----------
Net income $ 400,000 $ 278,207
=========== ===========
|
FIXED MATURITIES
At December 31, 2005 and 2004, the maturity distribution of fixed maturities was as follows:
2005 2004
---------------------- ----------------------
Amortized Estimated Amortized Estimated
Available for sale Cost Fair Value Cost Fair Value
------------------ --------- ---------- --------- ----------
(in thousands)
Due in one year or less $ 1,276 $ 1,271 $ 499 $ 499
Due after one year through five years 249 244 1,384 1,369
Due after ten years 15,327 15,137 17,587 17,630
------- ------- ------- -------
Total available for sale $16,852 $16,652 $19,470 $19,498
======= ======= ======= =======
Held to maturity
Due after ten years $ 4,775 $ 6,045 $ 4,775 $ 5,925
======= ======= ======= =======
|
At December 31, 2005 and 2004, the distribution of unrealized gains and losses on fixed maturities was as follows:
2004
----------------------------------------
Unrealized
Amortized --------------- Estimated
Available for sale Cost Gains Losses Fair Value
------------------ --------- ------ ------ ---------
(in thousands)
U.S. Treasury $ 1,525 $ -- $ 10 $ 1,515
Mortgage-backed securities 15,327 85 275 15,137
------- ------ ---- -------
Total available for sale $16,852 $ 85 $285 $16,652
======= ====== ==== =======
Held to maturity
U.S. Treasury $ 4,775 $1,270 $ -- $ 6,045
======= ====== ==== =======
|
2004
----------------------------------------
Unrealized
Amortized --------------- Estimated
Available for sale Cost Gains Losses Fair Value
------------------ --------- ------ ------ ----------
(in thousands)
U.S. Treasury $ 1,883 -- $ 15 $ 1,868
Mortgage-backed securities 17,587 132 89 17,630
------- ----- ---- -------
Total available for sale $19,470 $ 132 $104 $19,498
======= ====== ==== =======
Held to maturity
U.S. Treasury $ 4,775 $1,150 $ -- $ 5,925
======= ====== ==== =======
|
The following table presents the Company's gross unrealized losses and fair values for fixed maturities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in an unrealized loss position at December 31, 2005:
Less than 12 months Greater than 12 months Total
----------------------- ----------------------- -----------------------
(in thousands)
Estimated Unrealized Estimated Unrealized Estimated Unrealized
Fair Value Loss Fair Value Loss Fair Value Loss
---------- ---------- ---------- ---------- ---------- ----------
U.S. Treasury $ -- $ -- $1,515 $ (10) $ 1,515 $ (10)
Mortgage-backed securities 2,419 (37) 7,334 (238) 9,753 (275)
------ ---- ------ ----- ------- -----
Totals $2,419 $(37) $8,849 $(248) $11,268 $(285)
====== ==== ====== ===== ======= =====
|
At December 31, 2004, all of the unrealized losses on the Company's fixed maturities were less than twelve months. For the years ended December 31, 2005 and 2004, there were no other-than-temporary impairments taken.
Proceeds from investments in fixed maturities sold were $12,651,000 and $15,201,000 for the years ended December 31, 2005 and 2004, respectively. For the year ended December 31, 2005, gross realized gains and losses on fixed maturities were $3,000 and $128,000, respectively. There were no realized gains or losses on fixed maturities for the year ended December 31, 2004.
MAINSTAY FUNDS
At December 31, 2005 and 2004, the fair value of the investments in the MainStay Equity Index Fund ("Index Fund") totaled $601,000 and $576,000, respectively, with a cost of $421,000 and $414,000, respectively.
NOTE 5 - FIXED ASSETS
The costs of fixed assets at December 31, 2005 and 2004 were:
2005 2004
------ ------
(in thousands)
Furniture $1,323 $1,321
Equipment 900 874
Computer hardware 546 546
Computer software 2,236 2,224
Leasehold improvements 2,761 2,737
------ ------
7,766 7,702
Less: Accumulated depreciation and amortization 7,023 6,651
------ ------
Total $ 743 $1,051
====== ======
|
NOTE 6 - NOTES PAYABLE AND LINES OF CREDIT
NOTES PAYABLE:
2005 2004
-------- --------
(in thousands)
Capital Corporation's Debt Issuance
(for 2005 and 2004, the weighted
average interest rate was approximately
4.27% and 2.34%, respectively) $497,801 $498,419
Shared Appreciation Income Linked Securities 211,080 205,835
-------- --------
Total $708,881 $704,254
======== ========
|
At December 31, 2005 and 2004, commercial paper issued by Capital Corporation had a face value of approximately $500,857,000 and $499,615,000, respectively, with an unamortized discount of $3,056,000 and $1,196,000, respectively. For the years ended
December 31, 2005 and 2004, interest expense totaled $16,205,000 and $8,892,000, respectively. At December 31, 2005, commercial paper issued by Capital Corporation had various maturities through February 15, 2006.
On August 22, 2001, the Company entered into an agreement with Credit Suisse
First Boston International and Credit Suisse First Boston ("CSFB"), referred to
as Shared Appreciation Income Linked Securities ("SAILS") in the above table.
Under the agreement, the Company has entered into a forward sale of certain of
its shares of ESI. The Company may deliver up to 9,000,000 shares
(split-adjusted) of ESI Class A common stock on August 22, 2011 or settle the
transaction in cash instead of delivering shares. The Company received $27.03
per share (split-adjusted) or $243,225,000, less offering costs of $4,351,000
(included in other assets), bringing net proceeds to $238,874,000 and is
entitled to 100% of the appreciation up to $35.14 per share (split-adjusted) and
23% of the appreciation in excess of $35.14 per share. At December 31, 2005, the
ESI share price was $83.80. In accordance with SFAS 149, a fair value of
$54,110,000 was ascribed to the embedded derivative at the contract date (Note
7). The Company also recorded a discounted debt obligation of $189,115,000 with
a par value of $243,225,000 due on August 22, 2011. For the years ended December
31, 2005 and 2004, the accretion of interest expense totaled $5,245,000 and
$5,115,000, respectively, and the amortization of deferred offering costs
totaled $436,000 in each year. The Company pays CSFB a 3.3% annual coupon
payment quarterly on each November 22, February 22, May 22, and August 22. For
each of the years ended December 31, 2005 and 2004, the Company made coupon
payments of $8,026,000. At December 31, 2005 and 2004, accrued interest was
$914,000 for both years.
LINES OF CREDIT:
Effective July 27, 2005, Capital Corporation, along with New York Life closed on a new $1.5 billion revolving credit facility with a consortium of banks. The new agreement is a five-year revolving credit facility that pays an annual facility fee of 4 basis points ("bps") which is allocated to Capital Corporation based on the volume of short-term notes issued during the year. The borrowing rate is 16 bps over LIBOR. If borrowings exceed 50% of the total facility, the borrowing rate will be 16 bps over LIBOR plus 5 bps. Annual facility fees and borrowing rates could increase if New York Life's Standard & Poor's and Moody's Financial Strength ratings are downgraded.
This new revolving credit facility replaced both the $500,000,000, 364-day revolving credit facility which expired on July 27, 2005, and the $500,000,000, 3-year revolving credit facility which was scheduled to expire on July 30, 2006.
To date, neither Capital Corporation nor New York Life has utilized any of these credit facilities. At December 31, 2005 and December 31, 2004 the credit facility fees allocated to the Company were $106,000 and $191,000 respectively.
In January 1995, the Company entered into a credit agreement with New York Life whereby the Company can borrow up to an aggregate principal amount of $200,000,000 at any one time. This agreement and any loans made are automatically extended and renewed for additional one-year periods, unless either the Company or New York Life notifies the other to terminate the agreement. There have been no borrowings made since inception of the agreement.
NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENTS
The Company has an agreement with the Index Fund, whereby, the Company guarantees that if, after ten years from the date of purchase ("Guaranteed Date"), the net asset value of an Index Fund share plus the value of all dividends and distributions paid, including cumulative reinvested dividends and distributions attributable to such share paid during that ten year period ("Guaranteed Share"), is less than the public offering price initially paid for the share ("Guaranteed Amount"), the Company will pay the shareholders an amount equal to the difference between the Guaranteed Amount for each share and the net asset value of each share outstanding and held by the shareholders as of the close of business on the Guaranteed Date. This guarantee is in effect a European style put option required to be fair valued pursuant to SFAS 149. Its fair value represents the estimated value of future claims which was calculated using a Monte-Carlo simulation of the future equity market changes based on random scenarios drawn from a distribution of annual returns and volatility. Actual results could differ from those estimates. At December 31, 2005 and 2004, the derivative was calculated using an annual return of 7.5% and 9%, respectively, and a volatility of 18% and 20%, respectively. For the years ended 2005 and 2004, the change in fair value resulted in the Company recording a loss of $240,000 and $620,000, respectively, included in net realized and unrealized investment gains (losses) of the consolidated statement of operations. At December 31, 2005 and 2004, the Company recognized a liability totaling $4,470,000 and $4,230,000, respectively. Based on the net asset value of an Index Fund share at December 31, 2005, a 10% decrease in: (A) the share price, would result in a $3,330,000 increase in the fair value of the liability or (B) the interest rate used to discount cash flows, would result in a $110,000 increase in the fair value of the liability.
In 2001, the Company entered into an agreement to minimize its downside risk on its investment in ESI while still maintaining rights to share in future appreciation (Note 6). The counter-party to the agreement is CSFB. The agreement contains embedded derivatives and the Company has assessed that the economic characteristics of the derivatives (a series of European style put and call options) were not clearly and closely related to those of the host contract and determined that a separate instrument with the same terms would qualify as a derivative instrument. In accordance with SFAS 149, the embedded derivatives were separated from the host contract and accounted for as stand-alone derivatives. The Company's obligation associated with these embedded derivatives is fully collateralized by its investment in ESI. However, since the Company's investment in ESI is valued using the equity method of accounting and these embedded derivatives are valued at fair value, the Company is precluded from using hedge accounting. This creates accounting volatility in both the consolidated statements of financial position and of operations because the change in the actual fair value of the underlying investment in ESI shares is not recognized through net income or member's equity. For the year ended December 31, 2005, the mark-to-market on the derivative liability resulted in an after tax charge to net income of $199,674,000, the impact of which resulted in negative member's equity of $35,194,000. While the accounting for this transaction resulted in a loss in earnings and equity at December 31, 2005, the derivative performed as expected on an economic basis.
The fair value of these derivatives represent the estimated amount the Company would receive or pay to purchase similar stand-alone European put and call option contracts and was determined utilizing a Black-Scholes valuation model which takes into account current market conditions, term to maturity and implied volatility of the ESI stock. The Black-Scholes valuation model for the embedded derivatives requires management to make estimates and assumptions regarding interest rates and volatility. Such estimates are primarily based on current market data and future expectations. Actual results could differ from those estimates. At December 31, 2005, the derivatives were calculated using an average of the five-year and six-year swap interest rate of 4.88% and a put and call volatility of 37.00% and 35.00%, respectively. At December 31, 2004, the derivatives were calculated using an average of the six-year and seven-year swap interest rate of 4.24% and a put and call volatility of 32.76% and 30.50%, respectively. For the years ended December 31, 2005 and 2004, the change in fair value resulted in the Company recording a loss of $307,190,000 and $22,966,000, respectively, included in net realized and unrealized investment gains (losses) of the consolidated statement of operations. At December 31, 2005 and 2004, the Company recognized a liability totaling $397,100,000 and $89,910,000, respectively. Based on the share price of ESI stock at December 31, 2005, a 10% increase in: (A) the share price, would result in a $57,560,000 increase in the fair value of the liability or (B) the interest rate, would result in a $4,567,000 increase in the fair value of the liability.
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company has significant transactions with New York Life and its affiliates. Because of these relationships, it is possible that the terms of the transactions are not the same as those that would result from transactions among wholly unrelated parties.
The distribution of commission income, interest and dividend income and fee income from affiliates for 2005 and 2004 are as follows (in thousands):
INTEREST AND
COMMISSION INCOME DIVIDEND INCOME FEE INCOME
------------------- ----------------- ----------------
2005 2004 2005 2004 2005 2004
-------- -------- ------- ------- ------ -------
New York Life $ 633 $ 642 $22,575 $17,306 $1,215 $1,332
NYLIAC 92,722 101,460 2,089 44 33 --
NYLIFE Distributors 46,916 46,232 -- -- 281 327
NYLIM -- -- -- -- 1,185 1,128
-------- -------- ------- ------- ------ ------
Totals $140,271 $148,334 $24,664 $17,350 $2,714 $2,787
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The distribution of receivable from New York Life, receivable from other affiliates and payable to New York Life for 2005 and 2004 are as follows (in thousands):
RECEIVABLE FROM
RECEIVABLE FROM (PAYABLE TO) OTHER PAYABLE TO
NEW YORK LIFE AFFILIATES NEW YORK LIFE
------------------- ------------------ ---------------
2005 2004 2005 2004 2005 2004
-------- -------- ------- -------- ------ ------
New York Life $765,118 $532,076 $ -- $ -- $4,407 $6,373
NYLIAC -- -- 2,097 233,454 -- --
NYLIFE Distributors -- -- 4,578 4,688 -- --
NYLIM Service Company -- -- (1,710) (2,270) -- --
NYLIM -- -- (13) (24) -- --
-------- -------- ------- -------- ------ ------
Totals $765,118 $532,076 $ 4,952 $235,848 $4,407 $6,373
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NEW YORK LIFE
The Company and several of its subsidiaries are party to service agreements with New York Life, whereby New York Life provides services to the Company and such subsidiaries, including office space, legal, accounting, administrative, personnel and other services for which the Company and its subsidiaries are billed. The Company and its subsidiaries are charged for these services based upon allocation of costs incurred by New York Life developed through analyses of time spent on matters relating to the Company and its subsidiaries. For the years ended December 31, 2005 and 2004, expenses allocated under these agreements were $35,100,000 and $28,830,000, respectively. At December 31, 2005 and 2004, the amounts payable to New York Life were $4,407,000 and $6,373,000, respectively.
The Company executed a promissory note with New York Life dated August 22, 2001 whereby the Company loaned New York Life $238,889,000. The note has a par value of $243,225,000 and a stated interest rate of 3.3% per annum. Interest on the note is payable quarterly on each 21st of November, February, May and August until maturity on August 21, 2011. For the years ended December 31, 2005 and 2004, interest earned on the loan was $8,459,000 and $8,458,000, respectively. At December 31, 2005 and 2004, the Company had a receivable, including accrued interest for each year of $914,000, of $241,686,000 and $241,253,000, respectively, from New York Life.
On November 5, 2004, the Company purchased an aircraft from Bombardier Aerospace Corporation ("Bombardier"). New York Life, and four of its wholly owned subsidiaries, New York Life Insurance and Annuity Corporation ("NYLIAC"), NYLIFE Insurance Company of Arizona ("NYLAZ"), New York Life Investment Management Holdings, LLC ("NYLIM Holdings") and New York Life International LLC ("NYL International"), will have exclusive use of the aircraft. All costs incurred with the operation of the aircraft will be charged to the company using the aircraft. The arrangement between the Company and New York Life is accounted for as a direct financing lease (Note 10). At December 31, 2005 and 2004, receivable from New York Life includes, $23,433,000 and $24,678,000, respectively, representing the remaining minimum lease payments plus the unguaranteed residual value of the aircraft. For the year ended December 31, 2005, the Company reimbursed New York Life $450,000 related to expenses paid by New York Life to operate the aircraft.
Capital Corporation has an outstanding credit agreement with New York Life, whereby Capital Corporation agreed to make loans to New York Life in an aggregate principal amount not exceeding $2,000,000,000, at any time. For the years ended December 31, 2005 and 2004, Capital Corporation recorded interest income of $14,116,000 and $8,848,000, respectively, and reimbursement of debt issuance costs of $221,000 and $340,000, respectively. At December 31, 2005 and 2004, Capital Corporation had a receivable, including accrued interest, of $499,930,000 and $266,077,000, respectively. This agreement and any loans made shall be automatically extended and renewed for additional one-year periods, unless either Capital Corporation or New York Life notifies the other to terminate the agreement.
In accordance with an expense sharing agreement, Capital Corporation provides New York Life with expertise in connection with the issuance of commercial paper and in turn New York Life reimburses Capital Corporation for expenses incurred. For the years ended December 31, 2005 and 2004, fee income was $354,000 and $415,000, respectively.
NYLINK acts as a conduit to New York Life whereby it collects fee income on certain products sold by its agents and remits those fees directly to New York Life. For the years ended December 31, 2005 and 2004, fee expenses incurred by NYLINK in connection with this arrangement were $638,000 and $397,000 respectively.
In accordance with an expense sharing agreement, NYLINK provided New York Life with a vehicle through which New York Life agents sold non-proprietary insurance products, and in turn New York Life reimbursed NYLINK (excluding NYL Executive Benefits division) for expenses incurred. This agreement was terminated on December 31, 2004. For the year ended December 31, 2004, the total amount earned under this agreement was $30,000.
NYL Trust is party to various agreements with New York Life, whereby NYL Trust acts as investment manager or passive trustee/contract holder for the New York Life Trust Company Collective Investment Trust (agreement terminated December 29, 2005), the New York Life Trust Company GS1 Vanguard Collective Investment Trust and various plans participating in New York Life's Stable Value account. Pursuant to these agreements, New York Life pays fees to NYL Trust in accordance with the current fee structure. For the years ended December 31, 2005 and 2004, fee income earned on these agreements was $640,000 and $547,000, respectively. At December 31, 2005 and 2004, amounts due to NYL Trust were $69,000 and $68,000, respectively.
NYLIFE Securities directs and supervises its registered representatives' sale of New York Life group annuity contracts through separate accounts maintained by New York Life. For the years ended December 31, 2005 and 2004, NYLIFE Securities earned commissions of $633,000 and $642,000, respectively.
NYLCAP MANAGER LLC ("NYLCAP MANAGER")
Capital Corporation has an outstanding credit agreement with NYLCAP Manager LLC ("NYLCAP Manager"), an indirect wholly owned subsidiary of New York Life. Capital Corporation agreed to make loans to NYLCAP Manager in an aggregate principal amount not exceeding $70,000,000, at any time. There were no amounts outstanding under this agreement at December 31, 2005 and 2004.
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION ("NYLIAC")
Under an agreement with NYLIAC, a wholly owned subsidiary of New York Life, NYLIFE Securities directs and supervises NYLIAC's sale of variable annuity contracts and variable life insurance policies through separate accounts maintained by NYLIAC. For the years ended December 31, 2005 and 2004, NYLIFE Securities earned commission income on the sale of NYLIAC products of $86,096,000 and $94,373,000, respectively. NYLIFE Securities incurs net expenses in connection with the offering of these products which are billed to NYLIAC. For the years ended December 31, 2005 and 2004, related net expenses reimbursed by NYLIAC totaled $2,512,000 and $2,414,000, respectively. At December 31, 2005 and 2004, $151,000 and $244,000, respectively, were the net payables to NYLIAC which are included in the amounts disclosed under the New York Life service agreement described above.
On December 23, 2004, Capital Corporation entered into a credit agreement with NYLIAC. Capital Corporation agreed to make loans to NYLIAC in an aggregate principal amount not exceeding $490,000,000 at any time. For the years December 31, 2005 and 2004, Capital Corporation recorded interest income of $2,089,000 and $44,000, respectively, and reimbursement of debt issuance costs of $33,000 and $0, respectively. At December 31, 2005 there were no loans outstanding from NYLIAC and interest receivable was $56,000. At December 31, 2004, loans and interest receivable from NYLIAC were $233,000,000 and $44,000, respectively.
NYLINK acts as a general agent for NYLIAC whereby NYLINK solicits applications for Company-Owned Life Insurance ("COLI") and Bank-Owned Life Insurance products on which NYLINK earns commission income and asset based service fees. For the years ended December 31, 2005 and 2004, commission income and asset based service fees earned from NYLIAC was $6,626,000 and $7,087,000, respectively. At December 31, 2005, NYLINK recorded a receivable from NYLIAC of $2,041,000 and $410,000, respectively.
NYLIFE DISTRIBUTORS LLC ("NYLIFE DISTRIBUTORS")
NYLIFE Securities has entered into a soliciting dealer agreement with NYLIFE Distributors, whereby NYLIFE Distributors pays NYLIFE Securities commissions, known as gross dealer concessions, for sales of MainStay mutual funds and the College-Sense 529 Plans by the registered representatives of NYLIFE Securities. For the years ended December 31, 2005 and 2004, NYLIFE Securities
recorded commission income from NYLIFE Distributors of $45,047,000 and $44,325,000, respectively. For the years ended December 31, 2005 and 2004, commissions from NYLIFE Distributors relating to the sale of College-Sense interests were $1,869,000 and $1,907,000, respectively. At December 31, 2005 and 2004, the receivables from NYLIFE Distributors were $4,924,000 and $4,726,000, respectively.
NYL Trust is compensated by NYLIFE Distributors for directed trustee or custodian services provided to certain clients participating in 401(k) Small plans. For the years ended December 31, 2005 and 2004, fee income was $281,000 and $327,000, respectively. At December 31, 2005 and 2004, fee income receivables were $67,000 and $77,000, respectively.
Pursuant to an agreement dated January 1, 2004, NYLIFE Distributors agreed to refer clients and other third parties who would be interested in purchasing COLI products to NYLINK. Should NYLINK sell COLI products to one or more referred parties, NYLINK agrees to compensate NYLIFE Distributors according to a schedule of payments. For the years ended December 31, 2005 and 2004, NYLINK incurred expenses to NYLIFE Distributors of $2,223,000 and $2,937,000, respectively. At December 31, 2005 and 2004, NYLINK had a payable to NYLIFE Distributors of $413,000 and $115,000, respectively.
NYLIM SERVICE COMPANY LLC ("NYLIM SERVICE COMPANY")
NYL Trust is party to a service agreement with NYLIM Service Company, an indirect wholly owned subsidiary of New York Life, whereby NYLIM Service Company performs administrative functions and services for certain of the MainStay Funds' accounts on behalf of NYL Trust. NYL Trust agrees to act as the fiduciary of such accounts. For the years ended December 31, 2005 and 2004, service fee expenses incurred by NYL Trust under this agreement were $2,538,000 and $2,447,000, respectively. Settlement is made between NYL Trust and NYLIM Service Company annually. At December 31, 2005 and 2004, the amount due to NYLIM Service Company totaled $1,710,000 and $2,270,000, respectively.
NYLIM
NYLIM provides certain subsidiaries of the Company with services and facilities, including, but not limited to, employee benefit plan and personnel administration, investment, legal advice, marketing and sales. As a result, NYLIM charges these subsidiaries a fee equal to the cost to NYLIM of providing such services and facilities, including all expenses, direct and allocated, reasonably and equitably determined by NYLIM to be attributable to the Company for services and facilities. For the years ended December 31, 2005 and 2004, expenses allocated under this agreement were $12,300 and $31,000, respectively. At December 31, 2005 and 2004, the amounts payable to NYLIM were $207,000 and $203,000, respectively.
NYL Trust is compensated by NYLIM to provide directed trustee or custodian services to certain clients participating in 401(k) Complete product. Settlement is made between NYL Trust and NYLIM quarterly. For the years ended December 31, 2005 and 2004, fees earned under this agreement were $510,000 and $461,000, respectively. At December 31, 2005 and 2004, receivables from NYLIM were $133,000 and $122,000, respectively.
Trust FSB is party to an investment management agreement with NYLIM whereby NYLIM will act as investment advisor in connection with investment advisory services offered by Trust FSB on personal trust assets. For the years ended December 31, 2005 and 2004, Trust FSB incurred investment advisory fees of $5,000 for each year. At each year ended December 31, 2005 and 2004, amounts payable to NYLIM were $1,000.
NYLIFE Securities receives fees based on assets under management in the MainStay Cash Reserves Fund Class SW (formerly Eclipse Money Market Fund Sweep Shares). This fund is utilized as the sweep vehicle in brokerage accounts of the customers of NYLIFE Securities. For the years ended December 31, 2005 and 2004, NYLIFE Securities earned fees of $675,000 and $667,000, respectively. At December 31, 2005 and 2004, amounts receivable from NYLIM were $61,000 and $57,000, respectively.
INDEX FUND
As more fully described in Note 7, the Company has an agreement with the Index Fund, whereby, the Company guarantees that if, on the Guaranteed Date, the net asset value of the Guaranteed Share is less than the Guaranteed Amount, the Company will pay each holder of a Guaranteed Share an amount equal to the difference between the Guaranteed Amount for each share and the net asset value of each Guaranteed Share outstanding and held by the shareholder as of the close of business on the Guaranteed Date. The Company does not receive a separate fee under this agreement.
NOTE 9 - INCOME TAXES
Through the date of conversion to limited liability company status, the Company and its wholly-owned domestic subsidiaries were members of an affiliated group which joined in the filing of a consolidated federal income tax return with New York Life. Following their conversion, the income or loss of the Company and certain other subsidiaries that were also converted to limited liability companies is included in New York Life's federal, state, and local taxable income. Subsidiaries that were not converted continue to be members of the same affiliated group and continue to join in filing a consolidated tax return with New York Life.
After the limited liability company conversions, the tax allocation agreement was revised to provide that each company will be allocated its share of tax expense or benefit determined generally on a separate company basis. Moreover, the tax allocation agreement provides that in the year a company converts into a limited liability company, any net operating losses or capital loss carryovers that succeeded to its parent company upon conversion may be utilized by the limited liability company in computing its separate company tax liability for the post conversion period. As such, the Company will be reimbursed by New York Life for the net operating loss deferred tax asset reflected in these financial statements to the extent utilizable in the consolidated group. Estimated payments for taxes are made between the related companies both before and after the conversion. State, local, and foreign tax returns generally are filed separately. At December 31, 2005, the income tax receivable of $197,000 consists of federal income taxes receivable from New York Life pursuant to the tax allocation agreement of $272,000 and state and foreign income taxes payable of $75,000. At December 31, 2004, the income tax payable of $1,481,000 consisted of federal income taxes payable to New York Life pursuant to the tax allocation agreement of $1,362,000 and state and foreign income taxes payable of $119,000.
During 2004, $49,583,000 of a deferred tax asset previously established at $51,473,000 was written off due to the sale of NYLUK (Note 3).
The components of income tax expense (benefit) for the years ended December 31, 2005 and 2004 are as follows:
2005 2004
--------- -------
(in thousands)
Current
Federal $ (3,492) $(2,872)
State 215 68
Foreign 250 173
--------- -------
TOTAL CURRENT (3,027) (2,631)
--------- -------
Deferred
Federal (108,714) 39,811
State (303) 7
--------- -------
TOTAL DEFERRED (109,017) 39,818
--------- -------
TOTAL $(112,044) $37,187
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For the year ended December 31, 2005, total income tax benefit is different from the amount computed using the statutory federal tax rate of 35% primarily due to a dividend received deduction, a write off of the Company's investment interest in NYL Management, and an additional tax loss recognized on the sale of NYLUK which was in excess of the deferred tax asset previously established. For the year ended December 31, 2004, total income tax expense is different from the amount computed using the federal statutory tax rate of 35% primarily due to a dividend received deduction.
The reconciliation is as follows:
2005 2004
--------- -------
(in thousands)
Income tax expense (benefit) at statutory rate $ (99,631) $40,989
State and local taxes, net of federal income tax benefit (57) 49
Net foreign taxes 250 173
Equity in ESI (6,128) (4,085)
Non-deductible (gains) losses with respect to foreign
operations (6,743) 100
Other 265 (39)
--------- -------
Total income tax benefit $(112,044) $37,187
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The net deferred tax asset at December 31, 2005 and 2004 is attributable to the following temporary differences:
2005 2004
-------- -------
(in thousands)
Deferred tax asset:
Reserves $ 959 $ 660
Deferred compensation 315 298
Derivatives 121,611 14,010
Depreciation 681 649
Investment in NYLUK 1,890 1,890
Investment in ESI 2,378 328
Net operating losses 104 1,280
State deferred taxes, net of federal benefit 207 --
-------- -------
Gross deferred tax asset 128,145 19,115
-------- -------
Deferred tax liability:
Unrealized investment gains (16) 71
Other 29 22
-------- -------
Gross deferred tax liability 13 93
-------- -------
Net deferred tax asset $128,132 $19,022
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Deferred income taxes are generally recognized, based upon enacted tax rates, when assets and liabilities have different values for financial statement and tax purposes. A valuation allowance is recorded to offset any portion of the deferred tax asset that is not expected to be realized. The Company's management has concluded that the deferred income tax assets are more likely than not to be realized. Therefore, no valuation allowance has been provided.
As of December 31, 2005 and 2004, the Company has federal net operating losses of $297,000 and $3,657,000, respectively, which will expire in 2007 and 2023, respectively.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
LEASES
The Company and its subsidiaries lease office space and certain office equipment under various agreements with various expiration dates. The leases contain provisions for payment of real estate taxes, building maintenance, electricity and rent escalations. For the years ended December 31, 2005 and 2004, gross rental expenses were $756,000 and $681,000, respectively, and sublease rental receipts were $310,000 and $593,000, respectively.
The Company maintains a lease reserve representing the discounted shortfall between rental expense and rental income on a lease of certain vacated property. For the years ended December 31, 2005 and 2004, a revaluation as to the adequacy of the lease reserve resulted in an increase of approximately $244,000 and $2,408,000, respectively, which was offset by a release of the lease reserve of
$545,000 and $327,000, respectively. At December 31, 2005 and 2004, the lease reserve was $2,942,000 and $3,243,000, respectively, and is included in other liabilities in the consolidated statement of financial position.
Future minimum lease payments and receipts under non-cancelable operating leases with original or remaining lease terms in excess of one year at December 31, 2005 are as follows:
Gross Sublease
rental rental
expenses receipts
-------- --------
(in thousands)
2006 $ 703 $ 35
2007 703 138
2008 703 217
2009 703 451
2010 & thereafter 4,394 2,8213
------ ------
Total $7,206 $3,662
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On November 5, 2004, the Company entered into an agreement to lease an aircraft to New York Life, NYLIAC, NYLAZ, NYLIM Holdings and NYL International (Note 8). The lease is classified as a direct financing lease in accordance with the criteria specified in FASB Statement No. 13, "Accounting for Leases". The initial direct costs incurred relating to the lease were $341,000 and are recaptured through the minimal lease receipts. The net investment in the lease is equivalent to the cost basis of the aircraft and is comprised of the following (in thousands):
Total minimum lease payments $ 6,220
Residual value 18,665
-------
Net investment $24,885
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Annual minimum lease payments receivable are $1,244,000 for each of the next four years.
On November 5, 2004, the Company entered into a Dry Lease Exchange Agreement ("Dry Lease") with Bombardier to make the Company's aircraft available to Bombardier for a certain number of hours each year based on the Company's expected use of the aircraft. The number of hours leased to Bombardier will reduce the Company's annual allocated hours (800 hours) in accordance with the management agreement between the Company and Bombardier. Bombardier agreed to reimburse the Company for each hour billed at the hourly rate of $3,378 during 2005. For the year ended December 31, 2005, sublease income earned on this agreement was $450,000. No amounts were earned for the year ended December 31, 2004.
ASSETS PLEDGED AS COLLATERAL
In 2001, following the entering into of the agreement with CSFB described in Notes 6 and 7 and in accordance with the SAILS Mandatorily Exchangeable Securities Contract ("Collateral Agreement"), the Company agreed to lend CSFB up to 9,000,000 shares (split-adjusted) of ESI common stock. In accordance with the terms of the Collateral Agreement, the Company is obligated to reimburse CSFB for any reasonable costs incurred by CSFB for borrowing ESI shares. Whenever CSFB borrows shares from the collateral account, the Company is entitled to a securities lending fee which would then need to be reimbursed to CSFB. As of December 31, 2005 and 2004, CSFB borrowed 7,703,026 and 6,820,000 (split-adjusted) shares, respectively, with a market value of $645,514,000 and $260,660,000, respectively, but these transactions were fully collateralized with the right of offset against the Company's liabilities to CSFB according to the Collateral Agreement. At December 31, 2005 and 2004, the carrying amount of the lent shares was $76,183,000 and $60,742,000, respectively. For the years ended December 31, 2005 and 2004, the Company earned fee income from the Collateral Agreement of $400,000 and $208,000, respectively, and incurred expenses of the same amounts included in administrative and other expenses of the consolidated statement of operations.
INDEX FUND
As more fully described in Notes 7 and 8, the Company has an agreement with the Index Fund, whereby, the Company guarantees that if, on the Guaranteed Date the net asset value of the Guaranteed Share is less than the Guaranteed Amount, the Company will pay each holder of a Guaranteed Share an amount equal to the difference between the Guaranteed Amount for each share and the net asset
value of each Guaranteed Share outstanding and held by the shareholder as of the close of business on the Guaranteed Date. At December 31, 2005 and 2004, the Company recognized a liability of $4,470,000 and $4,230,000, respectively.
OTHER
The Company and its subsidiaries are defendants in various legal actions arising from their respective operations. Most of these actions seek substantial or unspecified compensatory and punitive damages. The Company is also from time to time involved as a party in various governmental, administrative and investigative proceedings and inquiries. Given the uncertain nature of litigation and regulatory inquiries, the outcome of the above and other actions pending against the Company cannot be predicted. The Company nevertheless believes that the ultimate outcome of all pending litigation and regulatory matters should not have a material adverse effect on the Company's financial position; however, it is possible that settlements or adverse determinations in one or more actions or other proceedings in the future could have a material adverse effect on the Company's operating results for a given year.
During 2005 and 2004, NYLIFE Securities concluded settlements with customers in connection with the sale of registered products. The Company expensed a total of $4,406,000 and $4,424,000 for the years ended December 31, 2005 and 2004, respectively, in settlements and related legal fees. At December 31, 2005 and 2004, the Company maintained a liability of $2,635,000 and $1,379,000, respectively, to cover remaining settlements and legal costs associated with these matters.
NYLIFE Securities clears all of its securities transactions through a clearing broker on a fully disclosed basis. Pursuant to the terms of the agreement between NYLIFE Securities and the clearing broker, the clearing broker has the right to charge NYLIFE Securities for losses that result from a customer's failure to fulfill its contractual obligations. There is no maximum amount assignable to this right. For the years ended December 31, 2005 and 2004, NYLIFE Securities paid the clearing broker $58,000 and $23,000, respectively, related to these contractual obligations. At December 31, 2005 and 2004, NYLIFE Securities had not recorded a liability pertaining to this right. In addition, NYLIFE Securities has the right to pursue collection or performance from the customers who do not perform under their contractual obligations. NYLIFE Securities monitors the credit standing of the clearing broker and all customers with which it conducts business.
As part of the sale of LAHC and NYLUK (Note 3), NYLUK I agreed to indemnify Swiss Re with respect to a provision for mis-selling claims, corporation taxes and other general warranties. NYLUK I's remaining maximum exposure under these indemnities totaled approximately $34,000,000. In accordance with FASB Interpretation No. 45, "Guarantors Accounting and Disclosure Requirements for Guarantees, Including Direct Guarantees of Indebtedness of Others", a liability was established with respect to this indemnity. This reserve will be released as the indemnity expires or claims are made. At December 31, 2005 and 2004, the fair value of the liability was $5,150,000 and $5,000,000, respectively. The change in the fair value of the liability resulted from fluctuation in the foreign currency rate.
As a result of the agreement to indemnify Swiss Re with respect to mis-selling claims, as discussed above, $22,520,000, representing NYLUK I's pro-rata share, has been deposited into a separate interest bearing account in the joint names of Swiss Re and the sellers for the purposes of satisfying any such claims. NYLUK I is entitled to its pro-rata share of interest on the funds held in escrow on a semi-annual basis. The funds will be released from the account in three equal installments on each anniversary after August 24, 2004, less any amount required to make up for any inadequacy in the provision established by LAHC in relation to mis-selling liabilities. During 2005, NYLUK I received $7,986,000 from escrow representing a release of one-third of the cash held in escrow and interest income on the funds from August 24, 2004 through September 12, 2005. For the years ended December 31, 2005 and 2004, NYLUK I recorded interest income on the funds held in escrow of $910,000 and $388,700, respectively. At December 31, 2005, the receivable from escrow was $13,381,000.
Certain subsidiaries are subject to minimum net worth restrictions pursuant to regulatory or other requirements. The Company or New York Life has agreed to provide support so as to maintain adequate net worth in each of these subsidiaries. At December 31, 2005 and 2004, the net worth of these subsidiaries exceeded the regulatory requirements.
In connection with receiving its Authorization Certificate, NYL Trust agreed with the New York State Banking Department in 1995 that it would maintain stockholder's equity of not less than one-quarter of one percent (0.25%) of total discretionary assets under administration. Effective December 29, 2005, all of the assets formerly held in the New York Life Trust Company Collective Investment Trust (the "Trust"), which were attributable to New York Life, were withdrawn from the Trust by New York Life. This resulted in a substantial reduction in the required minimum stockholder's equity at December 31, 2005. At December 31, 2005 and 2004, NYL Trust was in compliance with the minimum capital requirement.
Additionally, New York Life acts as a guarantor for an employment agreement and lease payments of the Company.
NOTE 11 - SUBSEQUENT EVENT
On January 19, 2006, the Company returned capital of $7,358,000 to New York Life.
Effective January 1, 2006, the credit facility agreement (Note 8) between New York Life and Capital Corporation has been amended to reflect an increase in the borrowing amount from up to $2 billion to up to $3 billion.
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
a. (1) Fifth Amended and Restated Establishment and Designation of Series of
Shares of Beneficial Interest, Par Value $.01 Per Share dated October
26, 1992 - Previously filed as Exhibit 1(b) to Post-Effective
Amendment No. 16*
(2) Establishment and Designation of Additional Series of Shares of
Beneficial Interest, Par Value $.01 Per Share - Previously filed as
Exhibit 1(b) to Post-Effective Amendment No. 11*
(3) Form of Establishment and Designation of Additional Series of shares
of Beneficial Interest, Par Value $.01 Per Share - Previously filed as
Exhibit 1(b) to Post-Effective Amendment No. 23*
(4) Form of Declaration of Trust as Amended and Restated December 31, 1994
- Previously filed as Exhibit a(4) to Post-Effective Amendment No. 53*
(5) Form of Establishment and Designation of Additional Series of Shares
of Beneficial Interest, Par Value $.01 Per Share - Previously filed as
Exhibit 1(e) to Post-Effective Amendment No. 28*
(6) Form of Establishment and Designation of an Additional Series of
Shares of Beneficial Interest, Par Value $.01 Per Share - Previously
filed as Exhibit 1(g) to Post-Effective Amendment No. 35*
(7) Establishment and Designation of an Additional Series of Shares of
Beneficial Interest, Par Value $.01 Per Share - Previously filed as
Exhibit 1(h) to Post-Effective Amendment No. 38*
(8) Establishment and Designation of Additional Series of Shares of
Beneficial Interest, Par Value $.01 Per Share - Previously filed as
Exhibit 1(i) to Post-Effective Amendment No. 47*
(9) Establishment and Designations of Class of Shares of Beneficial
Interest, Par Value $0.01 Per Share - Previously filed as Exhibit
a(10) to Post-Effective Amendment No. 51*
(10) Establishment and Designations of Additional Series of Shares of
Beneficial Interest, Par Value $0.01 Per Share - Previously filed as
Exhibit a(11) to Post-Effective Amendment No. 51*
(11) Establishment and Designation of Additional Series of Shares of
Beneficial Interest, Par Value $0.01 Per Share - Previously filed as
Exhibit a(11) to Post-Effective Amendment No. 55*
(12) Form of Establishment and Designation of Additional Series of Shares
of Beneficial Interest, Par Value $0.01 Per Share relating to the
Mainstay U.S. Large Cap Equity Fund - Previously filed as Exhibit
a(12) to Post-Effective Amendment No. 58*
(13) Establishment and Designation of Classes of Shares of Beneficial
Interest, Par Value $0.01 Per Share - Previously filed as Exhibit
a(13) to Post-Effective Amendment No. 65*
(14) Redesignation of Series of Shares of Beneficial Interest, Par Value
$0.01 Per Share - Previously filed as Exhibit a(14) to Post-Effective
Amendment No. 65*
(15) Abolition of Series of Shares of Beneficial Interest, Par Value $0.01
per Share - Previously filed as Exhibit a(15) to Post-Effective
Amendment No. 65*
(16) Establishment and Designation of Additional Series and Classes of
Shares of Beneficial Interest, Par Value $0.01 Per Share--Previously
filed as Exhibit (a)(16) to Post-Effective Amendment No. 74*
|
(17) Abolition of Series of Shares of Beneficial Interest, Par Value $0.01
Per Share -- Previously filed as Exhibit (a)(17) to Post-Effective
Amendment No. 74*
(18) Abolition of Series of Shares of Beneficial Interest, Par Value $0.01
Per Share -- Previously filed as Exhibit (a)(18) to Post-Effective
Amendment No. 74*
(19) Abolition of Series of Shares of Beneficial Interest, Par Value $0.01
Per Share -- Previously filed as Exhibit (a)(19) to Post-Effective
Amendment No. 74*
(20) Establishment and Designation of Additional Shares of Beneficial
Interest, Par Value $0.01 Per Share - Filed herewith
b. (1) Amended and Restated By-Laws dated May 23, 2005 - Filed herewith
c. See the Declaration of Trust, as amended and supplemented from time to time
(Exhibit 23(a)(1)-(12)) and the Amended and Restated By-Laws dated
December 31, 1994 (Exhibit 23(b))
d. (1) Amended and Restated Management Agreement between The MainStay Funds and
New York Life Investment Management LLC - Filed herewith
(2) (a) Amended and Restated Sub-Advisory Agreement between New York
Life Investment Management LLC and MacKay Shields LLC - Filed
herewith
(b) Second Amended and Restated Sub-Advisory Agreement between New
York Life Investment Management LLC and Markston International
LLC - Filed herewith
(c) Sub-Advisory Agreement between New York Life Investment
Management LLC and Jennison Associates LLC - Filed herewith
(d) Sub-Advisory Agreement between New York Life Investment
Management LLC and Winslow Capital Management, Inc. - Filed
herewith
e. (1) Amended and Restated Master Distribution Agreement between the MainStay
Funds and NYLIFE Distributors Inc. - Filed herewith
(2) Form of Soliciting Dealer Agreement - Filed herewith
f. Inapplicable
g. (1) Custodian Agreement with Investors Bank & Trust Company dated June 30,
2005 - Filed herewith
(2) Delegation Agreement with Investors Bank & Trust Company dated June
30, 2005 - Filed herewith
h. (1) (a) Amended and Restated Transfer Agency and Service Agreement -
Filed herewith
(b) Sub-Transfer Agency Agreement - Previously filed as Exhibit
h(I)(d) to Post-Effective Amendment No. 51*
(i) Amended and Restated Schedule A to the Sub-Transfer Agency
Agreement - Previously filed as Exhibit h(I)(b)(i) to Post-
Effective Amendment No. 54*
(2) Form of Guaranty Agreement - Equity Index Fund -- Previously filed as
Exhibit h(2) to Post-Effective Amendment No. 53*
|
(3) Amended and Restated Service Agreement with New York Life Benefit
Services, Inc. - Filed herewith
(4) Amended and Restated Fund Accounting Agreement with New York Life
Investment Management LLC - Filed herewith
(5) Shareholder Services Plan (Class R1 shares) - Filed herewith
(6) Shareholder Services Plan (Class R2 shares) - Filed herewith
(7) Shareholder Services Plan (Class R3 shares) - Filed herewith
(8) Expense Limitation Agreement - Filed herewith
(9) Amendment to Fund Accounting Agreement - Filed herewith
(10) Form of Indemnification Agreement - Filed herewith
(11) Master Fund Sub-Accounting and Sub-Administration Agreement between New
York Life Investment Management LLC and Investors Bank & Trust Company -
Filed herewith
i. (1) Opinion and consent of counsel as to the original series -- Previously
filed as Exhibit 10 to Post-Effective Amendment No. 45*
(2) Opinion and consent of counsel as to the Mainstay Mid Cap Growth Fund and
the Mainstay Select 20 Equity Fund -- Previously filed as Exhibit i to
Post-Effective Amendment No. 55*
(3) Opinion and consent of counsel as to the MainStay U.S. Large Cap Equity
Fund -- Previously Filed as Exhibit i to Post-Effective Amendment No. 59*
(4) Opinion and consent of counsel -- Previously filed as Exhibit i(4) to
Post-Effective Amendment No. 65*
(5) Opinion and consent of counsel as to Class R3 shares - Filed herewith
j. (1) Consent of Independent Registered Public Accounting Firm -- Filed herewith
k. Not applicable
l. Not applicable.
m. (1) Amended and Restated Plan of Distribution pursuant to Rule 12b-1 (Class A
shares) - Filed herewith
(2) Amended and Restated Plan of Distribution pursuant to Rule 12b-1 (Class B
shares) - Filed herewith
(3) Amended and Restated Plan of Distribution pursuant to Rule 12b-1 (Class C
shares) -- Filed herewith
(4) Plan of Distribution pursuant to Rule 12b-1 (Class R2 shares) - Filed
herewith
(5) Plan of Distribution pursuant to Rule 12b-1 (Class R3 shares) - Filed
herewith
n. Form of Amended and Restated Multiple Class Plan Pursuant to Rule 18f-3 -
Filed herewith
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o. Not Applicable
p. Codes of Ethics
(1) The MainStay Funds - Filed herewith
(2) Markston International LLC - Previously filed as Exhibit o(9) to
Post-Effective Amendment No. 54*
(3) MacKay Shields LLC - Filed herewith
(4) New York Life Investment Management Holdings LLC - Filed herewith
(5) Jennison Associates L.P. - Filed herewith
(6) Winslow Capital Management, Inc. - Filed herewith
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Other Exhibits:
Powers of Attorney of Gary E. Wendlandt, Edward J. Hogan, Charlynn Goins, Alan R. Latshaw, Terry L. Lierman, John B. McGuckian, Donald E. Nickelson, Richard S. Trutanic and Richard O. Blunt - previously filed as an Exhibit to Post-Effective Amendment No. 79*
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The following chart indicates the persons controlled by New York Life. Ownership is 100% unless otherwise indicated. Subsidiaries of other subsidiaries are indented accordingly.
Name of Organization (Jurisdiction)(1)
MainStay VP Series Fund, Inc.(2) (Maryland)
Eclipse Funds (2) (Massachusetts) Eclipse Funds Inc. (2) (Maryland) McMorgan Funds(2) (Delaware)
New York Life Investment Management Holdings LLC (Delaware)
MacKay Shields LLC (Delaware)
MacKay Shields General Partner (L/S) LLC (Delaware)
Madison Capital Funding LLC (Delaware)
McMorgan & Company LLC (Delaware)
NYLCAP Manager LLC (Delaware)
New York Life Capital Partners, L.L.C. (Delaware)
New York Life Capital Partners II, L.L.C. (Delaware)
NYLIM Mezzanine GenPar GP, LLC (Delaware)
New York Life Capital Partners III Gen Par GP, LLC (Delaware)
NYLIM - JB Asset Management Co. (Mauritius) LLC (25.1%)
(Mauritius)
NYLIM Service Company LLC (Delaware)
New York Life Investment Management LLC (Delaware)
NYLIM GP, LLC (Delaware)
NYLIM Fund II GP, LLC (Delaware)
New York Life Investment Management (U.K.) Limited (United
Kingdom)
NYLIFE Distributors LLC (Delaware)
NYLIM Real Estate Inc. (Delaware)
NYLCAP Holdings (Mauritius) (Mauritius)
New York Life Insurance and Annuity Corporation (Delaware)
New York Life International, LLC (Delaware)
New York Life Insurance Taiwan Corporation (Taiwan)
NYLI Holdings S.R.L. Argentina (Argentina)
HSBC New York Life Seguros do Vida (Argentina) S.A. (3) (40%)
(Argentina)
HSBD New York Life Seguros de Retiro (Argentina) S.A. (3)(40%)
(Argentina)
Maxima S.A. AFJP (3) (40%) (Argentina)
New York Life Insurance Limited (South Korea)
New York Life Insurance Worldwide Limited (Bermuda)
New York Life International Holdings Limited (25% owned by Segura
Monterrey
New York Life, S.A. de C.V.) (Mauritius)
Max New York Life Insurance Company Limited(4) (26%)(India)
New York Life International India Fund (Mauritius) LLC
(90%)(Mauritius)
New York Life Insurance (Philippines), Inc. (75%) (Philippines) New York Life Worldwide Capital, Inc. (Delaware) Fianzas Monterrey, S.A. (99.95%) Mexico Operada FMA, S.A. de C.V. (995) (Mexico) New York Life Securities Investment Consulting Co., Ltd. (Taiwan) NYLIFE Thailand, Inc. (Delaware) PMCC Ltd. (49%)
Siam Commercial New York Life Insurance Public Company
Limited (47.33%) (Thailand) (4) (23.88% owned by New
York Life International, LLC)
NYL Data Center Limited (99.97%)
NYLI-VB Asset Management Co. (Mauritius) LLC (90%) (Mauritius)
Seguros Monterrey New York Life, S.A. de C.V.(99.996%)(Mexico)
Centro de Capacitacion Monterrey, A.C. (99.791%)(Mexico)
NYLIFE LLC (Delaware)
Eagle Strategies Corp. (Arizona)
Express Scripts, Inc.(5) (16.44%) (Delaware)
New York Life Capital Corporation (Delaware)
New York Life International Investment Inc. (Delaware)
Monetary Research Limited (Bermuda)
NYL Management Limited (United Kingdom)
New York Life Trust Company (New York)
New York Life Trust Company, FSB (United States)
NYL Executive Benefits LLC (Delaware)
NYLIFE Securities Inc. (New York)
NYLINK Insurance Agency Incorporated (Delaware)
NYLINK Insurance Agency of Massachusetts, Incorporated
(Massachusetts)
NYLUK I Company (United Kingdom)
NYLUK II Company (United Kingdom)
Gresham Mortgage (United Kingdom)
W Construction Company (United Kingdom)
WUT (United Kingdom)
WIM (AIM) (United Kingdom)
WIM (United Kingdom)
NYLIFE Insurance Company of Arizona (Arizona)
Biris Holdings LLC (Delaware)
Monitor Capital Advisors Funds LLC (Delaware)
Haier New York Life Insurance Company Limited (PRC) (50%)
Silver Spring, LLC (Delaware)
(1) By including the indicated organizations in this list, New York Life is not stating or admitting that said organizations are under its actual control; rather, these organizations are listed here to ensure full compliance with the requirements of this Form N-1A. Information provided in this list is as of January 31, 2006.
(2) These entities are registered investment companies for which New York Life
and/or its subsidiaries perform one or more of the following services:
investment management, administrative, distribution, transfer agency and
underwriting services. They are not subsidiaries of New York Life but are
included for informational purposes only.
(3) This entity is included in this listing for informational purposes only. It is New York Life's position that neither New York Life nor any of its affiliates controls this entity. This entity is held through an interest in a holding company.
(4) This entity is included in this listing for informational purposes only. It is New York Life's position that neither New York Life nor any of its affiliates controls this entity.
(5) Includes shares owned directly by New York Life. This entity is included in this listing for informational purposes only. It is New York Life's position that neither New York Life nor any of its affiliates controls this entity. New York Life has the right to designate two directors of Express Scripts, Inc., a public company, and shares of Express Scripts, Inc. being held by New York Life or its subsidiaries are subject to a voting agreement with Express Scripts, Inc.
ITEM 25. INDEMNIFICATION
New York Life Insurance Company maintains Directors & Officers Liability insurance coverage. The policy covers the Directors, Officers, and Trustees of New York Life, its subsidiaries and certain affiliates, including The Mainstay Funds. Subject to the policy's terms, conditions, deductible and retentions, Directors, Officers and Trustees are covered for claims made against them while acting in their capacities as such. The primary policy is issued by Zurich-American Insurance Company, and the excess policies are issued by various insurance companies. The issuing insurance companies may be changed from time to time and there is no assurance that any or all of the current coverage will be maintained by New York Life.
Article IV of Registrant's Declaration of Trust states as follows:
SECTION 4.3. MANDATORY INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer of the Trust shall be indemnified by the Trust, or by one or more series thereof if the claim arises from his or her conduct with respect to only such Series to the fullest extent permitted by law against all liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been a Trustee or officer and against amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply to all claims, actions, suits or proceedings (civil, criminal, or other, including appeals), actual or threatened; and the words "liability" and "expenses" shall include, without limitation, attorneys' fees, costs, judgments, amounts paid in settlement, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or officer:
(i) against any liability to the Trust or a Series thereof or the Shareholders by reason of a final adjudication by a court or other body before which a proceeding was brought that he engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been finally adjudicated not to have acted in good faith in the reasonable belief that his action was in the best interest of the Trust or a Series thereof;
(iii) in the event of a settlement or other disposition not involving a final adjudication as provided in paragraph (b)(i) or (b)(ii) resulting in a payment by a Trustee or officer, unless there has been a determination that such Trustee or officer did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office;
(A) by the court or other body approving the settlement or other disposition; or
(B) based upon a review of readily available facts (as opposed to a full trial-type inquiry) by (x) vote of a majority of the Disinterested Trustees acting on the matter (provided that a majority of the Disinterested Trustees then in office act on the matter) or (y) written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured against by policies maintained by the Trust, shall be severable, shall not affect any rights to which any Trustee or officer may now or hereafter be entitled, shall continue as to a person who has ceased to be such Trustee or officer and shall inure to the benefit of the heirs, executors, administrators and assigns of such a person. Nothing contained herein shall affect any rights to indemnification to which personnel of the Trust other than Trustees and officers may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit, or proceedings of the character described in paragraph
(a) of this Section 4.3 shall be advanced by the Trust or a Series
thereof to final disposition thereof upon receipt of an undertaking
by or on behalf of the recipient, to repay such amount if it is
ultimately determined that he is not entitled to indemnification
under this Section 4.3, provided that either:
(i) such undertaking is secured by surety bond or some other appropriate security provided by the recipient, or the Trust or a Series thereof shall be insured against losses arising out of any such advances; or
(ii) a majority of the Non-interested Trustees acting on the matter (provided that a majority of the Disinterested Trustees acts on the matter) or an independent legal counsel in a written opinion shall determine, based upon a review of readily available facts (as opposed to a full trial-type inquiry), that there is reason to believe that the recipient ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Non-interested Trustee" is one who is not (i) an "Interested Person" of the Trust (including anyone who has been exempted from being an "Interested Person" by any rule, regulation or order of the Commission), or (ii) involved in the claim, action, suit or proceeding.
In addition, each Trustee has entered into a written agreement with the Trust pursuant to which the Trust is contractually obligated to indemnify the Trustees to the fullest extent permitted by law and by the Declaration of Trust and Bylaws of the Trust.
Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
ITEM 26. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISOR
The business of New York Life Investment Management LLC (formerly Mainstay Management LLC), New York Life Insurance Company, MacKay Shields LLC, Jennison Associates LLC, Markston International, LLC, and Winslow Capital Management, Inc. is summarized under "Know with Whom You're Investing" in the Prospectus constituting Part A of this Registration Statement, which summary is incorporated herein by reference.
The business or other connections of each manager and officer of New York Life Investment Management LLC (formerly Mainstay Management LLC) is currently listed in the investment adviser registration on Form ADV for New York Life Investment Management LLC (formerly Mainstay Management LLC) (File No. 801-54912) and is hereby incorporated herein by reference.
The business or other connections of each manager and officer of MacKay Shields LLC is currently listed in the investment adviser registration on Form ADV for MacKay Shields LLC (File No. 801-5594) and is hereby incorporated herein by reference.
The business and other connections of each director and officer of Markston International, LLC is currently listed in the investment adviser registration on Form ADV for Markston International, LLC (File No. 801-56141) and is hereby incorporated by reference.
The business or other connections of each director and officer of Jennison Associates LLC is currently listed in the investment adviser registration on Form ADV for Jennison Associates LLC (File No. 801-5608) and is hereby incorporated herein by reference.
The business or other connections of each director and officer of Winslow Capital Management, Inc. is currently listed in the investment adviser registration on Form ADV for Winslow Capital Management, Inc. (File No. 801-41316) and is hereby incorporated herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS
a. NYLIFE Distributors LLC acts as the principal underwriter for:
Eclipse Funds Inc. (File No. 33-36962) Eclipse Funds (File No. 33-08865) NYLIAC Variable Universal Life Separate Account I NYLIAC Multi-Funded Annuity Separate Account I NYLIAC Multi-Funded Annuity Separate Account II NYLIAC Variable Annuity Separate Account I NYLIAC Variable Annuity Separate Account II NYLIAC Variable Annuity Separate Account III NYLIAC Variable Life Insurance Separate Account NYLIAC Corporate Sponsored Variable Universal Life Separate Account I NYLIAC Institutionally Owned Life Insurance Separate Account
b.
BUSINESS POSITION(S)
AND OFFICE(S) WITH POSITION(S) AND
NAME AND PRINCIPAL NYLIFE OFFICE(S) WITH THE
ADDRESS(1) DISTRIBUTORS, INC. MAINSTAY FUNDS
Brian A. Murdock Chairman of the Board and None
President
Christopher O. Blunt Manager and Executive Vice President
President, NYLIM Product
Distribution
Robert J. Hebron Manager and Executive Vice None
President COLI Distribution
John R. Meyer Manager and Executive Vice None
President, Variable
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Annuity and Agency
Mutual Funds Distribution
Scott L. Berlin Manager and Executive None
Vice President, Non-COLI
Variable Life Distribution
John A. Cullen Manager None
Barry A. Schub Manager None
Stephen P. Fischer Senior Managing Director, None
NYLIM Products
Marketing
William F. Gibson Senior Managing Director None
and Chief Financial
Officer
Barbara McInerney Senior Managing Director, None
Compliance
Alison H. Micucci Managing Director, Vice President -
Compliance Compliance
Robert E. Brady Manager and Managing None
Director Operations
Thomas A. Clough Managing Director, None
Retirement Services
Joseph J. Henehan Managing Director, None
Retirement Services
Edward P. Linder Managing Director, None
Variable Annuity and
Agency Mutual Funds
Distribution
Beverly J. Moore Managing Director, None
Marketing
Communications
Gary L. Warren Managing Director, COLI None
Distribution
Wendy K. Fishler Managing Director - None
National Accounts
Mark A. Gomez Managing Director and None
Chief Compliance Officer
Julia D. Holland Managing Director - SMA None
Distribution
Marguerite E. H. Morrison Managing Director and Secretary
Secretary
Gary M. O'Neill Managing Director - None
Agency
Distribution
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(1) 169 Lackawanna Avenue, Parsippany, NJ 07054
c. Inapplicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
Certain accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder are maintained at the offices of the Registrant, the Manager and NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, at MacKay Shields LLC, 9 West 57th Street, New York, NY 10019; and New York Life Insurance Company, 51 Madison Avenue, New York, NY 10010. Records relating to the Registrant's transfer agent are maintained by MainStay Shareholder Services, 169
Lackawanna Avenue, Parsippany, NJ 07054. Records relating to the Registrant's custodian are maintained by Investors Bank and Trust Company, 200 Clarendon Street, Boston, MA 02117.
ITEM 29. MANAGEMENT SERVICES.
Inapplicable.
ITEM 30. UNDERTAKINGS.
Inapplicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement under Rule 485(b) under the Securities Act of 1933 and that is has duly caused this Post-Effective Amendment No. 80 to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Parsippany in the State of New Jersey, on the 7th day of April, 2006.
THE MAINSTAY FUNDS
By: / s / Gary E. Wendlandt *
---------------------------------
Gary E Wendlandt
Chairman
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Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment to the Registration Statement has been signed below by the following persons in the capacities indicated on April 7, 2006.
SIGNATURE TITLE
/s/ Christopher O. Blunt * President
--------------------------------
CHRISTOPHER O. BLUNT
/s/ Gary E. Wendlandt * Chairman and Trustee
--------------------------------
GARY E WENDLANDT
/s/ Arphiela Arizmendi Treasurer and Principal Financial
--------------------------------- and Accounting Officer
ARPHIELA ARIZMENDI
/s/ Edward J. Hogan * Trustee
---------------------------------
EDWARD J. HOGAN
/s/ Charlynn Goins * Trustee
---------------------------------
CHARLYNN GOINS
/s/ Alan R. Latshaw * Trustee
---------------------------------
ALAN R. LATSHAW
/s/ Terry L. Lierman * Trustee
---------------------------------
TERRY L LIERMAN
/s/ John B. McGuckian * Trustee
---------------------------------
JOHN B McGUCKIAN
/s/ Donald E. Nickelson * Trustee
---------------------------------
DONALD E NICKELSON
Trustee
---------------------------------
RICHARD S TRUTANIC
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*By: Marguerite E.H. Morrison --------------------------------------------------------- As Attorney-in-Fact * |
* PURSUANT TO POWERS OF ATTORNEY PREVIOUSLY FILED AS AN EXHIBIT TO POST-EFFECTIVE AMENDMENT NO. 79
EXHIBIT INDEX
Item Number Item
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(a)(20) - Establishment and Designation of Additional Shares of
Beneficial Interest, Par Value $0.01 Per Share
(b)(1) Amendment to Amended and Restated By-laws dated May 23,
2005
(d)(1) - Amended and Restated Management Agreement between The
MainStay Funds and New York Life Investment Management LLC
(d)(2)(a) - Amended and Restated Sub-Advisory Agreement between New
York Life Investment Management LLC and MacKay Shields LLC
(d)(2)(b) - Second Amended and Restated Sub-Advisory Agreement between
New York Life Investment Management LLC and Markston
International LLC
(d)(2)(c) - Sub-Advisory Agreement between New York Life Investment
Management LLC and Jennison Associates LLC
(d)(2)(d) - Sub-Advisory Agreement between New York Life Investment
Management LLC and Winslow Capital Management, Inc.
(e)(1) - Amended and Restated Master Distribution Agreement between
the MainStay Funds and NYLIFE Distributors Inc.
(e)(2) - Form of Soliciting Dealer Agreement
(g)(1) - Custodian Agreement with Investors Bank & Trust Company
dated June 30, 2005
(g)(2) - Delegation Agreement with Investors Bank & Trust Company
dated June 30, 2005
(h)(1)(a) - Amended and Restated Transfer Agency and Service Agreement
(h)(1)(b) - Sub Transfer Agency Agreement
(h)(3) - Amended and Restated Service Agreement with New York Life
Benefit Services, Inc.
(h)(4) - Amended and Restated Fund Accounting Agreement with New
York Life Investment Management LLC
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(h)(5) - Shareholder Services Plan (Class R1 shares)
(h)(6) - Shareholder Services Plan (Class R2 shares)
(h)(7) - Shareholder Services Plan (Class R3 shares)
(h)(8) - Expense Limitation Agreement
(h)(9) - Amendment to Fund Accounting Agreement
(h)(10) - Form of Indemnification Agreement
(h)(11) - Master Fund Sub-Accounting and Sub-Administration Agreement
between New York Life Investment Management LLC and
Investors Bank & Trust Company
(i)(5) - Opinion and consent of counsel as to Class R3 shares
(j)(1) - Consent of Independent Registered Public Accounting Firm
(m)(1) - Amended and Restated Plan of Distribution pursuant to Rule
12b-1 (Class A shares)
(m)(2) - Amended and Restated Plan of Distribution pursuant to Rule
12b-1 (Class B shares)
(m)(3) - Amended and Restated Plan of Distribution pursuant to Rule
12b-1 (Class C shares)
(m)(4) - Amended and Restated Plan of Distribution pursuant to Rule
12b-1 (Class R2 shares)
(m)(5) - Plan of Distribution pursuant to Rule 12b-1 (Class R3
shares)
(n) - Form of Amended and Restated Multiple Class Plan Pursuant
to Rule 18f-3
(p)(1) - Code of Ethics for The MainStay Funds
(p)(3) - Code of Ethics for MacKay Shields LLC
(p)(4) - Code of Ethics for New York Life Investment Management
Holdings LLC
(p)(5) - Code of Ethics for Jennison Associates L.P.
(p)(6) - Code of Ethics for Winslow Capital Management, Inc.
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EXHIBIT (a)(20)
THE MAINSTAY FUNDS
Establishment and Designation of Class
of Shares of Beneficial Interest, Par Value $0.01 Per Share
March 17, 2006
The undersigned, being a majority of the Trustees of The MainStay Funds, a Massachusetts business trust (the "Trust"), acting pursuant to Section 5.12 of the Declaration of Trust dated January 9, 1986, as amended December 31, 1994 (the "Declaration of Trust"), hereby divide the authorized and unissued shares of beneficial interest (the "Shares") of the series of the Trust designated below in paragraph 1 (each, a "Fund," and collectively, the "Funds") into a newly established Class hereby designated as "Class R3" shares (the "Class"), with such Class to have the special and relative rights specified in this Instrument:
1. MainStay Large Cap Growth Fund - Class R3 MainStay Mid Cap Growth Fund - Class R3 MainStay MAP Fund - Class R3 MainStay International Equity Fund - Class R3
2. Each Share shall be redeemable, and, except as provided below, shall represent a pro rata beneficial interest in the assets attributable to the Class of shares of a Fund, and shall be entitled to receive its pro rata share of net assets attributable to the Class upon liquidation of the Fund, all as provided in or not inconsistent with the Declaration of Trust. Each Share shall have the voting, dividend, liquidation and other rights, preferences, powers, restrictions, limitations, qualifications, terms and conditions, as set forth in the Declaration of Trust.
3. Upon the effective date of this Instrument:
a. Each Share of the Class of a Fund shall be entitled to one vote (or fraction thereof in respect of a fractional share) on matters which such Shares (or Class of Shares) shall be entitled to vote. Shareholders of a Fund shall vote together on any matter, except to the extent otherwise required by the Investment Company Act of 1940, as amended (the "1940 Act"), or when the Trustees have determined that the matter affects only the interest of Shareholders of one or more Classes, in which case only the Shareholders of such Class or Classes shall be entitled to vote thereon. Any matter shall be deemed to have been effectively acted upon with respect to the Fund if acted upon as provided in Rule 18f-2 under the 1940 Act or any successor rule and in the Declaration of Trust.
b. Liabilities, expenses, costs, charges or reserves that should be properly allocated to the Shares of a particular Class of the Fund may, pursuant to the Plan adopted by the Trustees under Rule 18f-3 under the 1940 Act, or such similar rule under or provision or
interpretation of the 1940 Act, be charged to and borne solely by such Class and the bearing of expenses solely by a Class of Shares may be appropriately reflected and cause differences in net asset value attributable to, and the dividend, redemption and liquidation rights of, the Shares of different Classes.
4. The Trustees (including any successor Trustees) shall have the right at any time and from time to time to reallocate assets, liabilities and expenses or to change the designation of any Class now or hereafter created, or to otherwise change the special and relative rights of any such Class, provided that such change shall not adversely affect the rights of Shareholders of such Class.
/s/ Charlynn Goins /s/ Edward J. Hogan
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Charlynn Goins Edward J. Hogan
/s/ Terry L. Lierman /s/ John B. McGuckian
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Terry L. Lierman John B. McGuckian
/s/ Donald E. Nickelson /s/ Richard S. Trutanic
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Donald E. Nickelson Richard S. Trutanic
/s/ Gary E. Wendlandt
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Gary E. Wendlandt
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Exhibit (b)(2)
BY-LAWS
OF
THE MAINSTAY FUNDS
DATED DECEMBER 31, 1994
AMENDED AND RESTATED MAY 23, 2005
TABLE OF CONTENTS
Page
ARTICLE I -- DEFINITIONS......................................................................1
ARTICLE II -- OFFICES
Section 1. Principal Office.........................................................1
Section 2. Other Offices............................................................1
ARTICLE III -- SHAREHOLDERS
Section 1. Meetings.................................................................1
Section 2. Notice of Meetings.......................................................1
Section 3. Record Date for Meetings and Other Purposes..............................2
Section 4. Proxies..................................................................2
Section 5. Inspection of Records....................................................2
Section 6. Action without Meeting...................................................2
ARTICLE IV - TRUSTEES
Section 1. Meetings of the Trustees.................................................3
Section 2. Quorum and Manner of Acting..............................................3
ARTICLE V - COMMITTEES
Section 1. Executive and Other Committees...........................................3
Section 2. Meetings, Quorum and Manner of Acting....................................4
ARTICLE VI - OFFICERS
Section 1. General Provisions.......................................................4
Section 2. Term of Office and Qualifications........................................4
Section 3. Removal..................................................................4
Section 4. Powers and Duties of the Chairman........................................5
Section 5. Powers and Duties of the President.......................................5
Section 6. Powers and Duties of Vice Presidents.....................................5
Section 7. Powers and Duties of the Chief Financial Officer.........................5
Section 8. Powers and Duties of the Secretary.......................................5
Section 9. Powers and Duties of Assistant Officers..................................6
Section 10. Powers and Duties of Assistant Secretaries...............................6
Section 11. Compensation of Officers and Trustees and
Members of Advisory Board................................................6
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ARTICLE VII - FISCAL YEAR.....................................................................6
ARTICLE VIII -- SEAL..........................................................................6
ARTICLE IX - SUFFICIENCY AND WAIVERS OF NOTICE................................................6
ARTICLE X - CUSTODY OF SECURITIES
Section 1. Employment of a Custodian................................................7
Section 2. Action Upon Termination of Custodian Agreement...........................7
Section 3. Provisions of Custodian Contract.........................................7
Section 4. Central Certificate System...............................................8
Section 5. Acceptance of Receipts in Lieu of Certificates...........................8
ARTICLE XI -- AMENDMENTS......................................................................8
ARTICLE XII -- MISCELLANEOUS..................................................................8
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AMENDED AND RESTATED BY-LAWS
OF
THE MAINSTAY FUNDS
ARTICLE I
DEFINITIONS
The terms "Administrator," "By-laws," "Commission," "Custodian," "Declaration," "Distributor," "Fund" or "Funds," "His," "Interested Person," "Investment Adviser," "1940 Act," "Person," "Series," "Shareholder," "Shares," "Transfer Agent," "Trust," "Trust Property," "Trustees," and "vote of a majority of the Shares outstanding and entitled to vote," have the respective meanings given them in the Declaration of Trust of The MainStay Funds dated January 9, 1986, as amended from time to time.
ARTICLE II
OFFICES
Section 1. Principal Office. Until changed by the Trustees, the principal office of the Trust shall be in the City and State of New York.
Section 2. Other Offices. The Trust may have offices in such other places without as well as within the Commonwealth of Massachusetts as the Trustees may from time to time determine.
ARTICLE III
SHAREHOLDERS
Section 1. Meetings. Meetings of the Shareholders of the Trust or a Series thereof shall be held as provided in the Declaration at such place within or without the Commonwealth of Massachusetts as the Trustees shall designate. The holders of a majority of outstanding Shares of the Trust or a Series thereof present in person or by proxy shall constitute a quorum at any meeting of the Shareholders of the Trust or a Series thereof.
Section 2. Notice of Meetings. Notice of all meetings of the
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each Shareholder at his address as recorded on
the register of the Trust mailed at least ten (10) days and not more than sixty
(60) days before the meeting, provided, however, that notice of a meeting need
not be given to a shareholder to whom such notice need not be given under the
Declaration and the proxy rules of the Commission under the 1940 Act and the
Securities Exchange Act of 1934, as amended. Only the business stated in the
notice of the meeting shall be considered at such meeting. Any adjourned meeting
may be held as adjourned without further notice. No notice need be given to any
Shareholder who shall have failed to inform the Trust of
his current address or if a written waiver of notice, executed before or after the meeting by the Shareholder or his attorney thereunto authorized, is filed with the records of the meeting.
Section 3. Record Date for Meetings and Other Purposes. For the purpose of determining the Shareholders who are entitled to notice of and to vote at any meeting, or to participate in any distribution, or for the purpose of any other action, the Trustees may from time to time close the transfer books for such period, not exceeding thirty (30) days, as the Trustees may determine; or without closing the transfer books the Trustees may fix a date not more than sixty (60) days prior to the date of any meeting of Shareholders or distribution or other action as a record date for the determination of the persons to be treated as Shareholders of record for such purposes, except for dividend payments which shall be governed by the Declaration.
Section 4. Proxies. At any meeting of Shareholders, any holder of Shares entitled to vote thereat may vote by proxy, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the Secretary, or with such other officer or agent of the Trust as the Secretary may direct, for verification prior to the time at which such vote shall be taken. Proxies may be solicited in the name of one or more Trustees or one or more of the officers of the Trust. Only Shareholders of record shall be entitled to vote. Each whole Share shall be entitled to one vote as to any matter on which it is entitled by the Declaration to vote, and each fractional Share shall be entitled to a proportionate fractional vote. When any Share is held jointly by several persons, any one of them may vote at any meeting in person or by proxy in respect of such Share, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such Share. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. If the holder of any such Share is a minor or a person of unsound mind, and subject to guardianship or the legal control of any other person as regards the charge or management of such Share, he may vote by his guardian or such other person appointed or having such control, and such vote may be given in person or by proxy.
Section 5. Inspection of Records. The records of the Trust shall be open to inspection by Shareholders to the same extent as is permitted shareholders of a Massachusetts business corporation.
Section 6. Action without Meeting. Any action which may be taken by Shareholders may be taken without a meeting if a majority of Shareholders entitled to vote on the matter (or such larger proportion thereof as shall be required by law, the Declaration or these By-laws for approval of such matter) consent to the action in writing and the written consents are filed with the records of the meetings of Shareholders. Such consents shall be treated for all purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
Section 1. Meetings of the Trustees. The Trustees may in their discretion provide for regular or stated meetings of the Trustees. Notice of regular or stated meetings need not be given. Meetings of the Trustees other than regular or stated meetings shall be held whenever called by the President, or by any one of the Trustees, at the time being in office. Notice of the time and place of each meeting other than regular or stated meetings shall be given by the Secretary or an Assistant Secretary or by the officer or Trustee calling the meeting and shall be mailed to each Trustee at least two (2) days before the meeting, or shall be telegraphed, cabled, or wirelessed to each Trustee at his business address, or personally delivered to him at least one (1) day before the meeting. Such notice may, however, be waived by any Trustee. Notice of a meeting need not be given to any Trustee if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any Trustee who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. A notice or waiver of notice need not specify the purpose of any meeting. The Trustees may meet by means of a telephone conference circuit or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall be deemed to have been held at a place designated by the Trustees at the meeting. Participation in a telephone conference meeting shall constitute presence in person at such meeting. Any action required or permitted to be taken at any meeting of the Trustees may be taken by the Trustees without a meeting if all the Trustees consent to the action in writing and the written consents are filed with the records of the Trustees' meetings. Such consents shall be treated as a vote for all purposes.
Section 2. Quorum and Manner of Acting. A majority of the Trustees shall be present in person at any regular or special meeting of the Trustees in order to constitute a quorum for the transaction of business at such meeting and (except as otherwise required by law, the Declaration or these By-laws) the act of a majority of the Trustees present at any such meeting, at which a quorum is present, shall be the act of the Trustees. In the absence of a quorum, a majority of the Trustees present may adjourn the meeting from time to time until a quorum shall be present. Notice of an adjourned meeting need not be given.
ARTICLE V
COMMITTEES
Section 1. Executive and Other Committees. The Trustees by vote of a majority of all the Trustees may elect from their own number an Executive Committee to consist of not less than three (3) members to hold office at the pleasure of the Trustees, which shall have the power to conduct the current and ordinary business of the Trust while the Trustees are not in session, including the purchase and sale of securities and the designation of securities to be delivered upon redemption of Shares of the Trust or a Series thereof, and such other powers of the Trustees as the Trustees may, from time to time, delegate to them except those powers which by law, the Declaration or these By-laws they are prohibited from delegating. The Trustees may also elect
from their own number and officers of the Trust other Committees from time to time, the number composing such Committees, the powers conferred upon the same (subject to the same limitations as with respect to the Executive Committee) and the term of membership on such Committees to be determined by the Trustees. The Trustees may designate a chairman of any such Committee. In the absence of such designation the Committee may elect its own Chairman.
Section 2. Meetings, Quorum and Manner of Acting. The Trustees may
(1) provide for stated meetings of any Committee, (2) specify the manner of
calling and notice required for special meetings of any Committee, (3) specify
the number of members of a Committee required to constitute a quorum and the
number of members of a Committee required to exercise specified powers delegated
to such Committee, (4) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting, and (5) authorize the members of a Committee to meet by means
of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and records of decisions taken without a meeting and cause them to be recorded in a book designated for that purpose and kept in the office of the Trust.
ARTICLE VI
OFFICERS
Section 1. General Provisions. The officers of the Trust shall be a President, a Chief Financial Officer and a Secretary, who shall be elected by the Trustees. The Trustees may elect or appoint such other officers or agents as the business of the Trust may require, including one or more Vice Presidents, a Treasurer, a Chief Legal Officer, one or more Assistant Secretaries, and one or more Assistant Treasurers. The Trustees may delegate to any officer or committee the power to appoint any subordinate officers or agents.
Section 2. Term of Office and Qualifications. Except as otherwise provided by law, the Declaration or these By-laws, the President, the Chief Financial Officer and the Secretary shall each hold office until his successor shall have been duly elected and qualified, and all other officers shall hold office at the pleasure of the Trustees. The Secretary and the Chief Financial Officer may be the same person. A Vice President and the Chief Financial Officer or a Vice President and the Secretary may be the same person, but the offices of Vice President, Secretary and Chief Financial Officer or Treasurer shall not be held by the same person. The President shall hold no other office. Except as above provided, any two offices may be held by the same person. Any officer may be but none need be a Trustee or Shareholder.
Section 3. Removal. The Trustees, at any regular or special meeting of the Trustees, may remove any officer without cause, by a vote of a majority of the Trustees then in office. Any officer or agent appointed by an officer or Committee may be removed with or without cause by such appointing officer or Committee.
Section 4. Powers and Duties of the Chairman. The Trustees may, but need not, appoint from among their number a Chairman. When present he shall preside at the meetings of the Shareholders and of the Trustees. He may call meetings of the Trustees and of any Committee thereof whenever he deems it necessary. He shall be an executive officer of the Trust and shall have, with the President, general supervision over the business and policies of the Trust, subject to the limitations imposed upon the President, as provided in Section 5 of this Article VI.
Section 5. Powers and Duties of the President. In the absence of the Chairman, the President may call meetings of the Trustees and of any Committee thereof when he deems it necessary and shall preside at all meetings of the Shareholders. Subject to the control of the Trustees and to the control of any Committees of the Trustees, within their respective spheres, as provided by the Trustees, he shall at all times exercise a general supervision and direction over the affairs of the Trust. He shall have the power to employ attorneys and counsel for the Trust or any Series thereof and to employ such subordinate officers, agents, clerks and employees as he may find necessary to transact the business of the Trust or any Series thereof. He shall also have the power to grant, issue, execute or sign such powers of attorney, proxies or other documents as may be deemed advisable or necessary in furtherance of the interests of the Trust or any Series thereof. The President shall have such other powers and duties, as from time to time may be conferred upon or assigned to him by the Trustees.
Section 6. Powers and Duties of Vice Presidents. In the absence or disability of the President, the Vice President or, if there be more than one Vice President, any Vice President designated by the Trustees shall perform all the duties and may exercise any of the powers of the President, subject to the control of the Trustees. Each Vice President shall perform such other duties as may be assigned to him from time to time by the Trustees and the President.
Section 7. Powers and Duties of the Chief Financial Officer. The Chief Financial Officer shall be the principal financial and accounting officer of the Trust. He shall deliver all funds of the Trust or any Series thereof which may come into his hands to such Custodian as the Trustees may employ pursuant to Article X of these By-laws. He shall render a statement of condition of the finances of the Trust or any Series thereof to the Trustees as often as they shall require the same and he shall in general perform all the duties incident to the office of a Chief Financial Officer and such other duties as from time to time may be assigned to him by the Trustees. The Chief Financial Officer shall give a bond for the faithful discharge of his duties, if required so to do by the Trustees, in such sum and with such surety or sureties as the Trustees shall require.
Section 8. Powers and Duties of the Secretary. The Secretary shall keep the minutes of all meetings of the Trustees and of the Shareholders in proper books provided for that purpose; he shall have custody of the seal of the Trust; he shall have charge of the Share transfer books, lists and records unless the same are in the charge of the Transfer Agent. He shall attend to the giving and serving of all notices by the Trust in accordance with the provisions of these By-laws and as required by law; and subject to these By-laws, he shall in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Trustees.
Section 9. Powers and Duties of Assistant Officers. In the absence or disability of the Chief Financial Officer, any officer designated by the Trustees shall perform all the duties, and may exercise any of the powers, of the Chief Financial Officer. Each officer shall perform such other duties as from time to time may be assigned to him by the Trustees. Each officer performing the duties and exercising the powers of the Chief Financial Officer and the Treasurer, if any, and any Assistant Treasurer, shall give a bond for the faithful discharge of his duties, if required so to do by the Trustees, in such sum and with such surety or sureties as the Trustees shall require.
Section 10. Powers and Duties of Assistant Secretaries. In the absence or disability of the Secretary, any Assistant Secretary designated by the Trustees shall perform all the duties, and may exercise any of the powers, of the Secretary. Each Assistant Secretary shall perform such other duties as from time to time may be assigned to him by the Trustees.
Section 11. Compensation of Officers and Trustees and Members of the Advisory Board. Subject to any applicable provisions of the Declaration, the compensation of the officers and Trustees and members of an Advisory Board shall be fixed from time to time by the Trustees or, in the case of officers, by any Committee or officer upon whom such power may be conferred by the Trustees. No officer shall be prevented from receiving such compensation as such officer by reason of the fact that he is also a Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of January in each year and shall end on the last day of December in each year, provided, however, that the Trustees may from time to time change the fiscal year. The fiscal year of the Trust shall be the taxable year of each Series of the Trust.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall have such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
SUFFICIENCY AND WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the Declaration or these By-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. A notice shall
be deemed to have been telegraphed, cabled or wirelessed for the purposes of these By-laws when it has been delivered to a representative of any telegraph, cable or wireless company with instructions that it be telegraphed, cabled or wirelessed.
ARTICLE X
CUSTODY OF SECURITIES
Section 1. Employment of a Custodian. The Trust shall place and at all times maintain in the custody of one or more Custodians (including any sub-custodian for the Custodian) all funds, securities and similar investments included in the Trust Property or the Trust Property allocated or belonging to a Series thereof. The Custodian (and any sub-custodian) shall be a bank having not less than $2,000,000 aggregate capital, surplus and undivided profits and shall be appointed from time to time by the Trustees, who shall fix its remuneration.
Section 2. Action Upon Termination of Custodian Agreement. Upon termination of a Custodian Agreement or inability of the Custodian to continue to serve, the Trustees shall promptly appoint a successor custodian, but in the event that no successor custodian can be found who has the required qualifications and is willing to serve, the Trustees shall call as promptly as possible a special meeting of the Shareholders of the Trust or a Series thereof to determine whether the Trust or Series thereof shall function without a custodian or shall be liquidated. If so directed by vote of the holders of a majority of the outstanding voting securities, the Custodian shall deliver and pay over all Trust Property or the Trust Property allocated or belonging to a Series thereof held by it as specified in such vote.
Section 3. Provisions of Custodian Contract. The following provisions shall apply to the employment of a Custodian and to any contract entered into with the Custodian so employed:
The Trustees shall cause to be delivered to the Custodian all securities included in the Trust Property or the Trust Property allocated or belonging to a Series thereof or to which the Trust or such Series may become entitled, and shall order the same to be delivered by the Custodian only in completion of a sale, exchange, transfer, pledge, loan of securities to another person, or other disposition thereof, all as the Trustees may generally or from time to time require or approve or to a successor Custodian; and the Trustees shall cause all funds included in the Trust Property or the Trust Property allocated or belonging to a Series thereof or to which it may become entitled to be paid to the Custodian, and shall order the same disbursed only for investment against delivery of the securities acquired, or the return of cash held as collateral for loans of fund securities, or in payment of expenses, including management compensation, and liabilities of the Trust or Series thereof, including distributions to Shareholders, or for other proper Trust purposes, or to a successor Custodian. Notwithstanding anything to the contrary in these By-laws, upon receipt of proper instructions, which may be standing instructions, the Custodian may deliver funds in the following cases: In connection with repurchase agreements, the Custodian shall transmit, prior to receipt on behalf of the Trust or Series thereof of any securities or other property, funds from the custodian account of the Trust or Series thereof to a special custodian approved by
the Trustees of the Trust, which funds shall be used to pay for securities to be purchased by the Trust or Series thereof subject to the obligation of the Trust or Series thereof to sell and the seller's obligation to repurchase such securities. In such case, the securities shall be held in the custody of the special custodian. In connection with the purchase or sale of financial futures contracts, the Custodian shall transmit, prior to receipt on behalf of the Trust of any securities or other property, funds from the custodian account of the Trust or Series thereof in order to furnish to and maintain funds with brokers as margin to guarantee the performance of the futures obligations of the Trust or Series thereof in accordance with the applicable requirements of commodities exchanges and brokers.
Section 4. Central Certificate System. Subject to such rules, regulations and orders as the Commission may adopt, the Trustees may direct the Custodian to deposit all or any part of the securities owned by the Trust or Series thereof in a system for the central handling of securities established by a national securities exchange or a national securities association registered with the Commission under the Securities Exchange Act of 1934, or such other person as may be permitted by the Commission, or otherwise in accordance with the 1940 Act, pursuant to which system all securities of any particular class or series of any issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of such securities, provided that all such deposits shall be subject to withdrawal only upon the order of the Trust or Series thereof.
Section 5. Acceptance of Receipts in Lieu of Certificates. Subject to such rules, regulations and orders as the Commission may adopt, the Trustees may direct the Custodian to accept written receipts or other written evidences indicating purchases of securities held in book-entry form in the Federal Reserve System in accordance with regulations promulgated by the Board of Governors of the Federal Reserve System and the local Federal Reserve Banks in lieu of receipt of certificates representing such securities.
ARTICLE XI
AMENDMENTS
These By-laws, or any of them, may be altered, amended or repealed, or new By-laws may be adopted by (a) vote of a majority of the Shares outstanding and entitled to vote or (b) by the Trustees, provided, however, that no By-law may be amended, adopted or repealed by the Trustees if such amendment, adoption or repeal requires, pursuant to law, the Declaration or these By-laws, a vote of the Shareholders.
ARTICLE XII
MISCELLANEOUS
(A) Except as hereinafter provided, no officer or Trustee of the Trust and no partner, officer, director or shareholder of the Investment Adviser of the Trust (as that term is defined in
the 1940 Act) or of the underwriter of the Trust, and no Investment Adviser or underwriter of the Trust, shall take long or short positions in the securities issued by the Trust or any Series thereof.
(1) The foregoing provisions shall not prevent the underwriter from purchasing Shares from the Trust or any Series if such purchases are limited (except for reasonable allowances for clerical errors, delays and errors of transmission and cancellation of orders) to purchase for the purpose of filling orders for such Shares received by the underwriter, and provided that orders to purchase from the Trust or any Series thereof are entered with the Trust or any Series thereof or the Custodian promptly upon receipt by the underwriter of purchase orders for such Shares, unless the underwriter is otherwise instructed by its customer.
(2) The foregoing provision shall not prevent the underwriter from purchasing Shares of the Trust or any Series thereof as agent for the account of the Trust or any Series thereof.
(3) The foregoing provisions shall not prevent the purchase from the Trust or any Series thereof or from the underwriter of Shares issued by the Trust or any Series thereof, by any officer, or Trustee of the Trust or any Series thereof or by any partner, officer, director or shareholder of the Investment Adviser of the Trust or any Series thereof or of the underwriter of the Trust at the price available to the public generally at the moment of such purchase, or as described in the then currently effective Prospectus of the Trust.
(4) The foregoing shall not prevent the Investment Adviser, or any affiliate thereof, of the Trust or any Series thereof from purchasing Shares prior to the effectiveness of the first registration statement relating to the Shares under the Securities Act of 1933.
(B) Neither the Trust nor any Series thereof shall lend assets of the Trust or of such Series to any officer or Trustee of the Trust or Series, or to any partner, officer, director or shareholder of, or person financially interested in, the Investment Adviser of the Trust or Series or the underwriter of the Trust, or to the Investment Adviser of the Trust or Series or to the underwriter of the Trust.
(C) The Trust shall not impose any restrictions upon the transfer of the Shares of the Trust or any Series thereof except as provided in the Declaration or as may be required to comply with federal or state securities laws, but this requirement shall not prevent the charging of customary transfer agent fees.
(D) The Trust shall not permit any officer or Trustee of the Trust, or any partner, officer or director of the Investment Adviser or Administrator of the Trust or any Series thereof or underwriter of the Trust to deal for or on behalf of the Trust or a Series thereof with himself as principal or agent, or with any partnership, association or corporation in which he has a financial interest; provided that the foregoing provisions shall not prevent (a) officers and Trustees of the Trust or partners, officers or directors of the Investment Adviser or Administrator of the Trust or
any Series thereof or underwriter of the Trust from buying, holding or selling Shares in the Trust or a Series thereof, or from being partners, officers or directors or otherwise financially interested in the Investment Adviser or Administrator of the Trust or any Series thereof or any underwriter of the Trust; (b) purchases or sales of securities or other property by the Trust or a Series thereof from or to an affiliated person or to the Investment Adviser or Administrator of the Trust or any Series thereof or underwriter of the Trust if such transaction is not prohibited by or is exempt from the applicable provisions of the 1940 Act; (c) purchases of investments by the Series of the Trust or sales of investments owned by the Trust or a Series thereof through a security dealer who is, or one or more of whose partners, shareholders, officers or directors is, an officer or Trustee of the Trust, or a partner, officer or director of the Investment Adviser or Administrator of the Trust or any Series thereof or underwriter of the Trust, if such transactions are handled in the capacity of broker only and commissions charged do not exceed customary brokerage charges for such services; (d) employment of legal counsel, registrar, Transfer Agent, dividend disbursing agent or Custodian who is, or has a partner, shareholder, officer, or director who is, an officer or Trustee of the Trust, or a partner, officer or director of the Investment Adviser or Administrator of the Trust or any Series thereof or underwriter of the Trust, if only customary fees are charged for services to the Trust or Series thereof; (e) sharing statistical research, legal and management expenses and office hire and expenses with any other investment company in which an officer or Trustee of the Trust, or a partner, officer or director of the Investment Adviser or Administrator of the Trust or a Series thereof or underwriter of the Trust, is an officer or director or otherwise financially interested.
END OF BY-LAWS
EXHIBIT d(1)
THE MAINSTAY FUNDS
AMENDED AND RESTATED MANAGEMENT AGREEMENT
Amended and Restated Management Agreement, made as of the 1st day of August, 2002 between The MainStay Funds, a Massachusetts business trust (the "Trust"), on behalf of its series as set forth on Schedule A (each, a "Fund," and collectively, the "Funds"), as amended from time to time, and New York Life Investment Management LLC, a Delaware limited liability company (the "Manager").
W I T N E S S E T H:
WHEREAS, the Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the shares of beneficial interest of the Trust (the "Shares") are divided into separate series, each of which is established pursuant to a written instrument executed by the Trustees of the Trust and the Trustees may from time to time terminate such series or establish and terminate additional series; and
WHEREAS, the Trust entered into (1) a Management Agreement on October 21, 1997 by and between the Trust and MainStay Management Inc. ("MMI") whereby MMI agreed to provide advisory and related administrative services to certain of the Funds; and (2) a Management Agreement on January 2, 2001 by and between the Trust and New York Life Investment Management LLC ("NYLIM") whereby NYLIM agreed to provide advisory and related administrative services to the Mid Cap Growth and Select 20 Equity Funds (collectively, the "Current Management Agreements"); and
WHEREAS, the Management Agreement dated October 21, 1997 was amended effective October 1, 1999 to reflect the conversion of MMI from a corporation to a limited liability company under Delaware law and to replace MMI with MainStay Management LLC ("MM LLC"); and
WHEREAS, pursuant to a Substitution Agreement dated January 2, 2001 by and between MM LLC and NYLIM, NYLIM assumed all the interests, rights and responsibilities of MM LLC under the Management Agreement dated October 21, 1997, as further amended effective October 1, 1999, and agreed to perform all of MM LLC's duties and responsibilities under such Agreement; and
WHEREAS, on March 10, 2002, the Board approved certain contractual management fee breakpoints; and
WHEREAS, each Fund desires to retain the Manager to render investment advisory and related administrative services to the Fund, and the Manager is willing to render such services on the terms and conditions hereinafter set forth; and
WHEREAS, this Agreement amends and restates, in its entirety, the Current Management Agreements in order to combine the Current Management Agreements into a single Amended and Restated Management Agreement to reflect the current parties of the Current Management Agreements, to reflect the contractual management fee breakpoints
and to make certain other ministerial changes designed to facilitate the administration of this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Appointment. Each Fund hereby appoints New York Life Investment Management LLC to act as manager to the Fund for the period and on the terms set forth in this Agreement. The Manager accepts such appointment and agrees to render the services herein described, for the compensation herein provided.
2. Duties as Manager. Subject to the supervision of the Trustees of the Trust, the Manager shall administer each Fund's business affairs and manage the investment operations of each Fund and the composition of the portfolio of each Fund, including the purchase, retention and disposition of securities therein, in accordance with the investment objectives, policies and restrictions of each Fund, as stated in the currently effective Prospectus (as hereinafter defined) and subject to the following understandings:
(a) The Manager shall (i) furnish each Fund with office facilities;
(ii) be responsible for the financial and accounting records required to be
maintained by each Fund (excluding those being maintained by the Fund's
Custodian, Transfer Agent and Accounting Services Agent except as to which the
Manager has supervisory functions) and other than those being maintained by the
Fund's sub-adviser, if any; and (iii) furnish each Fund with ordinary clerical,
bookkeeping and recordkeeping services at such office facilities.
(b) The Manager shall provide supervision of each Fund's investments and determine from time to time what investments or securities will be purchased, retained, sold or lent by the Fund, and what portion of the Fund's assets will be invested or held uninvested as cash.
(c) The Manager shall use its best judgment in the performance of its duties under this Agreement.
(d) The Manager, in the performance of its duties and obligations under this Agreement, shall act in conformity with the Declaration of Trust, By-Laws and Prospectus (each as hereinafter defined) of the Trust and with the instructions and directions of the Trustees of the Trust and will conform to and comply with the requirements of the 1940 Act and all other applicable federal and state laws and regulations.
(e) The Manager, and any sub-adviser to whom such authority has been delegated, shall determine the securities to be purchased or sold by each Fund and will place orders pursuant to its determination with or through such persons, brokers or dealers (including NYLIFE Securities Inc.) in conformity with the policy with respect to brokerage as set forth in the Trust's Registration Statement and Prospectus (each as hereinafter defined) or as the Trustees may direct from time to time. It is recognized that, in providing a Fund with investment supervision or the placing of orders for portfolio transactions, the Manager or any sub-adviser will give primary consideration to securing the most favorable price and efficient execution. Consistent with this policy, the Manager or any sub-adviser may consider the financial responsibility, research and investment information and other services provided by brokers or dealers who may effect or be a party to any such transaction or other transactions to which other clients of the Manager or any sub-adviser may be a
party. It is understood that none of the Funds, the Trust nor the Manager or any sub-adviser has adopted a formula for allocation of a Fund's investment transaction business. It is also understood that it is desirable for each Fund that the Manager or any sub-adviser have access to supplemental investment and market research and security and economic analyses provided by certain brokers who may execute brokerage transactions at a higher cost to a Fund than may result when allocating brokerage to other brokers on the basis of seeking the most favorable price and efficient execution. Therefore, the Manager or any sub-adviser is authorized to place orders for the purchase and sale of securities for a Fund with such certain brokers, subject to review by the Trust's Trustees from time to time with respect to the extent and continuation of this practice. It is understood that the services provided by such brokers may be useful to the Manager or any sub-adviser in connection with its services to other clients.
On occasions when the Manager or any sub-adviser deems the purchase or sale of a security to be in the best interest of a Fund as well as other clients, the Manager or any sub-adviser, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be so sold or purchased in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as expenses incurred in the transaction, will be made by the Manager or any sub-adviser in the manner it considers to be the most equitable and consistent with its fiduciary obligations to that Fund and to such other clients.
(f) The Manager shall maintain all books and records with respect to each Fund's securities transactions required by sub-paragraphs (b)(5), (6), (9) and (10) and paragraph (f) of Rule 31a-1 under the 1940 Act and any other books and records required to be maintained by it under the 1940 Act and the Rules thereunder and shall render to the Trust's Trustees such periodic and special reports as the Trustees may reasonably request.
(g) The Manager shall provide the Trust's Custodian on each business day with information relating to the execution of all portfolio transactions pursuant to standing instructions.
(h) With respect to any or all series of the Trust, including the Funds, the Manager may enter into one or more contracts ("Sub-Advisory or Sub-Administration Contract") with a sub-adviser or sub-administrator in which the Manager delegates to such sub-adviser or sub-administrator any or all its duties specified in this Agreement, provided that each Sub-Advisory or Sub-Administration Contract meets all applicable requirements of the 1940 Act and the rules thereunder.
3. Manager Personnel. The Manager shall authorize and permit any of its directors, officers and employees who may be elected or appointed as Trustees or officers of the Trust to serve in the capacities in which they are elected or appointed. Services to be furnished by the Manager under this Agreement may be furnished through the medium of any of such directors, officers, or employees.
4. Books and Records. The Manager shall keep the Funds' books and records required to be maintained by it, pursuant to paragraph 2 hereof. The Manager agrees that all records which it maintains for a Fund are the property of such Fund, and it will surrender
promptly to the Fund any of such records upon the Fund's request. The Manager further agrees to preserve for the periods prescribed by Rule 31a-2 as promulgated by the Securities and Exchange Commission (the "Commission") under the 1940 Act any such records as are required to be maintained by the Manager pursuant to paragraph 2 hereof.
5. Services Not Exclusive. The services furnished by the Manager hereunder are not to be deemed exclusive and the Manager shall be free to furnish similar services to others so long as its services under this Agreement are not impaired thereby.
6. Documents. The Trust has delivered to the Manager copies of each of the following documents and will deliver to it all future amendments and supplements, if any:
(a) Declaration of Trust of the Trust, filed with the Secretary of The Commonwealth of Massachusetts (such Declaration of Trust, as in effect on the date hereof and as amended from time to time, is herein called the "Declaration of Trust");
(b) By-Laws of the Trust (such By-Laws, as in effect on the date hereof and as amended from time to time, are herein called the "By-Laws");
(c) Certified Resolutions of the Trustees of the Trust authorizing the appointment of the Manager and approving the form of this Agreement;
(d) Written Instrument to Establish and Designate Separate Series of Shares;
(e) Registration Statement under the 1940 Act and the Securities Act of 1933, as amended, on Form N-1A (the "Registration Statement"), as filed with the Commission, relating to each Fund and each Fund's Shares and all amendments thereto;
(f) Notification of Registration of the Trust under the 1940 Act on Form N-8A as filed with the Commission and all amendments thereto; and
(g) Each form of Prospectus and Statement of Additional Information of the Trust (such Prospectus and Statement of Additional Information, as currently in effect and as amended or supplemented from time to time, being herein called collectively the "Prospectus").
7. Expenses. (a) In connection with the services rendered by the Manager under this Agreement, the Manager will bear all of the following expenses:
(i) the salaries and expenses of all personnel of the Trust and the Manager, except the fees and expenses of Trustees who are not interested persons of the Manager or of the Trust; and
(ii) all expenses incurred by the Manager in connection with managing the investment operations of each Fund and administering the ordinary course of each Fund's business, other than those assumed by the Funds herein;
(b) Each Fund assumes and will pay its expenses, including but not limited to those described below (where any such category applies to more than one series of the Trust, each Fund shall be liable only for its allocable portion of the expenses):
(i) the fees and expenses of Trustees who are not interested persons of the Manager or of the Trust.;
(ii) the fees and expenses of each Fund's custodian which relate to (A) the custodial function and the recordkeeping connected therewith, (B) the maintenance of the required accounting records of the Funds not being maintained by the Manager, (C) the pricing of the Funds' Shares, including the cost of any pricing service or services which may be retained pursuant to the authorization of the Trustees of the Trust, and (D) for both mail and wire orders, the cashiering function in connection with the issuance and redemption of the Funds' Shares;
(iii) the fees and expenses of the Trust's transfer and dividend disbursing agent, which may be the custodian, which relate to the maintenance of each shareholder account;
(iv) the charges and expenses of legal counsel (including an allocable portion of the cost of maintaining an internal legal and compliance department) and independent accountants for the Trust;
(v) brokers' commissions and any issue or transfer taxes chargeable to the Trust in connection with its securities transactions on behalf of the Funds;
(vi) all taxes and business fees payable by the Trust or the Funds to federal, state or other governmental agencies;
(vii) the fees of any trade association of which the Trust may be a member;
(viii) the cost of share certificates representing Fund Shares;
(ix) the fees and expenses involved in registering and maintaining registrations of the Trust and of its Shares with the Commission, registering the Trust as a broker or dealer and qualifying its Shares under state securities laws, including the preparation and printing of the Trust's registration statements and prospectuses for filing under federal and state securities laws for such purposes;
(x) allocable communications expenses with respect to investor services and all expenses of shareholders' and Trustees' meetings and of preparing, printing and mailing reports to shareholders in the amount necessary for distribution to the shareholders;
(xi) litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Trust's business; and
(xii) any expenses assumed by the Funds pursuant to a Plan of Distribution adopted in conformity with Rule 12b-1 under the 1940 Act.
8. Organization Expenses. Each Fund hereby agrees to reimburse the Manager for the organization expenses of, and the expenses incurred in connection with, the initial offering of Shares of that Fund.
9. Compensation. For the services provided and the facilities furnished pursuant to this Agreement, the Trust will pay to the Manager as full compensation therefor a fee at an annual rate, as set forth opposite each Fund's name on Schedule A, of the average daily net assets of each Fund.
This fee will be computed daily and will be paid to the Manager monthly. This fee will be chargeable only to the respective Fund, and no other series of the Trust shall be liable for the fee due and payable hereunder. No Fund shall be liable for any expense of any other series of the Trust.
10. Standard of Care. Subject to the applicable law, the Manager shall not be liable for any error of judgment or for any loss suffered by a Fund in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement.
11. Duration and Termination. This Agreement shall continue in effect with respect to each Fund for a period of one year from the effective date hereof (except with respect to any series of the Trust added to Schedule A of this Agreement after August 1, 2002, for an initial period of two years from the date that such series is added) and thereafter only so long as such continuance is specifically approved at least annually with respect to that Fund in conformity with the requirements of the 1940 Act and the rules thereunder. Provided, however, that this Agreement may be terminated with respect to a Fund at any time, without the payment of any penalty, by the Trustees of the Trust or by vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of that Fund, or by the Manager at any time, without the payment of any penalty, on not more than 60 days' nor less than 30 days' written notice to the other party. This Agreement shall terminate automatically in the event of its assignment (as defined in the 1940 Act).
12. Other Business. Nothing in this Agreement shall limit or restrict the right of any of the Manager's directors, officers, or employees who may also be a Trustee, officer, or employee of the Trust to engage in any other business or to devote his time and attention in part to the management or other aspects of any business, whether of a similar or dissimilar nature, nor limit or restrict the Manager's right to engage in any other business or to render services of any kind to any other corporation, trust, firm, individual or association.
13. Independent Contractor. Except as otherwise provided herein or authorized by the Trustees of the Trust from time to time, the Manager shall for all purposes herein be deemed to be an independent contractor and shall have no authority to act for or represent any Fund or the Trust in any way or otherwise be deemed an agent of any Fund or the Trust.
14. Trust Materials. During the term of this Agreement, the Trust agrees to furnish the Manager at its principal office all prospectuses, proxy statements, reports to shareholders, sales literature or other material prepared for distribution to shareholders of a Fund or to the public, which refer to the Manager in any way, prior to use thereof and not to
use such material if the Manager reasonably objects in writing within five business days (or such other time as may be mutually agreed) after receipt thereof. In the event of termination of this Agreement, the Trust will continue to furnish to the Manager copies of any of the above-mentioned materials which refer in any way to the Manager. The Trust shall furnish or otherwise make available to the Manager such other information relating to the business affairs of each Fund as the Manager at any time, or from time to time, reasonably requests in order to discharge its obligations hereunder.
15. Amendment. This Agreement may be amended in writing by mutual consent, but the consent of each of the Funds, if required, must be obtained in conformity with the requirements of the 1940 Act and the rules thereunder.
16. Notice. Any notice or other communication required to be given pursuant to this Agreement shall be deemed duly given if delivered or mailed by registered mail, postage prepaid, (1) to the Manager at NYLIM Center, 169 Lackawanna Avenue, Parsippany, New Jersey 07054; or (2) to the Trust at 51 Madison Avenue, New York, NY 10010.
17. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.
18. Limitation of Liability of the Trust and the Shareholders. It is understood and expressly stipulated that none of the Trustees, officers, agents or shareholders of the Trust shall be personally liable hereunder. The name "The MainStay Funds" is the designation of the Trust for the time being under the Declaration of Trust and all persons dealing with the Trust must look solely to the property of the Trust for the enforcement of any claims against the Trust, as neither the Trustees, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of the Trust. No series of the Trust shall be liable for any claims against any other series of the Trust.
19. Use of Name. Each Fund may use any name including the word "MainStay" only for so long as this Agreement or any other agreement between the Manager or any other affiliate of New York Life Insurance Company and the Trust or any extension, renewal or amendment thereof remains in effect, including any similar agreement with any organization which shall have succeeded to the Manager's business as investment adviser. At such time as such an agreement shall no longer be in effect, the respective Fund will (to the extent that it lawfully can) cease to use such name or any other name indicating that it is advised by or otherwise connected with the Manager or any organization which shall have so succeeded to its business.
20. Miscellaneous. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. As used in this Agreement, terms shall have the same meaning as such terms have in the 1940 Act. Where the effect of a requirement of the federal securities laws reflected in any provision of this Agreement is made less restrictive by a rule, regulation or order of the Commission, whether of special or general application, such
provision shall be deemed to incorporate the effect of such rule, regulation or order. This Agreement may be signed in counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written.
THE MAINSTAY FUNDS, on behalf of each series listed on Schedule A
By: /s/ Stephen C. Roussin ----------------------------------------- Name: Stephen C. Roussin Title: President and Chief Executive Officer |
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
By: /s/ Gary E. Wendlandt ---------------------------------------- Name: Gary E. Wendlandt Title: Chairman and Chief Executive Officer |
SCHEDULE A
(as amended and restated on June 28, 2005)
FUNDS ANNUAL RATE(1) Capital Appreciation Fund 0.72%(2) Common Stock Fund* 0.70%(3) (formerly Growth Opportunities Fund) Convertible Fund 0.72%(4) Diversified Income Fund* 0.60%(3) (formerly Strategic Income Fund) Equity Index Fund 0.25%(5) Global High Income Fund* 0.70%(3) (formerly Global High Yield Fund) Government Fund 0.60%(6) High Yield Corporate Bond Fund 0.60%(7) International Equity Fund 0.90%(3), (8) Large Cap Growth Fund 0.80%(9) MAP Fund 0.75%(10) Mid Cap Growth Fund 0.75%(3) Mid Cap Value Fund* 0.70%(3) (formerly Equity Income Fund) Money Market Fund 0.50%(11) Small Cap Growth Fund 1.00%(10) Small Cap Value Fund 0.85%(10), (12) Tax Free Bond Fund 0.60%(10) Total Return Fund 0.64%(13) Value Fund 0.72%(14) |
* Name changes effective January 1, 2004.
(1) of each Fund's average daily net assets.
(2) contractual fee breakpoints as follows: 0.72% on assets up to $200 million; 0.65% on assets from $200 million up to $500 million; and 0.50% on assets in excess of $500 million.
(3) The Board of Trustees approved a 0.05% contractual fee reduction on assets in excess of $500 million for each of these 7 funds, effective August 1, 2004.
(4) contractual fee breakpoints as follows: 0.72% on assets up to $500 million, 0.67% on assets from $500 million up to $1.0 billion; and 0.62% on assets in excess of $1.0 billion
(5) At a meeting held on June 14, 2005, the Board of Trustees approved contractual fee breakpoints effective August 1, 2005 as follows: 0.25% on assets up to $1.0 billion, 0.225% on assets from $1.0 billion up to $3.0 billion; and 0.20% on assets in excess of $3.0 billion
(6) contractual fee breakpoints as follows: 0.60% on assets up to $1 billion; and 0.55% on assets in excess of $1 billion.
(7) contractual fee breakpoints as follows: 0.60% on assets up to $500 million; and 0.55% on assets in excess of $500 million.
(8) Effective January 1, 2004, the management fee payable by the Fund was reduced to 0.90% of the Fund's average daily net assets.
(9) contractual fee breakpoints as follows: 0.80% on assets up to $250 million; 0.75% on assets from $250 million up to $500 million; 0.725% on assets from $500 million up to $750 million; 0.70% on assets from $750 million up to $2 billion; 0.65% on assets from $2 billion up to $3 billion; and 0.60% on assets in excess of $3 billion.
(10) At a meeting held on June 10, 2003, the Board of Trustees approved a 0.05% contractual fee reduction on assets in excess of $1.0 billion for each of these 4 funds, effective immediately.
(11) contractual fee breakpoints as follows: 0.50% on assets up to $300 million; 0.45% on assets from $300 million up to $700 million; 0.40% on assets from $700 million up to $1 billion; and 0.35% on assets in excess of $1 billion.
(12) Effective July 1, 2004, the management fee payable by the Fund was contractually reduced from 1.00% to 0.85% of the Fund's average daily net assets (in connection with the approval of a new sub-advisory agreement with MacKay Shields LLC).
(13) contractual fee breakpoints as follows: 0.64% on assets up to $500 million; and 0.60% on assets in excess of $500 million.
(14) contractual fee breakpoints as follows: 0.72% on assets up to $200 million; 0.65% on assets from $200 million up to $500 million; and 0.50% on assets in excess of $500 million.
Exhibit d(2)(a)
AMENDED AND RESTATED SUB-ADVISORY AGREEMENT
Amended and Restated Sub-Advisory Agreement made as of August 1, 2002 (the "Agreement") between New York Life Investment Management LLC, a Delaware limited liability company (the "Manager"), on behalf of The MainStay Funds (the "Trust") and its series as set forth in Schedule A, as amended from time to time (each, a "Fund," and collectively, the "Funds"), and MacKay Shields LLC, a Delaware limited liability company (the "Subadviser").
WHEREAS, the Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, MacKay-Shields Financial Corporation ("MSFC") entered into a Sub-Advisory Agreement, dated October 27, 1997, by and between MSFC and MainStay Management Inc. ("MMI") whereby MSFC agreed to provide advisory and related administrative services to each Fund; and
WHEREAS, the Sub-Advisory Agreement was amended effective October 1, 1999 to reflect the conversion of each of MFSC and MMI from a corporation to a limited liability company under Delaware law and to replace MFSC with MacKay-Shields LLC, and MMI with MainStay Management LLC ("MM LLC"); and
WHEREAS, pursuant to a Substitution Agreement, dated January 2, 2001, by and between MM LLC and New York Life Investment Management LLC ("NYLIM"), NYLIM assumed all the interests, rights and responsibilities of MM LLC under the Sub-Advisory Agreement, dated October 27, 1997, as further amended effective October 1, 1999, and agreed to perform all of MM LLC's duties and responsibilities under such Agreement; and
WHEREAS, the Manager has entered into an Amended and Restated Management Agreement, dated August 1, 2002, with the Trust, on behalf of the Funds, which amends and restates in its entirety the Management Agreement, dated October 21, 1997, as further amended October 1, 1999 (collectively, the "Management Agreement"), to reflect the current parties of the Management Agreement, to reflect and certain contractual management fee breakpoints and to make certain ministerial changes designed to facilitate the administration of that Agreement; and
WHEREAS, under the Management Agreement, the Manager has agreed to provide certain investment advisory and related administrative services to each Fund; and
WHEREAS, the Management Agreement permits the Manager to delegate certain of its investment advisory duties under the Management Agreement to a sub-adviser; and
WHEREAS, the Manager desires to retain the Subadviser to furnish certain investment advisory services with respect to each Fund and the Subadviser is willing to furnish such services; and
WHEREAS, this Agreement amends and restates, in its entirety, the Sub-Advisory Agreement, dated October 27, 1997, as further amended effective October 1, 1999, by and between
the Subadviser and MM LLC in order to reflect the current parties of the Sub-Advisory Agreement and to make certain other ministerial changes designed to facilitate the administration of this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Appointment. The Manager hereby appoints the Subadviser as an investment sub-adviser with respect to each Fund for the period and on the terms set forth in this Agreement. The Subadviser accepts that appointment and agrees to render the services herein set forth, for the compensation herein provided.
2. Duties as Subadviser. Subject to the supervision of the Board of Trustees of the Trust and the Manager, the Subadviser shall manage the investment operations of each Fund and the composition of the portfolio of each Fund, including the purchase, retention and disposition of securities therein, in accordance with the investment objectives, policies and restrictions of each Fund, as specified in the currently effective Prospectus (as hereinafter defined) and subject to the following understandings:
(a) The Subadviser shall provide supervision of each Fund's investments and determine from time to time what investments or securities will be purchased, retained, sold or lent by each Fund, and what portion of each Fund's assets will be invested or held uninvested as cash.
(b) The Subadviser shall use its best judgment in the performance of its duties under this Agreement.
(c) The Subadviser, in the performance of its duties and obligations under this Agreement, shall act in conformity with the Declaration of Trust, By-Laws and Prospectus (each as hereinafter defined) of the Trust and with the instructions and directions of the Board of Trustees and the Manager and will conform to and comply with the requirements of the 1940 Act and all other applicable federal and state laws and regulations.
(d) The Subadviser shall determine the securities to be purchased or sold by each Fund and will place orders pursuant to its determination with or through such persons, brokers or dealers (including NYLIFE Securities Inc.) in conformity with the policy with respect to brokerage as set forth in the Trust's Registration Statement and Prospectus (each as hereinafter defined) or as the Board of Trustees may direct from time to time. It is recognized that, in providing a Fund with investment supervision or the placing of orders for portfolio transactions, the Subadviser will give primary consideration to securing the most favorable price and efficient execution. Consistent with this policy, the Subadviser may consider the financial responsibility, research and investment information and other services provided by brokers or dealers who may effect or be a party to any such transaction or other transactions to which other clients of the Subadviser may be a party. It is understood that none of the Funds, the Trust, the Manager nor the Subadviser has adopted a formula for allocation of a Fund's investment transaction business. It is also understood that it is desirable for each Fund that the Subadviser have access to supplemental investment and market research and security and economic analyses provided by certain brokers who may execute brokerage transactions at a higher cost to a Fund than may result when allocating brokerage to other brokers on the basis of seeking the most favorable price and efficient execution. Therefore, the Subadviser
is authorized to place orders for the purchase and sale of securities for each Fund with such certain brokers, subject to review by the Trust's Board of Trustees from time to time with respect to the extent and continuation of this practice. It is understood that the services provided by such brokers may be useful to the Subadviser in connection with its services to other clients.
On occasions when the Subadviser deems the purchase or sale of a security to be in the best interest of one or more of the Funds as well as other clients, the Subadviser, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be so sold or purchased in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as expenses incurred in the transaction, will be made by the Subadviser in the manner it considers to be the most equitable and consistent with its fiduciary obligations to the Funds and to such other clients.
(e) The Subadviser shall maintain all books and records
with respect to the Fund's securities transactions required by sub-paragraphs
(b)(5), (6), (9) and (10) and paragraph (f) of Rule 31a-1 under the 1940 Act and
any other books and records required to be maintained by it under the 1940 Act
and the rules thereunder and shall render to the Manager and to the Trust's
Trustees such periodic and special reports as the Manager or the Trustees may
reasonably request.
(f) The Subadviser shall provide each Fund's Custodian on each business day with information relating to the execution of all portfolio transactions pursuant to standing instructions.
3. Subadviser Personnel. The Subadviser shall authorize and permit any of its directors, officers and employees who may be elected or appointed as Trustees or officers of the Trust to serve in the capacities in which they are elected or appointed. Services to be furnished by the Subadviser under this Agreement may be furnished through the medium of any of such directors, officers, or employees.
4. Books and Records. The Subadviser shall keep the Funds' books and records required to be maintained by it, pursuant to paragraph 2 hereof. The Subadviser agrees that all records which it maintains for a Fund are the property of that Fund, and it will surrender promptly to that Fund any of such records upon the Fund's request. The Subadviser further agrees to preserve for the periods prescribed by Rule 31a-2 as promulgated by the Securities and Exchange Commission (the "Commission") under the 1940 Act any such records as are required to be maintained by the Subadviser pursuant to paragraph 2 hereof.
5. Services Not Exclusive. The services furnished by the Subadviser hereunder are not to be deemed exclusive and the Subadviser shall be free to furnish similar or different services to others so long as its services under this Agreement are not impaired thereby.
6. Documents. The Manager has delivered to the Subadviser copies of each of the following documents and will deliver to it all future amendments and supplements, if any:
(a) Declaration of Trust of the Trust, filed with the Secretary of The Commonwealth of Massachusetts (such Declaration of Trust, as in effect on the date hereof and as amended from time to time, is herein called the "Declaration of Trust");
(b) By-Laws of the Trust (such By-Laws, as in effect on the date hereof and as amended from time to time, are herein called the "By-Laws");
(c) Certified Resolutions of the Board of Trustees of the Trust authorizing the appointment of the Subadviser and approving the form of this Agreement;
(d) Written Instrument to Establish and Designate Separate Series of Shares;
(e) Registration Statement under the 1940 Act and the Securities Act of 1933, as amended, on Form N-1A (the "Registration Statement"), as filed with the Commission relating to each Fund and each Fund's Shares and all amendments thereto;
(f) Notification of Registration of the Trust under the 1940 Act on Form N-8A as filed with the Commission and all amendments thereto; and
(g) Each Prospectus and Statement of Additional Information of the Trust (such Prospectus and Statement of Additional Information, as currently in effect and as amended or supplemented from time to time, being herein called collectively the "Prospectus").
7. Expenses. During the term of this Agreement, the Subadviser will bear all expenses incurred by it in connection with its services under this Agreement. The Subadviser shall not be responsible for any expenses incurred by the Trust, any Fund or the Manager.
8. Compensation. For the services provided and the expenses assumed by the Subadviser pursuant to this Agreement, the Manager, not the Trust or any Fund, will pay to the Subadviser a fee, computed daily and payable monthly, at an annual rate, as set forth on Schedule A, of the average daily net assets of the Fund.
9. Standard of Care. Subject to the applicable law, the Subadviser shall not be liable for any error of judgment or for any loss suffered by a Fund in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement.
10. Duration and Termination. This Agreement shall continue in effect with respect to each Fund for a period of one year from the effective date hereof, except with respect to any series of the Trust added to Schedule A of this Agreement after August 1, 2002, for an initial period of two years from the date that such series is added, and thereafter only so long as such continuance is specifically approved at least annually with respect to that Fund in conformity with the requirements of the 1940 Act and the Rules thereunder. Notwithstanding the foregoing, this Agreement may be terminated: (a) with respect to any Fund, at any time without penalty upon the vote of a majority of the Trust's Trustees or by vote of the majority of the Fund's outstanding voting securities, upon sixty
(60) days' written notice to the Subadviser, (b) by the Manager at any time without penalty upon sixty (60) days' written notice to the Subadviser or immediately upon material breach by the Subadviser or immediately if, in the reasonable judgment of the Manager, the Subadviser becomes unable to discharge its duties and obligations under this Agreement, or (c) by the Subadviser at any time without penalty, upon sixty (60) days' written notice to each applicable Fund. This Sub-Advisory Agreement will also terminate automatically in the event of its assignment (as defined in the 1940 Act) or the assignment or termination of the Management Agreement.
11. Other Business. Nothing in this Agreement shall limit or restrict the right of any of the Subadviser's directors, officers, or employees who may also be a Trustee, officer, or employee of the Trust to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any business, whether of a similar or dissimilar nature, nor limit or restrict the Subadviser's right to engage in any other business or to render services of any kind to any other corporation, trust, firm, individual or association.
12. Amendment. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. No material amendment of this Agreement shall be effective until approved (i) by a vote of a majority of those Trustees of the Trust who are not parties to this Agreement or interested persons of any such party, and (ii) by a vote of a majority of the relevant Fund's outstanding voting securities (unless in the case of (ii), the Trust receives a Commission order or no-action letter permitting it to modify the Agreement without such vote).
13. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.
14. Notice. Any notice or other communication required to be given pursuant to this Agreement shall be deemed duly given if delivered or mailed by registered mail, postage prepaid, (1) to the Manager at NYLIM Center, 169 Lackawanna Avenue, Parsippany, New Jersey 07054; or (2) to the Subadviser at 9 West 57th Street, New York, NY 10019.
15. Miscellaneous. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. As used in this Agreement, the terms "majority of the outstanding voting securities," "affiliated person," "interested person," "assignment," "broker," "investment adviser," "net assets," "sale," "sell" and "security" shall have the same meaning as such terms have in the 1940 Act. Where the effect of a requirement of the federal securities laws reflected in any provision of this Agreement is made less restrictive by a rule, regulation or order of the Commission, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. This Agreement may be signed in counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written.
MACKAY SHIELDS LLC
By: /s/ Ravi Akhoury
---------------------------------------
Name: Ravi Akhoury
Title: Chairman and Chief Executive Officer
|
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
By: /s/ Stephen C. Roussin
---------------------------------------
Name: Stephen C. Roussin
Title: President and Chief Operating Officer
|
SCHEDULE A
(AMENDED AND RESTATED AS OF JUNE 14, 2005)
FUND ANNUAL RATE*
Capital Appreciation Fund 0.360% up to $200 million;
0.325% from $200 million to
$500 million; and 0.250% in
excess of $500 million
Convertible Fund** 0.360% up to $500 million;
0.335% from $500 million to
$1.0 billion; and 0.310% in
excess of $1.0 billion
Diversified Income Fund** 0.300%
(formerly Strategic Income Fund)
Global High Income Fund** 0.350%
(formerly Global High Yield Fund)
Government Fund** 0.300% up to $1.0 billion;
and 0.275% in excess of $1.0
billion
High Yield Corporate Bond Fund 0.300% up to $500 million;
0.275% in excess of $500
million
International Equity Fund** 0.600%
Mid Cap Growth Fund** 0.375%
Mid Cap Value Fund** 0.350%
(formerly Equity Income Fund)
Money Market Fund** 0.250% up to $300 million;
0.225% from $300 million to
$700 million; 0.200% from
$700 million to $1.0
billion; and 0.175% in
excess of $1.0 billion
Small Cap Growth Fund** 0.500%
|
Exhibit d(2)(b)
SECOND AMENDED AND RESTATED SUB-ADVISORY AGREEMENT
MAINSTAY MAP FUND
Second Amended and Restated Sub-Advisory Agreement, made as of November 25, 2002 (the "Agreement"), between New York Life Investment Management LLC., a Delaware limited liability company (the "Manager"), on behalf of The MainStay Funds (the "Trust"), and Markston International LLC, a New York limited liability corporation (the "Subadviser").
WHEREAS, the Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, management investment company; and
WHEREAS, the Trust is authorized to issue separate series, each of which may offer a separate class of shares of beneficial interest, each series having its own investment objective or objectives, policies, and limitations; and
WHEREAS, the Trust currently offers shares in multiple series, may offer shares of additional series in the future, and intends to offer shares of additional series in the future; and
WHEREAS, the Subadviser entered into an Amended and Restated Sub-Advisory Agreement, dated August 1, 2002, with the Manager, which amends and restates in its entirety the Sub-Advisory Agreement, dated June 1, 1999, as further amended effective October 1, 1999 (collectively, the "Sub-Advisory Agreement"); and
WHEREAS, under the Sub-Advisory Agreement, the Subadviser has agreed to provide certain investment advisory and related administrative services to the MainStay MAP Fund (the "Fund"), a series of the Trust; and
WHEREAS, the Manager entered into an Amended and Restated Management Agreement, dated August 1, 2002, with the Trust, on behalf of its series, which amends and restates in its entirety the Management Agreement, dated October 21, 1997, as further amended on October 1, 1999 (collectively the "Management Agreement"); and
WHEREAS, under the Management Agreement, the Manager has agreed to provide certain investment advisory and related administrative services to the Fund; and
WHEREAS, the Management Agreement permits the Manager to delegate certain of its investment advisory duties under the Management Agreement to one or more sub-advisers; and
WHEREAS, the Manager desires to retain the Subadviser to furnish certain investment advisory services with respect to the Fund and the Subadviser is willing to furnish such services; and
WHEREAS, the Board of Trustees of the Trust, at a meeting held on September 9, 2002, and the shareholders of the Fund, at a special meeting duly called and held on November 22, 2002, have approved an amendment to this Agreement providing that the Subadviser will manage a portion of the Fund's assets, as the Manager shall determine from time to time; and
WHEREAS, this Agreement amends and restates, in its entirety, the First Amended and Restated Agreement in order to reflect that the Subadviser will manage such portion of the Fund's assets;
NOW, THEREFORE, the parties hereto agree as follows:
1. Appointment. For the periods and on the terms set forth in this Agreement, the Manager hereby appoints the Subadviser as an investment sub-adviser with respect to that portion of the assets of the Fund designated by the Manager as allocated to the Subadviser ("Allocated Assets"), subject to such written instructions, including any redesignation of the Allocated Assets, and supervision as the Manager may from time to time furnish. The Subadviser accepts that appointment and agrees to render the services herein set forth, for the compensation herein provided.
2. Duties as Subadviser. Subject to the supervision of the Board of Trustees of the Trust and the Manager, the Subadviser shall manage the investment operations and portfolio composition of the Allocated Assets, including the purchase, retention and disposition of securities in accordance with the investment objectives, policies and restrictions of the Fund, as specified in the currently effective Prospectus (as hereinafter defined) and subject to the following understandings:
(a) The Subadviser shall provide supervision of the investments of the Allocated Assets and determine from time to time what investments or securities will be purchased, retained, sold or lent by or for the Allocated Assets, and what portion of the Allocated Assets will be invested or held uninvested as cash.
(b) The Subadviser shall use its best judgment in the performance of its duties under this Agreement.
(c) The Subadviser, in the performance of its duties and obligations under this Agreement, shall act in conformity with the Declaration of Trust, By-Laws and Prospectus (each as hereinafter defined) of the Trust and with the instructions and directions of the Board of Trustees and the Manager, and will conform to and comply with the requirements of the 1940 Act and all other applicable federal and state laws and regulations.
(d) The Subadviser shall determine the securities to be purchased or sold by the Fund with respect to the Allocated Assets and will place orders pursuant to its determination with or through such persons, brokers or dealers (including NYLIFE Securities Inc.) in conformity with the policy with respect to brokerage as set forth in the Trust's Registration Statement and Prospectus (each as hereinafter defined) or as the Board of Trustees may direct from time to time. It is recognized that, in providing the Fund with investment supervision or the placing of orders for portfolio transactions, the Subadviser will give primary consideration to securing the most favorable price and efficient execution. Consistent with this policy, the Subadviser may consider the financial responsibility, research and investment information and other services provided by brokers or dealers who may effect or be a party to any such transaction or other transactions to which other clients of the Subadviser may be a party. It is understood that none of the Fund, the Trust, the Manager nor the Subadviser has adopted a formula for allocation of the Fund's investment transaction business. It is
also understood that it is desirable for the Fund that the Subadviser have access to supplemental investment and market research and security and economic analyses provided by certain brokers who may execute brokerage transactions at a higher cost to the Fund than may result when allocating brokerage to other brokers on the basis of seeking the most favorable price and efficient execution. Therefore, the Subadviser is authorized to place orders for the purchase and sale of securities for the Fund with respect to the Allocated Assets with such certain brokers, subject to review by the Trust's Board of Trustees from time to time with respect to the extent and continuation of this practice. It is understood that the services provided by such brokers may be useful to the Subadviser in connection with its services to other clients.
On occasions when the Subadviser deems the purchase or sale of a security to be in the best interest of the Fund as well as other clients, the Subadviser, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be so sold or purchased in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as expenses incurred in the transaction, will be made by the Subadviser in the manner it considers to be the most equitable and consistent with its fiduciary obligations to the Fund and to such other clients.
(e) The Subadviser shall maintain all books and records with respect to the Allocated Assets of the Fund's securities transactions required by sub-paragraphs (b)(5), (6), (9) and (10) and paragraph (f) of Rule 31a-1 under the 1940 Act and any other books and records required to be maintained by it under the 1940 Act and the Rules thereunder, and shall render to the Manager and to the Trust's Trustees such periodic and special reports as the Manager or the Trustees may reasonably request.
(f) The Subadviser shall provide the Fund's Custodian on each business day with information relating to the execution of all portfolio transactions for the Allocated Assets pursuant to standing instructions.
3. Subadviser Personnel. The Subadviser shall authorize and permit any of its directors, officers and employees who may be elected or appointed as Trustees or officers of the Trust to serve in the capacities in which they are elected or appointed. Services to be furnished by the Subadviser under this Agreement may be furnished through the medium of any of such directors, officers, or employees.
4. Books and Records. The Subadviser shall keep the books and records with respect to the Allocated Assets of the Fund as required to be maintained by it, pursuant to paragraph 2 hereof. The Subadviser agrees that all records that it maintains for the Fund are the property of the Fund, and it will surrender promptly to the Fund any of such records upon the Fund's request. The Subadviser further agrees to preserve for the periods prescribed by the Rules of the Securities and Exchange Commission (the "Commission") under the 1940 Act any such records as are required to be maintained by the Subadviser pursuant to paragraph 2 hereof. The Subadviser may make and retain copies of such records.
5. Services Not Exclusive. The services furnished by the Subadviser hereunder are not to be deemed exclusive and the Subadviser shall be free to furnish similar or different services to others so long as its services under this Agreement are not impaired thereby.
6. Documents. The Manager has delivered to the Subadviser copies of each of the following documents and will deliver to it all future amendments and supplements, if any:
(a) Declaration of Trust of the Trust, filed with the Secretary of The Commonwealth of Massachusetts (such Declaration of Trust, as in effect on the date hereof and as amended from time to time, is herein called the "Declaration of Trust");
(b) By-Laws of the Trust (such By-Laws, as in effect on the date hereof and as amended from time to time, are herein called the "By-Laws");
(c) Certified Resolutions of the Board of Trustees of the Trust authorizing the appointment of the Subadviser and approving the form of this Agreement;
(d) Written Instrument to Establish and Designate Separate Series of Shares;
(e) Registration Statement under the 1940 Act and the Securities Act of 1933, as amended, on Form N-lA (the "Registration Statement"), as filed with the Commission relating to the Fund and the Fund's Shares and all amendments thereto;
(f) Notification of Registration of the Trust under the 1940 Act on Form N-8A as filed with the Commission and all amendments thereto; and
(g) Prospectus and Statement of Additional Information of the Trust (such Prospectus and Statement of Additional Information, as currently in effect and as amended or supplemented from time to time, being herein called the "Prospectus").
7. Expenses. During the term of this Agreement, the Subadviser will bear all expenses incurred by it in connection with its services under this Agreement. The Subadviser shall not be responsible for any expenses incurred by the Trust, the Fund or the Manager.
8. Compensation. For the services provided and the expenses assumed by the Subadviser pursuant to this Agreement, the Manager, not the Trust or the Fund, will pay to the Subadviser a fee, computed daily and payable monthly, at an annual rate, as set forth in Schedule A, of the average daily net assets of the Allocated Assets of the Fund.
9. Standard of Care. Subject to applicable law, the Subadviser shall not be liable for any error of judgment or for any loss suffered by the Fund in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement.
10. Duration and Termination. This Agreement shall become
effective on the date first indicated above. Unless terminated as provided
herein, the Agreement shall remain in full force and effect for two (2) years
from the date first indicated above and shall continue on an annual basis
thereafter with respect to the Fund, provided that such annual continuance is
specifically approved each year by (a) the vote of a majority of the entire
Board of Trustees of the Trust, or by the vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Fund, and (b) the vote of
a majority of those Trustees who are not parties to this Agreement or interested
persons (as defined in the 1940 Act) of any such party to this Agreement cast in
person at a meeting called for the purpose of voting on such approval.
Notwithstanding the foregoing, this Agreement may be terminated: (a) with
respect to the Fund, at any time without penalty upon the vote of a majority of
the Trustees or by vote of the majority of the Fund's outstanding voting
securities, upon sixty (60) days' written notice to the Subadviser; (b) by the
Manager, at any time without penalty upon sixty (60) days' written notice to the
Subadviser or immediately upon material breach by the Subadviser, after the
Subadviser has received notice and an opportunity to cure such breach, or
immediately if, in the reasonable judgment of the Manager, the Subadviser
becomes unable to discharge its duties and obligations under this Agreement; or
(c) by the Subadviser, at any time without penalty, upon sixty (60) days'
written notice to the Fund. This Subadvisory Agreement also will terminate
automatically in the event of its assignment (as defined in the 1940 Act) or the
assignment or termination of the Management Agreement.
11. Other Business. Nothing in this Agreement shall limit or restrict the right of any of the Subadviser's directors, officers, or employees who may also be a Trustee, officer, or employee of the Trust to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any business, whether of a similar or dissimilar nature, nor limit or restrict the Subadviser's right to engage in any other business or to render services of any kind to any other corporation, trust, firm, individual or association.
12. Proxies. The Manager has provided the Subadviser a copy of the Manager's Proxy Voting Policy, setting forth the policy that proxies be voted for the exclusive benefit, and in the best interests, of the Trust. Absent contrary instructions received in writing from the Trust, the Subadviser will vote all proxies solicited by or with respect to the issuers of securities held by the Fund, in accordance with applicable fiduciary obligations. The Subadviser shall maintain records concerning how it has voted proxies on behalf of the Trust, and these records shall be available to the Trust upon request.
13. Amendment. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. No material amendment of this Agreement shall be effective until approved (i) by a vote of a majority of those Trustees of the Trust who are not parties to this Agreement or interested persons of any such party, and (ii) by a vote of a majority of the Fund's outstanding voting securities (unless, in the case of (ii), the Trust receives a Commission order or no-action letter permitting it to modify the Agreement without such vote).
14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.
15. Notice. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Manager at NYLIM Center, 169
Lackawanna Avenue, Parsippany, New Jersey 07054, Attention: President; or (2) to
the Subadviser at 50 Main Street, White Plains, New York 10606, Attention:
Michael J. Mullarkey, Managing Member.
16. Miscellaneous. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. As used in this Agreement, the terms "majority of the outstanding voting securities," "affiliated person," "interested person," "assignment," "broker," "investment adviser," "net assets," "sale," "sell" and "security" shall have the same meaning as such terms have in the 1940 Act. Where the effect of a requirement of the federal securities laws reflected in any provision of this Agreement is made less restrictive by a rule, regulation or order of the Commission, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. This Agreement may be signed in counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written.
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
By: /s/ Stephen C. Roussin
----------------------------------------
Name: Stephen C. Roussin
Title: President and Chief Operating Officer
|
MARKSTON INTERNATIONAL LLC
By: /s/ Michael J. Mullarkey
---------------------------------------------
Name: Michael J. Mullarkey
Title: Managing Partner
|
SCHEDULE A
FUND ANNUAL RATE(1)
MAP Fund 0.450% up to $250 million;
0.400% from $250 million to $500
million; and
0.350% on assets in excess of $500
million.
|
Exhibit d(2)(c)
SUB-ADVISORY AGREEMENT
MAINSTAY MAP FUND
Sub-Advisory Agreement made as of November 25, 2002 (the "Agreement") between New York Life Investment Management LLC., a Delaware limited liability company (the "Manager"), on behalf of The MainStay Funds (the "Trust"), and Jennison Associates LLC, a Delaware limited liability corporation (the "Subadviser").
WHEREAS, the Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, management investment company; and
WHEREAS, the Trust is authorized to issue separate series, each of which may offer a separate class of shares of beneficial interest, each series having its own investment objective or objectives, policies, and limitations; and
WHEREAS, the Trust currently offers shares in multiple series, may offer shares of additional series in the future, and intends to offer shares of additional series in the future; and
WHEREAS, the Manager entered into an Amended and Restated Management Agreement, dated August 1, 2002, with the Trust, on behalf of its series, which amends and restates in its entirety the Management Agreement, dated October 21, 1997, as further amended on October 1, 1999 (collectively the "Management Agreement"); and
WHEREAS, under the Management Agreement, the Manager has agreed to provide certain investment advisory and related administrative services to each series; and
WHEREAS, the Management Agreement permits the Manager to delegate certain of its investment advisory duties under the Management Agreement to one or more sub-advisers; and
WHEREAS, the Manager desires to retain the Subadviser to furnish certain investment advisory services to one or more series of the Trust, as designated below, and the Subadviser is willing to furnish such services;
NOW, THEREFORE, the parties hereto agree as follows:
1. Appointment. For the periods and on the terms set forth in this Agreement, the Manager hereby appoints the Subadviser as an investment sub-adviser to act as sub-adviser, to the series designated on Schedule A of this Agreement (the "Fund") with respect to that portion of the assets of the Fund designated by the Manager as allocated to the Subadviser ("Allocated Assets"), subject to such written instructions, including any redesignation of the Allocated Assets, and supervision as the Manager may from time to time furnish. The Subadviser accepts that appointment and agrees to render the services herein set forth, for the compensation herein provided.
2. Duties as Subadviser. Subject to the supervision of the Board of Trustees of the Trust and the Manager, the Subadviser shall manage the investment operations and portfolio composition
of the Allocated Assets, including the purchase, retention and disposition of securities in accordance with the investment objectives, policies and restrictions of the Fund, as specified in the currently effective Prospectus (as hereinafter defined) and subject to the following understandings:
(a) The Subadviser shall provide supervision of the investments of the Allocated Assets and determine from time to time what investments or securities will be purchased, retained, sold or lent by or for the Allocated Assets, and what portion of the Allocated Assets will be invested or held uninvested as cash.
(b) The Subadviser shall use its best judgment in the performance of its duties under this Agreement.
(c) The Subadviser, in the performance of its duties and obligations under this Agreement, shall act in conformity with the Declaration of Trust, By-Laws and Prospectus (each as hereinafter defined) of the Trust and with the instructions and directions of the Board of Trustees and the Manager, and will conform to and comply with the requirements of the 1940 Act and all other applicable federal and state laws and regulations.
(d) The Subadviser shall determine the securities to be purchased or sold by the Fund with respect to the Allocated Assets and will place orders pursuant to its determination with or through such persons, brokers or dealers (including NYLIFE Securities Inc.) in conformity with the policy with respect to brokerage as set forth in the Trust's Registration Statement and Prospectus (each as hereinafter defined) or as the Board of Trustees may direct from time to time. It is recognized that, in providing the Fund with investment supervision or the placing of orders for portfolio transactions, the Subadviser will give primary consideration to securing the most favorable price and efficient execution. Consistent with this policy, the Subadviser may consider the financial responsibility, research and investment information and other services provided by brokers or dealers who may effect or be a party to any such transaction or other transactions to which other clients of the Subadviser may be a party. It is understood that none of the Fund, the Trust, the Manager nor the Subadviser has adopted a formula for allocation of the Fund's investment transaction business. It is also understood that it is desirable for the Fund that the Subadviser have access to supplemental investment and market research and security and economic analyses provided by certain brokers who may execute brokerage transactions at a higher cost to the Fund than may result when allocating brokerage to other brokers on the basis of seeking the most favorable price and efficient execution. Therefore, the Subadviser is authorized to place orders for the purchase and sale of securities for the Fund with respect to the Allocated Assets with such certain brokers, subject to review by the Trust's Board of Trustees from time to time with respect to the extent and continuation of this practice. It is understood that the services provided by such brokers may be useful to the Subadviser in connection with its services to other clients.
On occasions when the Subadviser deems the purchase or sale of a security to be in the best interest of the Fund as well as other clients, the Subadviser, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be so sold or purchased in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as
expenses incurred in the transaction, will be made by the Subadviser in the manner it considers to be the most equitable and consistent with its fiduciary obligations to the Fund and to such other clients.
(e) The Subadviser shall maintain all books and records with respect to the Allocated Assets of the Fund's securities transactions required by sub-paragraphs (b)(5), (6), (9) and (10) and paragraph (f) of Rule 31a-1 under the 1940 Act and any other books and records required to be maintained by it under the 1940 Act and the Rules thereunder, and shall render to the Manager and to the Trust's Trustees such periodic and special reports as the Manager or the Trustees may reasonably request.
(f) The Subadviser shall provide the Fund's Custodian on each business day with information relating to the execution of all portfolio transactions for the Allocated Assets pursuant to standing instructions.
3. Books and Records. The Subadviser shall keep the books and records with respect to the Allocated Assets of the Fund as required to be maintained by it, pursuant to paragraph 2 hereof. The Subadviser agrees that all records that it maintains for the Fund are the property of the Fund, and it will surrender promptly to the Fund any of such records upon the Fund's request; provided, however, the Subadviser may make and retain copies of such records to the extent necessary to comply with applicable laws and regulations. The Subadviser further agrees to preserve for the periods prescribed by the Rules of the Securities and Exchange Commission (the "Commission") under the 1940 Act any such records as are required to be maintained by the Subadviser pursuant to paragraph 2 hereof.
4. Services Not Exclusive. The services furnished by the Subadviser hereunder are not to be deemed exclusive and the Subadviser shall be free to furnish similar or different services to others so long as its services under this Agreement are not impaired thereby.
5. Documents. The Manager has delivered to the Subadviser copies of each of the following documents and will deliver to it all future amendments and supplements, if any:
(a) Declaration of Trust of the Trust, filed with the Secretary of The Commonwealth of Massachusetts (such Declaration of Trust, as in effect on the date hereof and as amended from time to time, is herein called the "Declaration of Trust");
(b) By-Laws of the Trust (such By-Laws, as in effect on the date hereof and as amended from time to time, are herein called the "By-Laws");
(c) Certified Resolutions of the Board of Trustees of the Trust authorizing the appointment of the Subadviser and approving the form of this Agreement;
(d) Written Instrument to Establish and Designate Separate Series of Shares;
(e) Registration Statement under the 1940 Act and the Securities Act of 1933, as amended, on Form N-1A (the "Registration Statement"), as filed with the Commission relating to the Fund and the Fund's Shares and all amendments thereto;
(f) Notification of Registration of the Trust under the 1940 Act on Form N-8A as filed with the Commission and all amendments thereto; and
(g) Prospectus and Statement of Additional Information of the Trust (such Prospectus and Statement of Additional Information, as currently in effect and as amended or supplemented from time to time, being herein called the "Prospectus").
6. Expenses. During the term of this Agreement, the Subadviser will bear all expenses incurred by it in connection with its services under this Agreement. The Subadviser shall not be responsible for any expenses incurred by the Trust, the Fund or the Manager.
7. Compensation. For the services provided and the expenses assumed by the Subadviser pursuant to this Agreement, the Manager, not the Trust or the Fund, will pay to the Subadviser a fee, computed daily and payable monthly, at an annual rate, as set forth in Schedule A, of the average daily net assets of the Allocated Assets of the Fund.
8. Standard of Care. Subject to applicable law, the Subadviser shall not be liable for any error of judgment or for any loss suffered by the Fund in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement.
9. Duration and Termination. This Agreement shall become effective on the date first indicated above. Unless terminated as provided herein, the Agreement shall remain in full force and effect for two (2) years from the date first indicated above and shall continue on an annual basis thereafter with respect to the Fund, provided that such annual continuance is specifically approved each year by (a) the vote of a majority of the entire Board of Trustees of the Trust, or by the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund, and (b) the vote of a majority of those Trustees who are not parties to this Agreement or interested persons (as defined in the 1940 Act) of any such party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. Notwithstanding the foregoing, this Agreement may be terminated: (a) with respect to the Fund, at any time without penalty upon the vote of a majority of the Trustees or by vote of the majority of the Fund's outstanding voting securities, upon sixty (60) days' written notice to the Subadviser; (b) by the Manager, at any time without penalty upon sixty (60) days' written notice to the Subadviser or immediately upon material breach by the Subadviser or immediately if, in the reasonable judgment of the Manager, the Subadviser becomes unable to discharge its duties and obligations under this Agreement; or (c) by the Subadviser, at any time without penalty, upon sixty (60) days' written notice to the Fund. This Subadvisory Agreement also will terminate automatically in the event of its assignment (as defined in the 1940 Act) or the assignment or termination of the Management Agreement.
10. Other Business. Nothing in this Agreement shall limit or restrict the right of any of the Subadviser's directors, officers, or employees who may also be a Trustee, officer, or employee of the Trust to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any business, whether of a similar or dissimilar nature, nor limit or
restrict the Subadviser's right to engage in any other business or to render services of any kind to any other corporation, trust, firm, individual or association.
11. Proxies. The Manager has provided the Subadviser a copy of the Manager's Proxy Voting Policy, setting forth the policy that proxies be voted for the exclusive benefit, and in the best interests, of the Trust. Absent contrary instructions received in writing from the Trust, the Subadviser will vote all proxies solicited by or with respect to the issuers of securities held by the Fund, in accordance with applicable fiduciary obligations. The Subadviser shall maintain records concerning how it has voted proxies on behalf of the Trust, and these records shall be available to the Trust upon request.
12. Amendment. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. No material amendment of this Agreement shall be effective until approved (i) by a vote of a majority of those Trustees of the Trust who are not parties to this Agreement or interested persons of any such party, and (ii) by a vote of a majority of the Fund's outstanding voting securities (unless, in the case of (ii), the Trust receives a Commission order or no-action letter permitting it to modify the Agreement without such vote).
13. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.
14. Notice. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Manager at NYLIM Center, 169
Lackawanna Avenue, Parsippany, New Jersey 07054, Attention: President; or (2) to
the Subadviser at 466 Lexington Avenue, New York, New York 10017, Attention:
Mirry Hwang, Esq.
15. Miscellaneous. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. As used in this Agreement, the terms "majority of the outstanding voting securities," "affiliated person," "interested person," "assignment," "broker," "investment adviser," "net assets," "sale," "sell" and "security" shall have the same meaning as such terms have in the 1940 Act. Where the effect of a requirement of the federal securities laws reflected in any provision of this Agreement is made less restrictive by a rule, regulation or order of the Commission, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. This Agreement may be signed in counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written.
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
By: /s/ Stephen C. Roussin ---------------------------------------- Name: Stephen C. Roussin Title: President and Chief Operating Officer |
JENNISON ASSOCIATES LLC
By: /s/ Karen E. Kohler ---------------------------------------- Name: Karen E. Kohler Title: Executive Vice President |
SCHEDULE A
FUND ANNUAL RATE(1)
MAP Fund 0.450% up to $250 million;
0.400% from $250 million to $500
million; and
0.350% on assets in excess of $500
million.
|
(1) Expressed as a percentage of the average daily net assets of the Allocated Assets of the Fund.
EXHIBIT (d)(2)(d)
SUB-ADVISORY AGREEMENT
THE MAINSTAY FUNDS
SUB-ADVISORY AGREEMENT, made as of the 27th day of March, 2006 (the "Agreement"), between New York Life Investment Management LLC, a Delaware limited liability company (the "Manager"), on behalf of The MainStay Funds (the "Trust"), and Winslow Capital Management, Inc. (the "Subadviser").
WHEREAS, the Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, management investment company; and
WHEREAS, the Trust is authorized to issue separate series, each of which may offer a separate class of shares of beneficial interest, each series having its own investment objective or objectives, policies, and limitations; and
WHEREAS, the Trust currently offers shares in multiple series, may offer shares of additional series in the future, and intends to offer shares of additional series in the future; and
WHEREAS, the Manager entered into an Amended and Restated Management Agreement, dated August 1, 2004, with the Trust, on behalf of its series, which amends and restates in its entirety the Management Agreement, dated October 21, 1997, as further amended on December 10, 2005 to include the Fund (collectively the "Management Agreement"); and
WHEREAS, under the Management Agreement, the Manager has agreed to provide certain investment advisory and related administrative services to the Trust; and
WHEREAS, the Management Agreement permits the Manager to delegate certain of its investment advisory duties under the Management Agreement to one or more subadvisers; and
WHEREAS, the Manager wishes to retain the Subadviser to furnish certain investment advisory services to one or more of the series of the Trust, and the Subadviser is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and the promises and mutual covenants herein contained, it is agreed between the Trust, the Manager, and the Subadviser as follows:
1. Appointment. The Manager hereby appoints Winslow Capital Management, Inc. to act as subadviser to the series designated on Schedule A of this Agreement (the "Series") for the periods and on the terms set forth in this Agreement. The Subadviser accepts such appointment and agrees to furnish the services herein set forth for the compensation herein provided.
In the event the Trust designates one or more series other than the Series with respect to which the Trust and the Manager wish to retain the Subadviser to render investment advisory services hereunder, they shall notify the Subadviser in writing. If the Subadviser is willing to render such services, it shall notify the Trust and Manager in writing, whereupon such series shall become a Series hereunder, and be subject to this Agreement.
2. Portfolio Management Duties. Subject to the supervision of the Trust's Board of Trustees and the Manager, the Subadviser will provide a continuous investment program for the Series' portfolio and determine the composition of the assets of the Series' portfolio, including determination of the purchase, retention, or sale of the securities, cash, and other investments contained in the portfolio. The Subadviser will provide investment research and conduct a continuous program of evaluation, investment, sales, and reinvestment of the Series' assets by determining the securities and other investments that shall be purchased, entered into, sold, closed, or exchanged for the Series, when these transactions should be executed, and what portion of the assets of the Series should be held in the various securities and other investments in which it may invest, and the Subadviser is hereby authorized to execute and perform such services on behalf of the Series. The Subadviser will provide the services under this Agreement in accordance with the Series' investment objective or objectives, policies, and restrictions as stated in the Trust's Registration Statement filed with the Securities and Exchange Commission (the "Commission"), as amended, copies of which shall be sent to the Subadviser by the Manager. The Subadviser further agrees as follows:
(a) The Subadviser will take all steps necessary to manage the Series so that it will qualify as a regulated investment company under Subchapter M of the Internal Revenue Code.
(b) The Subadviser will conform with the 1940 Act and all rules and regulations thereunder, all other applicable federal and state laws and regulations, any applicable procedures adopted by the Trust's Board of Trustees of which the Subadviser has been sent a copy, and the provisions of the Registration Statement of the Trust under the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act, as supplemented or amended, of which the Subadviser has received a copy.
(c) On occasions when the Subadviser deems the purchase or sale of a security to be in the best interest of the Series as well as of other investment advisory clients of the Subadviser or any of its affiliates, the Subadviser may, to the extent permitted by applicable laws and regulations, but shall not be obligated to, aggregate the securities to be so sold or purchased with those of its other clients where such aggregation is not inconsistent with the policies set forth in the Registration Statement. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Subadviser in a manner that is fair and equitable in the judgment of the Subadviser in the exercise of its fiduciary obligations to the Trust and to such other clients, subject to review by the Manager and the Board of Trustees.
(d) In connection with the purchase and sale of securities for the Series, the Subadviser will arrange for the transmission to the custodian and portfolio accounting
agent for the Series, on a daily basis, such confirmation, trade tickets, and other documents and information, including, but not limited to, CUSIP, Sedol, or other numbers that identify securities to be purchased or sold on behalf of the Series, as may be reasonably necessary to enable the custodian and portfolio accounting agent to perform their administrative and recordkeeping responsibilities with respect to the Series. With respect to portfolio securities to be purchased or sold through the Depository Trust and Clearing Corporation, the Subadviser will arrange for the automatic transmission of the confirmation of such trades to the Trust's custodian and portfolio accounting agent.
(e) The Subadviser will monitor on a daily basis the determination by the portfolio accounting agent for the Trust of the valuation of portfolio securities and other investments of the Series. The Subadviser will assist the custodian and portfolio accounting agent for the Trust in determining or confirming, consistent with the procedures and policies stated in the Registration Statement for the Trust, the value of any portfolio securities or other assets of the Series for which the custodian and portfolio accounting agent seek assistance from, or which they identify for review by, the Subadviser.
(f) The Subadviser will make available to the Trust and the Manager, promptly upon request, all of the Series' investment records and ledgers maintained by the Subadviser (which shall not include the records and ledgers maintained by the custodian or portfolio accounting agent for the Trust) as are necessary to assist the Trust and the Manager to comply with requirements of the 1940 Act and the Investment Advisers Act of 1940, as amended (the "Advisers Act"), as well as other applicable laws. The Subadviser will furnish to regulatory agencies having the requisite authority any information or reports in connection with such services that may be requested in order to ascertain whether the operations of the Trust are being conducted in a manner consistent with applicable laws and regulations.
(g) The Subadviser will provide reports to the Trust's Board of Trustees, for consideration at meetings of the Board, on the investment program for the Series and the issuers and securities represented in the Series' portfolio, and will furnish the Trust's Board of Trustees with respect to the Series such periodic and special reports as the Trustees and the Manager may reasonably request.
(h) In rendering the services required under this Agreement, the Subadviser may, from time to time, employ or associate with itself such person or persons as it believes necessary to assist it in carrying out its obligations under this Agreement. The Subadviser may not, however, retain as subadviser any company that would be an "investment adviser," as that term is defined in the 1940 Act, to the Series unless the contract with such company is approved by a majority of the Trust's Board of Trustees and by a majority of Trustees who are not parties to any agreement or contract with such company and who are not "interested persons," as defined in the 1940 Act, of the Trust, the Manager, or the Subadviser, or any such company that is retained as subadviser, and also is approved by the vote of a majority of the outstanding voting securities of the applicable Series of the Trust to the extent required by the 1940 Act. The Subadviser shall be
responsible for making reasonable inquiries and for reasonably ensuring that any employee of the Subadviser, any subadviser that the Subadviser has employed or with which it has associated with respect to the Series, or any employee thereof has not, to the best of the Subadviser's knowledge, in any material connection with the handling of Trust assets:
(i) been convicted, in the last ten (10) years, of any felony or misdemeanor arising out of conduct involving embezzlement, fraudulent conversion, or misappropriation of funds or securities, involving violations of Sections 1341, 1342, or 1343 of Title 18, United States Code, or involving the purchase or sale of any security; or
(ii) been found by any state regulatory authority, within the last ten (10) years, to have violated or to have acknowledged violation of any provision of any state insurance law involving fraud, deceit, or knowing misrepresentation; or
(iii) been found by any federal or state regulatory authorities, within the last ten (10) years, to have violated or to have acknowledged violation of any provision of federal or state securities laws involving fraud, deceit, or knowing misrepresentation.
3. Broker-Dealer Selection. The Subadviser is responsible for decisions to buy and sell securities and other investments for the Series' portfolio, for broker-dealer selection, and for negotiation of brokerage commission rates. The Subadviser's primary consideration in effecting a security transaction will be to obtain the best execution for the Series, taking into account the factors specified in the Prospectus and/or Statement of Additional Information for the Trust, which include the following: price (including the applicable brokerage commission or dollar spread); the size of the order; the nature of the market for the security; the timing of the transaction; the reputation, experience and financial stability of the broker-dealer involved; the quality of the service; the difficulty of execution, and the execution capabilities and operational facilities of the firm involved; and the firm's risk in positioning a block of securities. Accordingly, the price to the Series in any transaction may be less favorable than that available from another broker-dealer if the difference is reasonably justified, in the judgment of the Subadviser in the exercise of its fiduciary obligations to the Trust, by other aspects of the portfolio execution services offered. Subject to such policies as the Board of Trustees may determine, and consistent with Section 28(e) of the Securities Exchange Act of 1934, as amended, the Subadviser shall not be deemed to have acted unlawfully or to have breached any duty created by this Agreement or otherwise solely by reason of its having caused the Series to pay a broker-dealer for effecting a portfolio investment transaction in excess of the amount of commission another broker-dealer would have charged for effecting that transaction, if the Subadviser or its affiliate determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker dealer, viewed in terms of either that particular transaction or the Subadviser's or its affiliate's overall responsibilities with respect to the Series and to their other clients as to which they exercise investment discretion. To the extent consistent with these standards and with the
Trust's Procedures for Securities Transactions with Affiliated Brokers pursuant to Rule 17e-1, the Subadviser is further authorized to allocate the orders placed by it on behalf of the Series to the Subadviser if it is registered as a broker-dealer with the Commission, to its affiliated broker-dealer, or to such brokers and dealers who also provide research or statistical material, or other services, to the Series, the Subadviser, or an affiliate of the Subadviser. Such allocation shall be in such amounts and proportions as the Subadviser shall determine consistent with the above standards, and the Subadviser will report on said allocation regularly to the Board of Trustees of the Trust, indicating the broker-dealers to which such allocations have been made and the basis therefor.
4. Disclosure about Subadviser. The Subadviser has reviewed the post-effective amendment to the Registration Statement for the Trust filed with the Commission that contains disclosure about the Subadviser, and represents and warrants that, with respect to the disclosure about the Subadviser or information relating, directly or indirectly, to the Subadviser, such Registration Statement contains, as of the date hereof, no untrue statement of any material fact and does not omit any statement of a material fact which was required to be stated therein or necessary to make the statements contained therein not misleading. The Subadviser further represents and warrants that it is a duly registered investment adviser under the Advisers Act and a duly registered investment adviser in all states in which the Subadviser is required to be registered.
5. Expenses. During the term of this Agreement, the Subadviser will pay all expenses incurred by it and its staff and for their activities in connection with its portfolio management duties under this Agreement. The Manager or the Trust shall be responsible for all the expenses of the Trust's operations, including, but not limited to:
(a) the fees and expenses of Trustees who are not interested persons of the Manager or of the Trust;
(b) the fees and expenses of each Series which relate to (A) the custodial function and the recordkeeping connected therewith, (B) the maintenance of the required accounting records of the Series not being maintained by the Manager, (C) the pricing of the Series' Shares, including the cost of any pricing service or services that may be retained pursuant to the authorization of the Trustees of the Trust, and (D) for both mail and wire orders, the cashiering function in connection with the issuance and redemption of the Series' Shares;
(c) the fees and expenses of the Trust's transfer and dividend disbursing agent, that may be the custodian, which relate to the maintenance of each shareholder account;
(d) the charges and expenses of legal counsel (including an allocable portion of the cost of maintaining an internal legal and compliance department) and independent accountants for the Trust;
(e) brokers' commissions and any issue or transfer taxes chargeable to the Trust in connection with its securities transactions on behalf of the Series;
(f) all taxes and business fees payable by the Trust or the Series to federal, state or other governmental agencies;
(g) the fees of any trade association of which the Trust may be a member;
(h) the cost of share certificates representing Series Shares;
(i) the fees and expenses involved in registering and maintaining registrations of the Trust and of its Shares with the Commission, registering the Trust as a broker or dealer, and qualifying its Shares under state securities laws, including the preparation and printing of the Trust's registration statements and prospectuses for filing under federal and state securities laws for such purposes;
(j) allocable communications expenses with respect to investor services and all expenses of shareholders' and Trustees' meetings and of preparing, printing and mailing reports to shareholders in the amount necessary for distribution to the shareholders;
(k) litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Trust's business; and
(l) any expenses assumed by the Series pursuant to a Plan of Distribution adopted in conformity with Rule 12b-1 under the 1940 Act.
6. Compensation. For the services provided, the Manager will pay the Subadviser a fee, payable monthly, as described on Schedule A.
7. Seed Money. The Manager agrees that the Subadviser shall not be responsible for providing money for the initial capitalization of the Series.
8. Compliance.
(a) The Subadviser agrees to assist the Manager and the Trust in complying with the Trust's obligations under Rule 38a-1 under the 1940 Act, including but not limited to: (a) periodically providing the Trust with information about, and independent third-party reports on, the Subadviser's compliance program adopted pursuant to Rule 206(4)-7 under the Advisers Act ("Subadviser's Compliance Program"); (b) reporting any material deficiencies in the Subadviser's Compliance Program to the Trust within a reasonable time; and (c) reporting any material changes to the Subadviser's Compliance Program to the Trust within a reasonable time. The Subadviser understands that the Board of Trustees of the Trust is required to approve the Subadviser's Compliance Program on at least an annual basis, and acknowledges that this Agreement is conditioned upon the Board of Trustees approval of the Subadviser's Compliance Program.
(b) The Subadviser agrees that it shall immediately notify the Manager and the Trust: (1) in the event that the Commission has censured the Subadviser; placed limitations upon its
activities, functions or operations; suspended or revoked its registration as an investment adviser; or commenced proceedings or an investigation that may result in any of these actions; or (2) upon having a reasonable basis for believing that the Series has ceased to qualify or might not qualify as a regulated investment company under Subchapter M of the Internal Revenue Code. The Subadviser further agrees to notify the Manager and the Trust immediately of any material fact known to the Subadviser respecting or relating to the Subadviser that is not contained in the Registration Statement or prospectus for the Trust, or any amendment or supplement thereto, or of any statement contained therein that becomes untrue in any material respect.
(c) The Manager agrees that it shall immediately notify the Subadviser:
(1) in the event that the Commission has censured the Manager or the Trust;
placed limitations upon either of their activities, functions, or operations;
suspended or revoked the Manager's registration as an investment adviser; or
commenced proceedings or an investigation that may result in any of these
actions; or (2) upon having a reasonable basis for believing that the Series has
ceased to qualify or might not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code.
9. Documents. The Manager has delivered to the Subadviser copies of each of the following documents and will deliver to it all future amendments and supplements, if any:
(a) Declaration of Trust of the Trust, filed with the Secretary of the Commonwealth of Massachusetts (such Declaration of Trust, as in effect on the date hereof and as amended from time to time, is herein called the "Amended and Restated Declaration of Trust");
(b) By-Laws of the Trust;
(c) Certified Resolutions of the Trustees of the Trust authorizing the appointment of the Subadviser and approving the form of this Agreement;
(d) Written Instrument to Establish and Designate Separate Series of Shares;
(e) Registration Statement under the 1940 Act and the Securities Act of 1933, as amended, on Form N-lA, as filed with the Commission relating to the Series and the Series' Shares, and all amendments thereto;
(f) Notification of Registration of the Trust under the 1940 Act on Form N-8A, as filed with the Commission, and all amendments thereto; and
(g) Prospectus and Statement of Additional Information of the Series.
10. Books and Records. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Subadviser hereby agrees that all records that it maintains for the Series are the property of the Trust, and further agrees to surrender promptly to the Trust any of such records upon the Trust's or the Manager's request; provided, however, that the Subadviser may, at its own expense, make and retain a copy of such records. The Subadviser further agrees to preserve
for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-l under the 1940 Act and to preserve the records required by Rule 204-2 under the Advisers Act for the period specified in the Rule.
11. Cooperation. Each party to this Agreement agrees to cooperate with each other party and with all appropriate governmental authorities having the requisite jurisdiction (including, but not limited to, the Commission) in connection with any investigation or inquiry relating to this Agreement or the Trust.
12. Representations Respecting Subadviser. The Manager and the Trust agree that neither the Trust, the Manager, nor affiliated persons of the Trust or the Manager shall, except with the prior permission of the Subadviser, give any information or make any representations or statements in connection with the sale of shares of the Series concerning the Subadviser or the Series other than the information or representations contained in the Registration Statement, Prospectus, or Statement of Additional Information for the Trust shares, as they may be amended or supplemented from time to time, or in reports or proxy statements for the Trust, or in sales literature or other promotional material approved in advance by the Subadviser. The parties agree that, in the event that the Manager or an affiliated person of the Manager sends sales literature or other promotional material to the Subadviser for its approval and the Subadviser has not commented within five (5) days, the Manager and its affiliated persons may use and distribute such sales literature or other promotional material, although, in such event, the Subadviser shall not be deemed to have approved of the contents of such sales literature or other promotional material.
13. Confidentiality. The Subadviser will treat as proprietary and confidential any information obtained in connection with its duties hereunder, including all records and information pertaining to the Fund and its prior, present or potential shareholders. The Subadviser will not use such information for any purpose other than the performance of its responsibilities and duties hereunder. Such information may not be disclosed except after prior notification to and approval in writing by the Fund or if such disclosure is expressly required or requested by applicable federal or state regulatory authorities.
14. Control. Notwithstanding any other provision of the Agreement, it is understood and agreed that the Trust shall at all times retain the ultimate responsibility for and control of all functions performed pursuant to this Agreement, and reserves the right to direct, approve, or disapprove any action hereunder taken on its behalf by the Subadviser.
15. Liability. Except as may otherwise be required by the 1940 Act or the rules thereunder or other applicable law, the Trust and the Manager agree that the Subadviser, any affiliated person of the Subadviser, and each person, if any, who, within the meaning of Section 15 of the 1933 Act controls the Subadviser, shall not be liable for, or subject to any damages, expenses, or losses in connection with, any act or omission connected with or arising out of any services rendered under this Agreement, except by reason of willful misfeasance, bad faith, or gross negligence in the performance of the Subadviser's duties, or by reason of reckless disregard of the Subadviser's obligations and duties under this Agreement.
16. Indemnification.
(a) The Manager agrees to indemnify and hold harmless the Subadviser, any
affiliated person of the Subadviser, and each person, if any, who, within the
meaning of Section 15 of the 1933 Act controls ("controlling person") the
Subadviser (all of such persons being referred to as "Subadviser Indemnified
Persons") against any and all losses, claims, damages, liabilities, or
litigation (including legal and other expenses) to which a Subadviser
Indemnified Person may become subject under the 1933 Act, the 1940 Act, the
Advisers Act, the Internal Revenue Code, under any other statute, at common law
or otherwise, arising out of the Manager's responsibilities to the Trust, which
(1) may be based upon any misfeasance, malfeasance, or nonfeasance by the
Manager, any of its employees or representatives or any affiliate of or any
person acting on behalf of the Manager, or (2) may be based upon any untrue
statement or alleged untrue statement of a material fact supplied by, or which
is the responsibility of, the Manager and contained in the Registration
Statement or Prospectus covering shares of the Trust or a Series, or any
amendment thereof or any supplement thereto, or the omission or alleged omission
to state therein a material fact known or which should have been known to the
Manager and was required to be stated therein or necessary to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon information furnished to the Manager or the Trust or to any
affiliated person of the Manager by a Subadviser Indemnified Person; provided,
however, that in no case shall the indemnity in favor of the Subadviser
Indemnified Person be deemed to protect such person against any liability to
which any such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
by reason of its reckless disregard of obligations and duties under this
Agreement.
(b) Notwithstanding Section 15 of this Agreement, the Subadviser agrees to indemnify and hold harmless the Manager, any affiliated person of the Manager, and each person, if any, who, within the meaning of Section 15 of the 1933 Act, controls ("controlling person") the Manager (all of such persons being referred to as "Manager Indemnified Persons") against any and all losses, claims, damages, liabilities, or litigation (including legal and other expenses) to which a Manager Indemnified Person may become subject under the 1933 Act, 1940 Act, the Advisers Act, the Internal Revenue Code, under any other statute, at common law or otherwise, arising out of the Subadviser's responsibilities as Subadviser of the Series, which (1) may be based upon any misfeasance, malfeasance, or nonfeasance by the Subadviser, any of its employees or representatives, or any affiliate of or any person acting on behalf of the Subadviser, (2) may be based upon a failure to comply with Section 2, Paragraph(a) of this Agreement, or (3) may be based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or Prospectus covering the shares of the Trust or a Series, or any amendment or supplement thereto, or the omission or alleged omission to state therein a material fact known or which should have been known to the Subadviser and was required to be stated therein or necessary to make the statements therein not misleading, if such a statement or omission was made in reliance upon information furnished to the Manager, the Trust, or any affiliated person of the Manager or Trust by the Subadviser or any affiliated person of the Subadviser; provided, however, that in no case shall the indemnity in favor of a Manager
Indemnified Person be deemed to protect such person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence in the performance of its duties, or by reason of its reckless disregard of its obligations and duties under this Agreement.
(c) The Manager shall not be liable under Paragraph (a) of this Section 16 with respect to any claim made against a Subadviser Indemnified Person unless such Subadviser Indemnified Person shall have notified the Manager in writing within a reasonable time after the summons, notice, or other first legal process or notice giving information of the nature of the claim shall have been served upon such Subadviser Indemnified Person (or after such Subadviser Indemnified Person shall have received notice of such service on any designated agent), but failure to notify the Manager of any such claim shall not relieve the Manager from any liability that it may have to the Subadviser Indemnified Person against whom such action is brought otherwise than on account of this Section 16. In case any such action is brought against the Subadviser Indemnified Person, the Manager will be entitled to participate, at its own expense, in the defense thereof or, after notice to the Subadviser Indemnified Person, to assume the defense thereof, with counsel satisfactory to the Subadviser Indemnified Person. If the Manager assumes the defense of any such action and the selection of counsel by the Manager to represent both the Manager and the Subadviser Indemnified Person would result in a conflict of interests and, therefore, would not, in the reasonable judgment of the Subadviser Indemnified Person, adequately represent the interests of the Subadviser Indemnified Person, the Manager will, at its own expense, assume the defense with counsel to the Manager and, also at its own expense, with separate counsel to the Subadviser Indemnified Person, which counsel shall be satisfactory to the Manager and to the Subadviser Indemnified Person. The Subadviser Indemnified Person shall bear the fees and expenses of any additional counsel retained by it, and the Manager shall not be liable to the Subadviser Indemnified Person under this Agreement for any legal or other expenses subsequently incurred by the Subadviser Indemnified Person independently in connection with the defense thereof other than reasonable costs of investigation. The Manager shall not have the right to compromise on or settle the litigation without the prior written consent of the Subadviser Indemnified Person if the compromise or settlement results, or may result, in a finding of wrongdoing on the part of the Subadviser Indemnified Person.
(d) The Subadviser shall not be liable under Paragraph (b) of this Section 16 with respect to any claim made against a Manager Indemnified Person unless such Manager Indemnified Person shall have notified the Subadviser in writing within a reasonable time after the summons, notice, or other first legal process or notice giving information of the nature of the claim shall have been served upon such Manager Indemnified Person (or after such Manager Indemnified Person shall have received notice of such service on any designated agent), but failure to notify the Subadviser of any such claim shall not relieve the Subadviser from any liability that it may have to the Manager Indemnified Person against whom such action is brought otherwise than on account of this Section 16. In case any such action is brought against the Manager Indemnified Person, the Subadviser will be entitled to participate, at its own expense, in the defense thereof or, after notice to the Manager Indemnified Person, to assume the defense thereof, with counsel satisfactory to the Manager Indemnified Person. If the Subadviser assumes the defense of any such action and the selection of counsel by the Subadviser to represent both the Subadviser and the Manager Indemnified Person would result in a conflict of interests and, therefore, would not,
in the reasonable judgment of the Manager Indemnified Person, adequately represent the interests of the Manager Indemnified Person, the Subadviser will, at its own expense, assume the defense with counsel to the Subadviser and, also at its own expense, with separate counsel to the Manager Indemnified Person, which counsel shall be satisfactory to the Subadviser and to the Manager Indemnified Person. The Manager Indemnified Person shall bear the fees and expenses of any additional counsel retained by it, and the Subadviser shall not be liable to the Manager Indemnified Person under this Agreement for any legal or other expenses subsequently incurred by the Manager Indemnified Person independently in connection with the defense thereof other than reasonable costs of investigation. The Subadviser shall not have the right to compromise on or settle the litigation without the prior written consent of the Manager Indemnified Person if the compromise or settlement results, or may result, in a finding of wrongdoing on the part of the Manager Indemnified Person.
17. Duration and Termination. This Agreement shall become effective on the date first indicated above. Unless terminated as provided herein, the Agreement shall remain in full force and effect for an initial period of two (2) years from the date first indicated above, and continue on an annual basis thereafter with respect to the Series, provided that such continuance is specifically approved each year by (a) the vote of a majority of the entire Board of Trustees of the Trust, or by the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Series, and (b) the vote of a majority of those Trustees who are not parties to this Agreement or interested persons (as such term is defined in the 1940 Act) of any such party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. Manager's recommendation to the Board of Trustees of the Trust regarding continuance of this Agreement, during the initial three years of this Agreement, will be based on criteria and conditions set forth in the Fund Transition Agreement executed by the Manager and the Subadviser as of January 11, 2005. The Subadviser shall not provide any services for a Series or receive any fees on account of such Series with respect to which this Agreement is not approved as described in the preceding sentence. However, any approval of this Agreement by the holders of a majority of the outstanding shares (as defined in the 1940 Act) of a Series shall be effective to continue this Agreement with respect to the Series notwithstanding (i) that this Agreement has not been approved by the holders of a majority of the outstanding shares of any other Series or (ii) that this agreement has not been approved by the vote of a majority of the outstanding shares of the Trust, unless such approval shall be required by any other applicable law or otherwise. Notwithstanding the foregoing, this Agreement may be terminated for each or any Series hereunder: (a) by the Manager at any time without penalty, upon sixty (60) days' written notice to the Subadviser and the Trust; (b) at any time without payment of any penalty by the Trust, upon the vote of a majority of the Trust's Board of Trustees or a majority of the outstanding voting securities of each Series, upon sixty (60) days' written notice to the Manager and the Subadviser; or (c) by the Subadviser at any time without penalty, upon sixty (60) days' written notice to the Manager and the Trust. In the event of termination for any reason, all records of each Series for which the Agreement is terminated shall promptly be returned to the Manager or the Trust, free from any claim or retention of rights in such record by the Subadviser; provided, however, that the Subadviser may, at its own expense, make and retain a copy of such records. The Agreement shall automatically terminate in the event of its assignment (as such term is described in the 1940 Act) or in the event the Investment Management Agreement between the Adviser and the Trust is assigned or terminates for any other reason. In the event this Agreement
is terminated or is not approved in the manner described above, the Sections numbered 2(f), 10, 11, 12, 14, 15, and 18 of this Agreement shall remain in effect, as well as any applicable provision of this Section 17.
18. Amendments. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no amendment of this Agreement shall be effective until approved by an affirmative vote of (i) the holders of a majority of the outstanding voting securities of the Series, and (ii) the Trustees of the Trust, including a majority of the Trustees of the Trust who are not interested persons of any party to this Agreement, cast in person at a meeting called for the purpose of voting on such approval, if such approval is required by applicable law.
19. Use of Name.
(a) It is understood that the name MainStay or any derivative thereof or logo associated with that name is the valuable property of the Manager and/or its affiliates, and that the Subadviser has the right to use such name (or derivative or logo) only with the approval of the Manager and only so long as the Manager is Manager to the Trust and/or the Series. Upon termination of the Management Agreement between the Trust and the Manager, the Subadviser shall forthwith cease to use such name (or derivative or logo).
(b) It is understood that the names Winslow, Winslow Capital Management, or any derivative thereof or logo associated with those names, are the valuable property of the Subadviser and its affiliates and that the Trust and/or the Series have the right to use such names (or derivative or logo) in offering materials of the Trust with the approval of the Subadviser and for so long as the Subadviser is a Subadviser to the Trust and/or the Series. Upon termination of this Agreement, the Trust shall forthwith cease to use such names (or derivative or logo).
20. Amended and Restated Declaration of Trust. A copy of the Amended and Restated Declaration of Trust for the Trust is on file with the Secretary of The Commonwealth of Massachusetts. The Amended and Restated Declaration of Trust has been executed on behalf of the Trust by the Trustees of the Trust in their capacity as Trustees of the Trust and not individually. The obligations of this Agreement shall be binding upon the assets and property of the Trust and shall not be binding upon any Trustee, officer, or shareholder of the Trust individually.
21. Proxies. The Manager has provided the Subadviser a copy of the Manager's Proxy Voting Policy, setting forth the policy that proxies be voted for the exclusive benefit, and in the best interests, of the Trust. Absent contrary instructions received in writing from the Trust, the Subadviser will vote all proxies solicited by or with respect to the issuers of securities held by the Series, in accordance with applicable fiduciary obligations. The Subadviser shall maintain records concerning how it has voted proxies on behalf of the Trust, and these records shall be available to the Trust upon request.
22. Notice. Any notice or other communication required to be given pursuant to this Agreement shall be deemed duly given if delivered or mailed by registered mail, postage prepaid, (1) to the Manager at 169 Lackawanna Avenue, Parsippany, New Jersey 07054, Attention: President; or (2) to the Subadviser at 4720 IDS Tower, 80 South Eighth Street, Minneapolis, Minnesota 55402.
23. Miscellaneous.
(a) This Agreement shall be governed by the laws of the State of New York, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, the Advisers Act or rules or orders of the Commission thereunder. The term "affiliate" or "affiliated person" as used in this Agreement shall mean "affiliated person" as defined in Section 2(a)(3) of the 1940 Act.
(b) The captions of this Agreement are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect.
(c) To the extent permitted under Section 15 of this Agreement, this Agreement may only be assigned by any party with the prior written consent of the other parties.
(d) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby, and to this extent, the provisions of this Agreement shall be deemed to be severable.
(e) Nothing herein shall be construed as constituting the Subadviser as an agent of the Manager, or constituting the Manager as an agent of the Subadviser.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the day and year first above written.
NEW YORK LIFE INVESTMENT
MANAGEMENT LLC
Attest: /s/ Christopher O. Blunt By: /s/ Brian A. Murdock
------------------------------ -----------------------------
Name: Christopher O. Blunt Name: Brian A. Murdock
Title: Executive Vice President Title: President
WINSLOW CAPITAL
MANAGEMENT, INC.
Attest: /s/ Jean A. Baillon By: /s/ Clark J. Winslow
------------------------------ -----------------------------
Name: Jean A. Baillon Name: Clark J. Winslow
Title: Managing Director Title: Chief Executive Officer
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SCHEDULE A
1. Subadviser shall provide services for the following series of the Trust:
- MainStay Large Cap Growth Fund
2. Subadviser shall be paid:
0.40% of the average daily net asset value of all Subadviser-serviced investment company assets managed by the Manager, including series of the Trust, up to $250 million;
0.35% of the average daily net asset value of all Subadviser-serviced investment company assets managed by the Manager, including series of the Trust, from $250 million to $500 million;
0.30% of the average daily net asset value of all Subadviser-serviced investment company assets managed by the Manager, including series of the Trust, from $500 million to $750 million;
0.25% of the average daily net asset value of all Subadviser-serviced investment company assets managed by the Manager, including series of the Trust, from $750 million to $1 billion; and
0.20% of the average daily net asset value of all Subadviser-serviced investment company assets managed by the Manager, including series of the Trust, in excess of $1 billion.
EXHIBIT e(1)
THE MAINSTAY FUNDS
AMENDED AND RESTATED
MASTER DISTRIBUTION AGREEMENT
Amended and Restated Master Distribution Agreement ("Agreement") made as of this 1st day of August, 2002, between THE MAINSTAY FUNDS, a Massachusetts business trust (the "Trust"), on behalf of the series listed on Appendix A, as amended from time to time (hereinafter referred to as the "Series"), and NYLIFE DISTRIBUTORS INC., a Delaware corporation (the "Distributor").
WITNESSETH:
WHEREAS, the Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified open-end management investment company and it is in the interest of the Trust to offer its shares of beneficial interest (the "Shares") for sale continuously; and
WHEREAS, the Shares of the Trust are divided into separate series, each of which has been established pursuant to a written instrument executed by the Trustees of the Trust, and the Trustees may from time to time terminate such series or establish and terminate additional series; and
WHEREAS, the Trust currently has an effective registration statement filed pursuant to the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act; and
WHEREAS, the Trust entered into (1) a Distribution Agreement, dated January 1, 1994, on behalf of MainStay Capital Appreciation Fund, MainStay Value Fund, MainStay Convertible Fund, MainStay Total Return Fund, MainStay High Yield Corporate Bond Fund, MainStay Tax Free Bond Fund, MainStay Government Fund and MainStay Money Market Fund; (2) a Distribution Agreement, dated August 25, 1994, on behalf of the MainStay International Equity Fund and the MainStay International Bond Fund; and (3) a Distribution Agreement, dated February 28, 1997, on behalf of MainStay Blue Chip Growth Fund, MainStay Equity Income Fund, MainStay Global High Yield Fund, MainStay Growth Opportunities Fund, MainStay MAP Fund (formerly MainStay MAP Equity Fund), MainStay MidCap Growth Fund, MainStay Research Value Fund, MainStay Select 20 Equity Fund, MainStay Small Cap Growth Fund, MainStay Small Cap Value Fund, MainStay Strategic Income Fund, and MainStay Strategic Value Fund and MainStay U.S. Large Cap Equity Fund, whereby the Distributor agreed to provide services in connection with the continuous offering of the Shares of the each of the Series (collectively, the "Current Distribution Agreements"); and
WHEREAS, the Trust and the Distributor wish to enter into an agreement with each other with respect to the continuous offering of the Shares of the Series; and
WHEREAS, this Agreement amends and restates, in its entirety, the Current Distribution Agreements in order to combine the Current Distribution Agreements into a single Amended and
Restated Master Distribution Agreement to reflect the current parties and to make certain other ministerial changes designed to facilitate the administration of this Agreement;
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Trust hereby appoints the Distributor its exclusive agent to sell and to arrange for the sale of the Shares of the Series, including both issued and treasury shares, on the terms and for the period set forth in this Agreement, and the Distributor hereby accepts such appointment and agrees to act hereunder; except that the Distributor shall not act as agent for the Trust in the sale of shares of the Money Market Fund to any other Fund advised by MacKay-Shields LLC.
Section 2. Services and Duties of the Distributor.
(a) The Distributor agrees to sell, as agent for the Trust, from time to time during the term of this Agreement, the Shares of each Series (whether unissued or treasury shares, in the Trust's sole discretion) upon the terms described in the Prospectus. As used in this Agreement, the term "Prospectus" shall mean the Prospectus, which may include separate prospectuses for each Series, and the Statement of Additional Information included as part of the Trust's Registration Statement, as such Prospectus and Statement of Additional Information may be amended or supplemented from time to time, and the term "Registration Statement" shall mean the Registration Statement most recently filed from time to time by the Trust with the Securities and Exchange Commission and effective under the 1933 Act and the 1940 Act, as such Registration Statement is amended by any amendments thereto at the time in effect.
(b) Upon the effective date of this Agreement, the Distributor will hold itself available to receive orders, satisfactory to the Distributor, for the purchase of the Shares of any Series and will accept such orders on behalf of any Series as of the time of receipt of such orders and will transmit such orders as are so accepted to the Trust's transfer and dividend disbursing agent as promptly as practicable. Purchase orders shall be deemed effective at the times and in the manner set forth in the Prospectus.
(c) The Distributor in its discretion may purchase Shares from the Series as principal and may sell Shares of each Series to such registered and qualified retail dealers as it may select. In making agreements with such dealers, the Distributor shall act only as principal and not as agent for the Trust or for the Series.
(d) The offering price of the Shares of each Series shall be the net asset value (as defined in the Declaration of Trust of the Trust and determined as set forth in the Prospectus) per Share of each Series next determined following receipt of an order, plus the applicable sales charge, if any, determined as set forth in the Prospectus. The Trust shall furnish the Distributor, with all possible promptness, an advice of each computation of net asset value.
(e) The Distributor shall not be obligated to sell any certain number of Shares and nothing herein contained shall prevent the Distributor from entering into like distribution
arrangements with other investment companies so long as the performance of its obligations hereunder is not impaired thereby.
(f) The Distributor is authorized on behalf of the Series to purchase Shares of any Series presented to it by dealers at the price determined in accordance with, and in the manner set forth in, the Prospectus.
Section 3. Duties of the Trust.
(a) The Trust agrees to sell Shares of its various Series so long as it has Shares of any such Series available for sale except for such times at which the sale of Shares of any such Series has been suspended by order of the Trustees or order of the Securities and Exchange Commission; and to deliver certificates (if any) for, or cause the Trust's transfer and dividend disbursing agent to issue confirmations evidencing, such Shares of any such Series registered in such names and amounts as the Distributor has requested in writing, as promptly as practicable after receipt by the Series of payment therefor at the net asset value thereof and written request of the Distributor therefor.
(b) The Trust shall keep the Distributor fully informed with regard to its affairs and shall furnish to the Distributor copies of all information, financial statements and other papers which the Distributor may reasonably request for use in connection with the distribution of Shares of the Series, and this shall include one certified copy, upon request by the Distributor, of all financial statements prepared by the Trust and audited by its independent accountants and such reasonable number of copies of its most current Prospectus and annual and interim reports as the Distributor may request and shall cooperate fully in the efforts of the Distributor to sell and arrange for the sale of the Shares of the Series and in the performance of the Distributor under this Agreement.
(c) The Trust shall take, from time to time, all such steps, including payment of the related filing fee, as may be necessary to register the Shares under the 1933 Act and to make available for sale such number of Shares as the Distributor may be expected to sell. The Trust agrees to file from time to time such amendments, reports and other documents as may be necessary in order that there may be no untrue statement of a material fact in a Registration Statement or Prospectus, or necessary in order that there may be no omission to state a material fact in the Registration Statement or Prospectus which omission would make the statements therein misleading.
(d) The Trust shall use its best efforts to qualify and maintain the qualification of an appropriate number of Shares of its Series for sale under the securities laws of such states as the Distributor and the Trust may approve, and, if necessary or appropriate in connection therewith, to qualify and maintain the qualification of the Trust as a broker or dealer in such states; provided that the Trust shall not be required to amend its Declaration of Trust or By-laws to comply with the laws of any state, to maintain an office in any state, to change the terms of the offering of its Shares in any state from the terms set forth in its Registration Statement and Prospectus, to qualify as a foreign corporation in any state or to consent to service of process in any state other than with respect to claims arising out of the offering of its Shares. The
Distributor shall furnish such information and other material relating to its affairs and activities as may be required by the Trust in connection with such qualifications.
Section 4. Expenses.
(a) Each separate Series shall bear all costs and expenses of the
continuous offering of its Shares, including such common costs and expenses
which will be allocated among the Series, in connection with: (i) fees and
disbursements of its counsel and independent accountants, (ii) the preparation,
filing and printing of any registration statements and/or Prospectuses required
by and under the federal securities laws, (iii) the preparation and mailing of
annual and interim reports, Prospectuses and proxy materials to shareholders,
(iv) the qualifications of the Shares for sale and of the Trust pursuant to
Section 3(d) hereof and the cost and expenses payable to each such state for
continuing qualification therein and (v) with respect to those Series listed on
Appendix B, as amended from time to time, any expenses assumed by the Trust
pursuant to a Plan of Distribution adopted in conformity with Rule 12b-1 under
the 1940 Act.
(b) The Distributor shall bear: (i) the costs and expenses of preparing, printing and distributing any materials not prepared by the Trust and other materials used by the Distributor in connection with its offering of Shares of each Series for sale to the public, including the additional cost of printing copies of the Prospectus and of annual and interim reports to shareholders, other than copies thereof required for distribution to existing shareholders or for filing with any federal securities authorities, (ii) any expenses of advertising incurred by the Distributor in connection with such offering and (iii) the expenses of registration or qualification of the Distributor as a dealer or broker under federal or state laws and the expenses of continuing such registration or qualification.
Section 5. Fees. With respect to those Series listed on Appendix B, as amended from time to time, in addition to any fees received pursuant to the Plan of Distribution adopted in conformity with Rule 12b-1 under the 1940 Act as described in Section 4(a) and (b) herein, the Distributor shall also be entitled to retain all proceeds derived from the imposition of contingent deferred sales charges as described in the Trust's Prospectus and any other fees or sales charges described in the Trust's Prospectus or Statement of Additional Information.
Section 6. Indemnification. The Trust agrees to indemnify, defend and hold the Distributor, its officers and directors and any person who controls the Distributor within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Distributor, its officers, directors or any such controlling person may incur under the 1933 Act, or under common law or otherwise, arising out of or based upon any alleged untrue statement of a material fact contained in the Registration Statement or Prospectus or arising out of or based upon any alleged omission to state a material fact required to be stated in either thereof or necessary to make the statements in either thereof not misleading, except insofar as such claims, demands, liabilities or expenses arise out of or are based upon any such untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with
information furnished in writing by the Distributor to the Trust for use in the Registration Statement or Prospectus; provided, however, that this indemnity agreement, to the extent that it might require indemnity of any person who is also an officer or Trustee of the Trust or who controls the Trust within the meaning of Section 15 of the 1933 Act, shall not inure to the benefit of such officer, Trustee or controlling person unless a court of competent jurisdiction shall determine, or it shall have been determined by controlling precedent, that such result would not be against public policy as expressed in the 1933 Act; and further provided, that in no event shall anything contained herein be so construed as to protect the Distributor against any liability to the Trust or to its security holders to which the Distributor would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of its reckless disregard of its obligations under this Agreement. The Trust's agreement to indemnify the Distributor, its officers and directors and any such controlling person as aforesaid is expressly conditioned upon the Trust's being promptly notified of any action brought against the Distributor, its officers or directors, or any such controlling person, such notification to be given by letter or telegram addressed to the Trust at its principal business office. The Trust agrees promptly to notify the Distributor of the commencement of any litigation or proceedings against the Trust or any of its officers or Trustees in connection with the issue and sale of the Shares of any Series.
The Distributor agrees to indemnify, defend and hold the Trust, its officers and Trustees and any person who controls the Trust, if any, within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending against such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Trust, its Trustees or officers or any such controlling person may incur under the 1933 Act or under common law or otherwise, but only to the extent that such liability or expense incurred by the Trust, its Trustees or officers or such controlling person resulting from such claims or demands shall arise out of or be based upon any alleged untrue statement of a material fact contained in information furnished in writing by the Distributor to the Trust for use in the Registration Statement or Prospectus or shall arise out of or be based upon any alleged omission to state a material fact in connection with such information required to be stated in the Registration Statement or Prospectus or necessary to make such information not misleading. The Distributor's agreement to indemnify the Trust, its Trustees and officers, and any such controlling person as aforesaid is expressly conditioned upon the Distributor's being promptly notified of any action brought against the Trust, its officers or Trustees or any such controlling person, such notification being given to the Distributor at its principal business office.
Section 7. Compliance with Securities Laws. The Trust represents that it is registered as a diversified open-end management investment under the 1940 Act, and agrees that it will comply with all of the provisions of the 1940 Act and of the rules and regulations thereunder. The Trust and the Distributor each agree to comply with all of the applicable terms and provisions of the 1940 Act, the 1933 Act and, subject to the provisions of Section 3(d) hereof, all applicable state "Blue Sky" laws, including but not limited to the broker-dealer registration requirements. The Distributor agrees to comply with all of the applicable terms and provisions of the Securities Exchange Act of 1934, as amended, including but not limited to the broker-dealer registration requirements.
Section 8. Term of Agreement; Termination. This Agreement shall commence on the date first set forth above. This Agreement shall continue in effect with respect to each Fund for a period of one year from the effective date hereof, except with respect to any series of the Trust added to Schedule A of this Agreement after August 1, 2002, for an initial period of two years from the date that such series is added, and thereafter only so long as such continuance is specifically approved at least annually with respect to that Fund in conformity with the requirements of the 1940 Act and the Rules thereunder.
This Agreement shall terminate automatically in the event of its assignment (as defined by the 1940 Act). In addition, this Agreement may be terminated by either party at any time, without penalty, on not more than sixty days' nor less than thirty days' written notice to the other party.
Section 9. Notices. Any notice required to be given pursuant to this Agreement shall be deemed duly given if delivered or mailed by registered mail, postage prepaid, (1) to the Distributor at 169 Lackawanna Avenue, Parsippany, N.J. 07054, or (2) to the Trust at 51 Madison Avenue, New York, N.Y. 10010.
Section 10. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York.
Section 11. Liability of Shareholders, Trustees, etc. It is understood and expressly stipulated that none of the Trustees, officers, agents or shareholders in the Trust shall be personally liable hereunder. The name "The MainStay Funds" is the designation of the Trust for the time being under a Declaration of Trust dated January 9, 1986, as amended, and all persons dealing with the Trust must look solely to the property of the Trust for the enforcement of any claims against the Trust as neither the Trustees, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of the Trust. No Series shall be liable for any claims against any other Series.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the day and year first above written.
NYLIFE DISTRIBUTORS INC.
By: /s/ Robert E. Brady
---------------------------------
Name: Robert E. Brady
Title: Vice President
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THE MAINSTAY FUNDS
By: /s/ Stephen C. Roussin
---------------------------------
Name: Stephen C. Roussin
Title: President and
Chief Executive Officer
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APPENDIX A
SERIES OF THE MAINSTAY FUNDS
TO WHICH THIS AMENDED AND RESTATED
MASTER DISTRIBUTION AGREEMENT APPLIES
SERIES DATE ADDED TO AGREEMENT ------ ----------------------- MainStay Small Cap Growth Fund June 1, 1998 MainStay Small Cap Value Fund June 1, 1998 MainStay Mid Cap Growth Fund December 11, 2000 MainStay Capital Appreciation Fund January 1, 1994 MainStay Common Stock Fund June 1, 1998 MainStay Mid Cap Value Fund June 1, 1998 MainStay MAP Fund June 9, 1999 MainStay Value Fund January 1, 1994 MainStay Convertible Fund January 1, 1994 MainStay Total Return Fund January 1, 1994 MainStay International Equity Fund August 25, 1994 MainStay Global High Income Fund June 1, 1998 MainStay High Yield Corporate Bond Fund January 1, 1994 MainStay Diversified Income Fund February 28, 1997 MainStay Government Fund January 1, 1994 MainStay Tax Free Bond Fund January 1, 1994 MainStay Money Market Fund January 1, 1994 MainStay Large Cap Growth Fund January 1, 2005 |
UPDATED June 28, 2005
APPENDIX B
SERIES WHICH HAVE ADOPTED RULE 12B-1 PLANS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Mid Cap Growth Fund
MainStay Capital Appreciation Fund
MainStay Equity Index Fund
MainStay Common Stock Fund
MainStay Mid Cap Value Fund
MainStay MAP Fund
MainStay Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
MainStay International Equity Fund
MainStay Global High Income Fund
MainStay High Yield Corporate Bond Fund
MainStay Diversified Income Fund
MainStay Government Fund
MainStay Tax Free Bond Fund
MainStay Large Cap Growth Fund
UPDATED June 28, 2005
EXHIBIT (e)(2)
FORM OF SOLICITING DEALER AGREEMENT
NYLIFE DISTRIBUTORS LLC
NYLIM Center
169 Lackawanna Avenue
Parsippany, New Jersey 07054
Ladies and Gentlemen:
We are the principal underwriter of the open-end investment companies sponsored, advised or administered by any affiliate of New York Life Investment Management LLC ("NYLIM," or series thereof, the "NYLIM Funds") and/or we have agreements with the principal underwriters of certain other open-end investment companies (or series thereof, the "Other Funds" and, together with the NYLIM Funds, the "Funds") as referenced on the attached "Fund Schedule." Also, we are the selling agent for municipal fund securities ("Plans") listed on the Fund Schedule, as such Fund Schedule may be amended from time to time by us. We hereby offer to sell shares of the Funds or Plans (collectively the "Shares") to you upon the following terms and conditions:
1. The terms of the offering of the Shares are more fully described in the current prospectus and statement of additional information for each Fund (together, the "Prospectus"), or the official statement for the Plans (together with the Prospectus, the "Offering Documents") receipt of which you hereby acknowledge. You agree to abide by the terms of the Offering Documents, and to the extent that Offering Documents contain provisions that are inconsistent with the terms of this Agreement the terms of the Offering Documents shall be controlling.
2. You hereby represent, warrant and covenant that you are, and shall remain, duly and validly organized, validly existing and in good standing under the laws of the state in which you are organized, with full and proper power and authority to enter into and perform the terms of this Agreement. You further covenant that the person signing on your behalf is properly authorized to execute this Agreement and that this Agreement constitutes a valid and binding contract between you and us enforceable in accordance with its terms.
3. You represent and confirm that you and your registered principals are not presently the subject of an action by any governmental, regulatory or judicial authority and agree to promptly notify us in the event of any such action. You also represent and warrant that for sales of Shares to the public you and your agents and employees are and will remain duly registered and licensed to offer and sell Shares in those jurisdictions in which you do so. You will not offer the Funds for sale in any state or other jurisdiction where they are not qualified for sale or exempt from qualification under the laws and regulations of such state or other jurisdiction. You further covenant that you will promptly notify us of any change in your or your agents' or employees' registered or licensed status in any jurisdiction in which you or your agents or employees have been offering or selling Shares.
4. You represent, warrant and covenant that you are registered as a broker-dealer under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or that you are exempt from such registration, and that you are a member of the National Association of Securities Dealers, Inc. (the "NASD"), or that you are exempt from NASD membership, and, to the extent that you sell our municipal security products, that you are a dealer registered with the Municipal Securities Rulemaking Board ("MSRB"), or that you are exempt from MSRB registration. You agree that
you will immediately advise us of any termination or suspension of your broker-dealer registration or NASD membership or MSRB registration or your exemption therefrom.
5. (a) You agree to abide by the NASD's Conduct Rules, MSRB's Rules (where applicable), as well as all applicable state and federal laws and rules and regulations of authorized regulatory agencies thereunder, including all compensation disclosure obligations imposed on you pursuant to NASD Rule 2830 and Rule 10b-10 under the Exchange Act. You agree not to offer or sell any Shares except under circumstances that will result in compliance with such laws, rules and regulations, including a review by you of the product's suitability for the customer, including the suitability of the class of Share sold, and compliance with any requirements regarding delivery of Offering Documents, periodic reports, proxy solicitation materials and other Fund documents to your customers investing in the relevant Funds or Plans. You specifically agree not to permit any late trading or abusive short-term trading in the Funds and agree to cooperate with the Funds in identifying and restricting market timers. You agree to make sales of Shares only to purchasers within the United States.
(b) You understand that the Funds are generally offered in more than one class of Shares in accordance with each Fund's Prospectus. You agree that you are responsible for determining whether a Fund is suitable for your client and also for determining which class of that Fund's Shares is suitable for your client.
(c) You understand and agree that, pursuant to Rule 12b-1(h) under the Investment Company Act of 1940, as amended (the "1940 Act"), the Funds will not compensate you for any promotion or sale of Shares by directing to you (i) any portfolio securities transactions of the Funds or (ii) any remuneration received from the Funds' portfolio transactions effected through any other broker-dealer.
6. You hereby represent that you are a member in good standing of the Mutual Fund Settlement, Entry and Registration Verification ("Fund/SERV") System of the SCC Division of the National Securities Clearing Corporation (the "NSCC"), authorized to utilize the Fund/SERV service in accordance with the NSCC's Rules and Regulations.
7. It is understood that nothing in this Agreement shall be construed to establish a joint venture between us or establish either of us as an agent, partner, or employee of the other, nor shall anything in this Agreement be construed to establish you or any Fund or Plan as an agent, partner or employee of the other. It is understood that you have no authority to act as an agent for us or the Funds, or the Plans, except as limited agent for the purpose of accepting orders from you customers. You agree that all purchases of Shares from us shall be made only to cover orders already received by you or for your own bona fide investment. You agree that you will not withhold placing customers' orders for Shares so as to profit yourself as a result of such withholding. We are not endorsing, recommending or otherwise involved in any of your investment products involving the Funds or the Plans, including any Fee-Based Program (as may be defined in the Fund Schedule).
8. You authorize and instruct us, the Funds, the Plans, and our affiliates to accept, rely upon and carry out instructions received from you or your affiliates with respect to any purchase, redemption, exchange or other matter in connection with your customers' Fund or Plan accounts. All orders for purchases of Shares received from you and accepted by us will be at the public offering price applicable to each order, as established by the relevant Offering Documents. All orders for the purchase and exchange of Shares accepted by you prior to the close of the New York Stock Exchange ("NYSE") (usually 4:00 p.m., Eastern time) must be transmitted prior to
the close of the NYSE. To the extent that you transmit orders after the close of the NYSE for processing at that day's net asset value, you represent and warrant that any such order will (a) have been placed by your customer prior to the close of the NYSE or (b) be necessary to correct your error in processing a customer trade properly placed prior to the close of the NYSE. All orders are subject to acceptance by us in our sole discretion, and purchases become effective only upon confirmation. The procedures relating to the handling of orders shall be subject to instructions which we shall advise you from time to time. We will not accept from you any conditional orders for the purchase, sale or redemption of Shares, and you agree that prior to execution of an application for a purchase of Shares by a discretionary account, you will obtain (a) the prior written approval of the purchaser, and (b) a record of the date on which this discretion was granted.
9. (a) You agree that you will not purchase, as principal, any Shares from others at a price lower than the redemption price next quoted by us as agent for the Funds or by the Plans following receipt of the request for redemption. Nothing in this Agreement, however, shall prevent you from selling Shares for the account of a record owner to us or the issuer at the redemption price next quoted by us as agent for the Funds or the Plans and charging the record owner a fair commission for handling the transaction or reasonable fees to customers participating in a Fee-Based Program.
(b) You agree to provide to the Funds, promptly upon request, the taxpayer identification number of all holders of Shares ("Shareholders") that purchased, redeemed, transferred, or exchanged shares held through an account with you, and the amount and dates of such Shareholder purchases, redemptions, transfers, and exchanges.
(c) You agree to execute any instructions from the Funds to restrict or prohibit further purchases or exchanges of Shares by a Shareholder who has been identified by the Funds as having engaged in transactions of Shares (directly or indirectly through your account) that violate the policies established by the Funds for the purpose of eliminating or reducing any dilution of the value of the Shares.
10. (a) In the case of any Fund shares sold with a front-end sales load, customers may be entitled to a reduction in sales load on purchases made from a Fund which utilizes a letter of intent ("Letter of Intent") in accordance with such Fund's Prospectus. In such case, our dealer reallowance will be paid based upon the reduced sales load, but adjustment to a higher dealer reallowance will be made in accordance with the Prospectus of the applicable Fund to reflect the investor's actual purchases if he should fail to fulfill his Letter of Intent.
(b) Subject to and in accordance with the terms of the Prospectus of each Fund sold with a front-end sales load, a reduced sales load may be applicable with respect to customer accounts through a right of accumulation under which customers are permitted to purchase shares of a Fund at the then current public offering price per share applicable to the total of (i) the dollar amount of shares then being purchased plus (ii) an amount equal to the then current net asset value of the customer's combined holdings of the shares of such Fund and of any other open-end registered investment companies as may be permitted by the applicable Fund Prospectus. You agree to calculate the applicable front-end sales load charged in connection with the sale of the Funds' shares in accordance with those rights of accumulation. In such case, we agree to furnish to you if orders are made by wire, or to the transfer agent as such term is defined in the Prospectus of each Fund (the "Transfer Agent") if orders are made by mail, sufficient information to permit your confirmation of qualification for a reduced sales load; acceptance of the purchase order is subject to such confirmation.
(c) With respect to Fund shares sold with a front-end sales load, we agree to advise you promptly at your request as to amounts of any and all sales by us qualifying for a reduced sales load.
11. Payment for Shares ordered from us must be received by us within three business days after our acceptance of your order, or within such shorter time as is prescribed by the applicable Prospectus or federal securities laws. If payment for the Shares is not so received by us, we reserve the right, without notice, to cancel the sale without any responsibility or liability on our part or on the part of the Funds or Plans, at our option, to sell the Shares ordered back to the relevant Fund(s) or Plan(s) (in either case we may hold you responsible for any loss, including loss of profit, suffered by us resulting from your failure to make payment as aforesaid, including, if applicable, your failure to make payment in accordance with the NSCC's Rules and Regulations and any agreements thereunder).
12. You agree that if any Shares sold to you by us under the terms of this Agreement are tendered for redemption within seven business days after the date of confirmation of the original purchase by you, you shall forfeit your right to any compensation received by or allowed to you on the sale of such Shares hereunder. We agree to notify you of any such redemption within ten business days, and you agree to forthwith refund to us the full discount or other compensation received by or allowed to you.
13. You will be compensated in accordance with the attached "Fund Schedule" which, anything herein to the contrary notwithstanding, is subject to change by us at any time and from time to time, but no such changes shall affect amounts payable to you on orders accepted by us prior to any such changes. Service Fees or Distribution Fees (as indicated on the Fund Schedule) will be paid quarterly at the applicable annual rate indicated on the Fund Schedule and will be based on the average daily net asset value of your customers' Shares held during the quarter. Amounts of less than $25 will not be paid. In addition, you will not be paid any purchase commissions on purchases resulting from the reinvestment of dividends or distributions or any compensation on purchases of Shares of any money market Fund.
14. Neither you nor any other person, including any person associated with you, is authorized or permitted to give any information nor to make any representations concerning the Shares or the Funds other than those contained in the applicable Offering Documents or any advertising material or sales literature supplied or approved by us. You agree that you will rely solely on the representations contained in the Offering Documents and aforementioned advertising material or sales literature when purchasing Shares from us. Any supplemental sales literature, if distributed, must be preceded or accompanied by the relevant Offering Documents currently in effect. Advertisements and sales literature provided by us that are designated as being for broker-dealer use only may not be disseminated to the public. You further agree that you will not disseminate or publish any advertising material or sales literature relating to your solicitation of purchases of Shares (a) which has not been approved in writing in advance by us and (b) the form of which has not been submitted to the NASD.
15. You will (a) provide us with reasonable access to your offices and representatives and mutual fund and, if applicable, Fee-Based Program sales support personnel and their meetings, including conference calls, national and regional sales conferences and training programs on a regular basis; and (b) include descriptions of the Funds and Plans in internal sales materials and any electronic information displays; provided, that you will not disseminate or publish any advertising material or sales literature (including electronic media) relating to your solicitation of purchases of Shares other than in accordance with this Agreement.
16. We agree that additional copies of Offering Documents, periodic reports, proxy solicitation materials, advertising material, sales literature, and application forms for the purchase of Shares and other Fund or Plan documents will be supplied by us to you in reasonable quantities upon request.
17. You agree that the Funds and Plans shall have no liability or responsibility to you regarding (a) any printed information furnished by us to you other than the Offering Documents, periodic reports and proxy solicitation materials, and (b) qualifying the Shares for sale in the various states.
18. You agree not to use the words "Eclipse"; "MacKay Shields"; "MainStay"; "New York Life"; "NYLIFE"; "NYLIM"; or the names of their affiliates, or any combination thereof, or to make any other references to a Fund, its adviser or principal underwriter, or a Plan whether in writing, by radio or television, or through any other advertising media, without our prior written approval.
19. You agree that we shall have full authority to take such action as we may deem advisable in respect to all matters pertaining to the offering of Shares, and we reserve the right, in our discretion, to suspend sales or withdraw the offering of Shares entirely without prior notice to you. We shall be under no liability to you except for lack of good faith in performing our obligations expressly assumed by us in this Agreement and liabilities under Section 11(f) of the Securities Act of 1933, as amended (the "Securities Act"), and no obligations on our part shall be implied or inferred from this Agreement.
20. (a) You shall reimburse, indemnify and hold harmless us, our directors,
officers, employees, agents and affiliates for any direct or indirect
liability, loss, actual and compensatory damages, and expense (including
reasonable attorneys' fees and costs) arising directly or indirectly out
of: (i) the acts or omissions of you or your registered agents or
employees, including the unauthorized use of advertising materials or
sales literature, misrepresentations or omissions, unlawful sales
practices, failure to supervise or violation of any applicable laws, rules
and regulations, including, but not limited to, those of the SEC, NASD,
the MSRB, and the NSCC; (ii) any breach of the representations,
warranties, conditions or other provisions of this Agreement; (iii) claims
by your agents or employees for any type of remuneration or compensation;
(iv) the payment of redemption proceeds for your customers' Shares; (v)
any claims in connection with your failure to comply with the forward
pricing requirements of Rule 22c-1 under the Investment Company Act of
1940, as amended ("1940 Act"); and (vi) any claims in connection with late
trading or market timing transactions effected through you on an other
than fully-disclosed basis. This right of indemnification will survive the
termination of this Agreement.
(b) We shall reimburse, indemnify and hold harmless you, your directors, officers, employees, agents and affiliates for any direct or indirect liability, loss, actual and compensatory damages, and expense (including reasonable attorneys' fees and costs) arising directly or indirectly out of: (i) the acts or omissions of us or our registered agents or employees, including violation of any applicable laws, rules and regulations, including, but not limited to, those of the SEC, NASD, the MSRB, and the NSCC; (ii) any breach of the representations, warranties, conditions or other provisions of this Agreement; or (iii) any untrue statement of a material fact contained in any Fund's registration statement or any offering documents, or any omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading. This right of indemnification will survive the termination of this Agreement.
(c) Each party hereto agrees to notify the other party within a reasonable time of any claims which might involve liability on the part of the other party.
21. The Fund Schedule is incorporated by reference into and made a part of this Agreement. We agree that this Agreement shall be governed by and construed in accordance with the laws of the state of New York and that all disputes among the parties to this Agreement shall be submitted to arbitration in accordance with the NASD's Code of Arbitration Procedure or successor thereto in effect at the time. If any provision of this Agreement shall be held or made invalid by a statute, rule, regulation, decision of a tribunal or otherwise, the remainder of this Agreement shall not be affected thereby and, to this extent, the provisions of this Agreement shall be deemed to be severable.
22. You and we agree that during the term of this Agreement a party to this
Agreement ("Receiving Party") may receive or have been given access to
certain confidential or proprietary information and/or intellectual
property or may have or be given access to such information and/or
property of the other party ("Disclosing Party") (collectively,
"Confidential Information"). Confidential Information shall mean any and
all information, in whatever form or media, including without limitation
business and marketing plans, financial records and customer information,
unless such information is or becomes publicly available. Receiving Party
will not use Confidential Information other than for the purposes of this
Agreement and agrees that it will not, without prior written consent of
Disclosing Party, disclose Confidential Information to any party other
than its employees, directors and officers as necessary to perform this
Agreement. Receiving Party shall use best efforts to secure Confidential
Information to maintain its confidentiality and integrity and shall cause
its employees, officers and directors to whom Confidential Information is
disclosed to be informed of and agree to be bound by this provision and
any privacy and security guidelines provided by Disclosing Party. If
Receiving Party is requested by a court, administrative agency or
governmental body to disclose Confidential Information, Receiving Party
will promptly notify Disclosing Party in writing (unless Receiving Party
reasonably believes that notification is prohibited by the request) so
that Disclosing Party may seek an appropriate protective order or waive in
writing Receiving Party's compliance with the provisions of this
Agreement. Receiving Party understands and acknowledges that Disclosing
Party may sustain irreparable harm as a result of disclosure of
Confidential Information. Accordingly, in the event of a breach or
threatened breach of this provision, Disclosing Party shall be entitled to
preliminary and permanent injunctive relief to preserve its rights
hereunder, in addition to any other available action or remedy. Each party
or its duly authorized agent will have the right under this Agreement to
perform on-site audits of records, accounts and procedures directly
pertaining to this Agreement at such party's facilities in accordance with
reasonable procedures and at reasonable frequencies. Upon the earlier of
(a) a request of Disclosing Party or (b) the termination of this
Agreement, Receiving Party will return all Confidential Information
disclosed to it, in whatever form or media, retaining no copies other than
as necessary for it to comply with applicable law.
23. Notwithstanding any provision herein to the contrary, each party hereto agrees that any Nonpublic Personal Information, as defined under Section 248.3(t) of Regulation S-P ("Regulation S-P"), promulgated under the Gramm-Leach-Bliley Act (the "Act"), disclosed by a party hereunder is for the specific purpose of permitting the other party to perform the services set forth in this Agreement. Each party agrees that, with respect to such information, it will comply with Regulation S-P and the Act and that it will not disclose any Nonpublic Personal Information received in connection with this Agreement to any other party, except to the extent as necessary to carry out the services set forth in this Agreement or as otherwise permitted by Regulation S-P or the Act.
24. This Agreement may only be amended or waived by a writing signed by both parties. Notwithstanding the foregoing, we reserve the right to amend this Agreement and the Fund Schedule at any time, and you agree that your submission of an order to purchase Shares after written notice of any such amendment has been sent to you shall constitute your agreement to such amendment. This Agreement shall not be assigned by you without our written consent.
25. Notices to be given shall be addressed as follows, unless the party to
whom notice is to be given has specified an alternative means of
notification: (a) if to us, to the address specified above, Attention:
President, with a copy to Marguerite Morrison, Esq. at the same address;
and (b) if to you, to the address filled in by you below.
26. Notwithstanding Section 27 below, you agree that if your compensation pursuant to this Agreement is subject (as indicated on the Fund Schedule) to a plan adopted pursuant to Rule 12b-1 (the "Rule 12b-1 Plan") under the 1940 Act, that this Agreement: (a) will only renew each year so long as such renewal is approved by a vote of the governing board of each Fund (including a majority of the "non-interested" board members (as defined in the 1940 Act) who have no direct or indirect financial interest in the operation of the Rule 12b-1 Plan or this Agreement ("Independent Board Members"), (b) may be terminated at any time, without the payment of any penalty, by vote of a majority of the Independent Board Members, (c) may be terminated by vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund on not move than 60 days' written notice, and (d) will automatically terminate upon its assignment. Furthermore, you understand that the Funds' governing boards will review, at least quarterly, a written report of the amounts expended pursuant to this Agreement and the purposes for which such expenditures were made. In connection with such reviews, you will furnish such information as we or they may reasonably request.
27. You represent and warrant that you have adopted and implemented anti-money laundering policies, procedures and controls that comply and will continue to comply in all respects with the requirements of applicable United States anti-money laundering laws and regulations and those in your home country jurisdiction. You will at all times during your relationship with us strictly adhere to your anti-money laundering policies, procedures and controls. You agree to cooperate with us to satisfy our anti-money laundering due diligence policies, which may include annual anti-money laundering compliance certifications, periodic anti-money laundering due diligence reviews and/or other requests deemed necessary to ensure your compliance with the anti-money laundering regulations.
28. The terms of this Agreement shall continue in force until terminated by a party upon 30 days' written notice to the other party. Notwithstanding the foregoing, we shall have the right to terminate this Agreement, without prior notice to you, if:
(a) you or any of your registered principals become the subject of any investigation or disciplinary action by any governmental, regulatory or judicial authority that has resulted, or for which it appears reasonably likely will result, in the loss or suspension of any registration, membership or license referred to in this Agreement;
(b) your ability to perform your obligations under this Agreement have become or are reasonably likely to become impaired; or
(c) you otherwise breach any of the representations and warranties set forth in this Agreement. Upon termination of this Agreement, all authorizations, rights and obligations shall cease except those contained in Sections 11, 18, 19, 20, and 22.
NYLIFE DISTRIBUTORS LLC
ACCEPTED:
FUND SCHEDULE
The terms of this Agreement shall apply to all series and classes of The MainStay Funds, Eclipse Funds Inc. and Eclipse Funds (the latter two doing business as MainStay(R)) (the "Funds"). Compensation for the sale and/or servicing of such shares shall be in accordance with the terms of the current prospectus and the following table:
DEALER REALLOWANCE ON FINDER'S FEE ON INITIAL PURCHASES OF
CLASS PURCHASES(1) DISTRIBUTION FEES(2) $1,000,000 OR MORE
----- ----------------------- -------------------- -----------------------------------------------
A As provided in current 0.25% per annum 1.00% on portion of sale from $1,000,000 to
prospectus/statement of $2,999,999
additional information
0.50% on portion of sale from $3,000,000 to
$4,999,999
0.04% on portion of sale of $5,000,000 or more
B 4.00% of aggregate net 0.25% per annum N/A
asset value
C 1.00% of aggregate net 1.00% per annum N/A
asset value
R2 N/A 0.25% per annum N/A
R3 N/A 0.50% per annum* N/A
|
*Includes 0.25% distribution fee and 0.25% service fee.
Notwithstanding the foregoing, for sales through Fee-Based Programs:
You will sell Class I shares or Class A shares of the Funds at net asset value (without a sales charge) in a fee-based program made available to your customers (the "Fee-Based Program").
If Class A shares, you will be paid Distribution Fees at a rate of 0.25% per annum, subject to continued effectiveness of the Fund's Rule 12b-1 Plan.
No fees will be paid on Class I shares.
(1) Initial purchases of less than $1,000,000 or subsequent purchases in an account with a balance less than $1,000,000.
(2) After commissionable sales reach an aggregate amount of $250,000 and are held in a shareholder's account for one year or more. Payment is subject to continued effectiveness of the Fund's Rule 12b-1 Plan.
FUND SCHEDULE
MUNICIPAL FUND SECURITIES
NEW MEXICO 529 PLAN
CLASS PURCHASE COMMISSIONS(3) SERVICE FEES(4)
Investment Commission
< $50,000 4.75%
A $50,000 - 99,999 4.25% 0.25%
$100,000 - 199,999 3.25%
$200,000 - 299,999 3.00%
B 4.0% 0.25%
C 1.0% 0.50%
|
(4) Service fees (i.e. "Trail" commissions) will be paid on a monthly basis in arrears on participant account balances. Service fees will be paid on participant account balances provided that payment of such service fees shall commence one (1) year after each contribution is made and shall continue until the participant redeems that contribution. Service fees will be calculated and paid by the New Mexico Plan's Administrator.
FUND SCHEDULE
COMPENSATION FOR SERVICES TO
RETIREMENT PLANS
For the services provided by you with respect to certain open-end investment companies (the "Funds") offered to your defined contribution and defined benefit plan clients in a New York Life 401(k) Complete, DB Complete, or similar NYLIM program (each, a "Plan"), pursuant to the attached Agreement, we will pay you a fee, payable monthly, based on the average daily net assets of the Funds held in a Plan. The aggregate fee rate with respect to each Plan will typically range from 0.10% to 0.60%; the specific fee rates for each Plan being agreed to by you and us from time to time in writing, substantially in the form attached as Exhibit 1 hereto, based on the specific nature and scope of services that you provide in connection with that Plan.
EXHIBIT 1
FINANCIAL ADVISOR COMPENSATION SIGN OFF FORM
Plan Name: Name of Financial Advisor(s): Representative Number(s): Firm Name: Branch Name: Branch Number: Branch Address: Broker/Dealer: Broker/Dealer Address: Telephone Number: Fax Number: Financial Advisor Email Address: Office/Branch Manager: Initial Compensation: (applies to initial asset transfer and all contributions to the plan - paid monthly) Ongoing Compensation level: (applies to investments held 13 months or longer - paid quarterly) Other compensation terms: |
Please note, the Initial Compensation and Ongoing Compensation levels outlined above apply to the pricing and investment mapping scenario presented in the accompanying Fee Estimate and Investment Supplement documents. Variations from this scenario may impact those compensation levels.
You agree to make prior disclosure to the appropriate Plan fiduciary of the foregoing compensation terms.
Please acknowledge your agreement with the terms outlined above by authorized signature below. Also please fax a signed copy of this document to (781) 619-2390 at your earliest convenience. The compensation terms described above shall become effective and shall be incorporated into the selling agreement between our firms upon our acceptance of this form fully executed by you or upon such later date as we and you may mutually agree.
--------------------------- ------------------------------- Financial Advisor Signature Office/Branch Manager Signature ---------------- ---------------- Date Date |
EXHIBIT (g)(1)
MASTER CUSTODIAN AGREEMENT
AGREEMENT made as of the 30th day of June, 2005, between each Fund listed on Appendix A (each a Fund and collectively "the Funds"), and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the "Bank").
Each Fund, an open-end management investment company on behalf of its
respective portfolios/series listed on Appendix A hereto (as such Appendix A may
be amended from time to time) (each a "Portfolio" and collectively, the
"Portfolios"), desires to place and maintain all of its portfolio securities and
cash in the custody of the Bank. The Bank meets the qualifications required by
Section 17(f)(1) of the Investment Company Act of 1940, as amended (the "1940
Act"), to act as custodian of the portfolio securities and cash of each Fund,
and has indicated its willingness to so act, subject to the terms and conditions
of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. Each Fund hereby appoints the Bank as custodian of its portfolio securities and cash delivered to the Bank as hereinafter described and the Bank agrees to act as such upon the terms and conditions hereinafter set forth. For the services rendered pursuant to this Agreement, each Fund agrees to pay to the Bank fees as may be agreed to from time to time in writing between the parties.
2. Definitions. Whenever used herein, the terms listed below will have the following meaning:
2.1 Authorized Person. Authorized Person will mean any of the persons duly authorized to give Proper Instructions or otherwise act on behalf of the Fund by appropriate resolution of its Board, and set forth in a certificate as required by Section 4 hereof.
2.2 Board. Board will mean the Board of Directors or the Board of Trustees of each Fund, as the case may be.
2.3 Security. The term security as used herein will have the same meaning assigned to such term in the 1940 Act, including, without limitation, any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
2.4 Portfolio Security. Portfolio Security will mean any security owned by a Fund.
2.5 Officers' Certificate. Officers' Certificate will mean, unless otherwise indicated, any request, direction, instruction, or certification in writing signed by any two Authorized Persons of a Fund.
2.6 Book-Entry System. Book-Entry System shall mean the Federal Reserve-Treasury Department Book Entry System for United States government, instrumentality and agency securities operated by the Federal Reserve Bank, its successor or successors and its nominee or nominees.
2.7 Depository. Depository shall mean The Depository Trust Company ("DTC"), a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934, as amended ("Exchange Act"), its successor or successors and its nominee or nominees. The term "Depository" shall further mean and include any other person authorized to act as a depository under the 1940 Act, its successor or successors and its nominee or nominees, specifically identified in a certified copy of a resolution of the Board.
2.8 Proper Instructions. Unless otherwise provided in this agreement, the Bank shall act only upon Proper Instructions. Proper Instructions shall mean (i) instructions regarding the purchase or sale of Portfolio Securities, and payments and deliveries in connection therewith, given by an Authorized Person, such instructions to be given in such form and manner as the Bank and a Fund shall agree upon from time to time, and (ii) instructions (which may be continuing instructions) regarding other matters signed by an Authorized Person. Oral instructions will be considered Proper Instructions if the Bank reasonably believes them to have been given by an Authorized Person. Each Fund shall cause all oral instructions to be promptly confirmed in writing by an Authorized Person. The Bank shall act upon and comply with any subsequent Proper Instruction which modifies a prior instruction and the sole obligation of the Bank with respect to any follow-up or confirming instruction shall be to make reasonable efforts to detect any discrepancy between the original instruction and such confirmation and to report such discrepancy to the Authorized Persons of the Fund. Each Fund shall be responsible, at the Fund's expense, for taking any action, including any reprocessing, necessary to correct any such discrepancy or error, and to the extent such action requires the Bank to act, the Fund shall give the Bank specific Proper Instructions as to the action required. Upon receipt by the Bank of an Officers' Certificate as to the authorization by the Board accompanied by a detailed description of procedures approved by a Fund, Proper Instructions may include communication effected directly between electro-mechanical or electronic devices provided that the Board and the Bank agree in writing that such procedures afford adequate safeguards for the Fund's assets.
3.1 Separate Accounts. Since each Fund has more than one Portfolio, the Bank will segregate the assets of each Portfolio to which this Agreement relates into a separate account for each such Portfolio containing the assets of such Portfolio (and all investment earnings thereon). Unless the context otherwise requires, any reference in this Agreement to any actions to be taken by a Fund shall be deemed to refer to the Fund acting on behalf of one or more of its Portfolios. Any reference in this Agreement to any assets of the Fund, including, without limitation, any portfolio securities and cash and earnings thereon, shall be deemed to refer only to assets of the applicable Portfolio, any duty or obligation of the Bank hereunder to the Fund shall be deemed to refer to duties and obligations with respect to such individual Portfolio and any obligation or liability of the Fund hereunder shall be binding only with respect to such individual Portfolio, and shall be discharged only out of the assets of such Portfolio.
3.2 Reports. The Bank shall make available to each Fund each business day as soon as practicable, typically by 7:00 p.m. EST, all transaction activity posted on each separate account of the Funds for their respective Portfolios, either hereunder or with any sub-custodian appointed in accordance with this Agreement during said day, together with historical transaction activity for such Fund. At least monthly and from time to time, the Bank will furnish each Fund with a detailed statement, on a per Portfolio basis, of the Securities and moneys held by the Bank for the Fund.
4. Certification as to Authorized Persons. The Secretary or Assistant
Secretary of each Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. The Bank will be
entitled to rely and act upon any Officers' Certificate given to it by the Fund
which has been signed by Authorized Persons named in the most recent
certification received by the Bank.
5.1 Custody of Cash. As custodian for the Funds, the Bank will open and
maintain a separate account or accounts in the name of each Fund and each
Portfolio thereof or in the name of the Bank, as Custodian of the Fund, and will
deposit to the account of the Fund all of the cash of the Fund, except for cash
held by a subcustodian appointed pursuant to Sections 13.2 or 13.3 hereof,
including borrowed funds, delivered to the Bank, subject only to draft or order
by the Bank acting pursuant to the terms of this Agreement. Pursuant to the
Bank's internal policies regarding the management of cash accounts, the Bank may
segregate certain portions of the cash of the Fund into a separate savings
deposit account upon which the Bank reserves the right to require seven (7) days
notice prior to withdrawal of cash from such an account. Upon receipt by the
Bank of Proper Instructions (which may be continuing instructions) or in the
case of payments for redemptions and repurchases of outstanding shares of common
stock of a Fund, notification from the Fund's transfer agent as provided in
Section 7, requesting such payment, designating the payee or the account or
accounts to which the Bank will release funds for deposit, and stating that it
is for a purpose permitted under the terms of this Section 5, specifying the
applicable subsection, the Bank will make payments of cash held for the accounts
of the Fund, insofar as funds are available for that purpose, only as permitted
in subsections (a) through (g) below.
(a) Purchase of Securities. Upon the purchase of securities for a Fund, against contemporaneous receipt of such securities by the Bank or against delivery of such securities to the Bank in accordance with generally accepted settlement practices and customs in the jurisdiction or market in which the transaction occurs registered in the name of the Fund or a nominee of the Fund or in the name of, or properly endorsed and in form for transfer to, the Bank, or a nominee of the Bank, or receipt for the account of the Bank pursuant to the provisions of Section 6 below, each such payment to be made at the purchase price shown on a broker's confirmation (or transaction report in the case of Book Entry Paper (as that term is defined in Section 6.6 hereof)) of purchase of the securities received by the Bank before such payment is made, as confirmed in the Proper Instructions received by the Bank before such payment is made;
(b) Redemptions. In such amount as may be necessary for the repurchase or redemption of common shares of each Fund offered for repurchase or redemption in accordance with Section 7 of this Agreement;
(c) Distributions and Expenses of Fund. For the payment on the account of a Fund of dividends or other distributions to shareholders as may from time to time be declared by the Board, interest, taxes, management or supervisory fees, distribution fees, fees of the Bank for its services hereunder and reimbursement of the expenses and liabilities of the Bank, fees of any transfer agent, fees for legal, accounting, and auditing services, or other operating expenses of the Fund;
(d) Payment in Respect of Securities. For payments in connection with the conversion, exchange or surrender of Portfolio Securities or securities subscribed to by a Fund held by or to be delivered to the Bank;
(e) Repayment of Loans. To repay loans of money made to the Fund, but in the case of final payment, only upon redelivery to the Bank of any Portfolio Securities pledged or hypothecated therefor and upon surrender of documents evidencing the loan;
(f) Repayment of Cash. To repay the cash delivered to a Fund for the purpose of collateralizing the obligation to return to the Fund certificates borrowed from the Fund representing Portfolio Securities, but only upon redelivery to the Bank of such borrowed certificates;
(g) Foreign Exchange Transactions.
(i) For payments in connection with foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery (collectively, "Foreign Exchange Agreements") which may be entered into by the Bank on behalf of a Fund upon the receipt of Proper Instructions, such Proper Instructions to specify the currency broker or banking institution (which may be the Bank, or any other subcustodian or agent hereunder, acting as principal) with which the contract or option is made, and the Bank shall have no duty with respect to the selection of such currency brokers or banking institutions with which the Fund deals or for their failure to comply with the terms of any contract or option.
(ii) In order to secure any payments in connection with Foreign Exchange Agreements which may be entered into by the Bank pursuant to Proper Instructions, each Fund agrees that the Bank shall have a continuing lien and security interest, to the extent of any payment due under any Foreign Exchange Agreement with respect to a Portfolio, in and to any property at any time held by the Bank for the Portfolio's benefit or in which the Portfolio has an interest and which is then in the Bank's possession or control (or in the possession or control of any third party acting on the Bank's behalf). Such payment liability and the concomitant liens and security interests are not permitted to exceed a value equal to 33 1/3% of a Portfolio's total assets. Each Fund authorizes the Bank, in the Bank's sole discretion, at any time to charge any such payment due under any Foreign Exchange Agreement against any balance of account standing to the credit of the Fund on the Bank's books;
(h) Other Authorized Payments. For other authorized transactions of a Fund, or other obligations of a Fund incurred for proper Fund purposes; provided that before making any such payment the Bank will also receive a certified copy of a resolution of the Board signed by an Authorized Person (other than the Person certifying such resolution) and certified by its Secretary or Assistant Secretary, naming the person or persons to whom such payment is to be made, and either describing the transaction for which payment is to be made and declaring it to be an authorized transaction of the Fund, or specifying the amount of the obligation for which payment is to be made, setting forth the purpose for which such obligation was incurred and declaring such purpose to be a proper corporate purpose; or
(i) Termination. Upon the termination of this Agreement as hereinafter set forth pursuant to Section 8 and Section 15 of this Agreement.
5.2 Pledge or Encumbrance of Securities or Cash. Except as provided in this Agreement, the Bank may not pledge, assign, hypothecate or otherwise encumber securities or cash of the Fund held in the Fund's account without the Fund's prior written consent.
6. Securities.
6.1 Segregation and Registration. Except as otherwise provided herein, and except for securities to be delivered to any subcustodian appointed pursuant to Sections 13.2 or 13.3 hereof, the Bank as custodian will receive and hold pursuant to the provisions hereof, in a separate account or accounts and physically segregated at all times from those of other persons, any and all Portfolio Securities which may now or hereafter be delivered to it by or for the account of a Fund or in the name of its nominee. All such Portfolio Securities will be held or disposed of by the Bank for, and subject at all times to, the instructions of the Fund pursuant to the terms of this Agreement. Subject to the specific provisions herein relating to Portfolio Securities that are not physically held by the Bank, the Bank will register all Portfolio Securities (unless otherwise directed by Proper Instructions or an Officers' Certificate), in the name of a registered nominee of the Bank as defined in the Internal Revenue Code and any Regulations of the Treasury Department issued thereunder for the benefit of the Fund, and will execute and deliver all such certificates in connection therewith as may be required by such laws or regulations or under the laws of any state.
Each Fund will from time to time furnish to the Bank appropriate instruments to enable it to hold or deliver in proper form for transfer, or to register in the name of its registered nominee, any Portfolio Securities that may from time to time be registered in the name of the Fund.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank will vote any of the Portfolio Securities held hereunder, except in accordance with Proper Instructions or an Officers' Certificate. The Bank will promptly execute and deliver, or cause to be executed and delivered, to the Fund or its agent for purposes of voting proxies all notices, proxies and proxy soliciting materials delivered to the Bank with respect to such Securities, such proxies to be executed by a Fund, its agent or the registered holder of such Securities (if registered otherwise than in the name of the Fund), but without indicating the manner in which such proxies are to be voted.
6.3 Corporate Action and Class Action Notices. If at any time the Bank is notified that (a) a Fund may be eligible to participate in an class action lawsuit involving any Portfolio Security or (b) an issuer of any Portfolio Security has taken or intends to take a corporate action that affects the rights, privileges, powers, preferences, qualifications or ownership of a Portfolio Security, including without limitation, liquidation, consolidation, merger, recapitalization, reorganization, reclassification, subdivision, combination, stock split or stock dividend (collectively, a "Corporate Action"), which Corporate Action requires an affirmative response or action on the part of the holder of such Portfolio Security (a "Response"), the Bank shall notify the appropriate Fund or its agent for purposes of responding to Corporate Actions promptly of the Corporate Action, the Response required in connection with the Corporate Action and the Bank's deadline for receipt from the Fund of Proper Instructions regarding the Response (the "Response Deadline"). The Bank shall forward to the Fund or its agent via telecopier and/or overnight courier all notices, information statements or other materials relating to the Corporate Action promptly after receipt of such materials by the Bank.
(a) The Bank shall act upon a required Response only after receipt by the Bank of Proper Instructions from the Fund no later than 5:00 p.m. on the date specified as the Response Deadline and only if the Bank (or its agent or subcustodian hereunder) has actual possession of all necessary Securities, consents and other materials no later than 5:00 p.m. on the date specified as the Response Deadline.
(b) The Bank shall have no duty to act upon a required Response if Proper Instructions relating to such Response and all necessary Securities, consents and other materials are not
received by and in the possession of the Bank no later than 5:00 p.m. on the date specified as the Response Deadline. Notwithstanding, the Bank will use its best efforts to act upon a Response for which Proper Instructions and/or necessary Securities, consents or other materials are received by the Bank after 5:00 p.m. on the date specified as the Response Deadline, it being acknowledged and agreed by the parties that any undertaking by the Bank to use its best efforts in such circumstances shall in no way create any duty upon the Bank to complete such Response prior to its expiration.
(c) In the event that the Fund or its agent notifies the Bank of a Corporate Action requiring a Response and the Bank has received no other notice of such Corporate Action, the Response Deadline shall be 48 hours prior to the Response expiration time set by the depository processing such Corporate Action.
(d) Section 13.3(e) of this Agreement shall govern any Corporate Action involving Foreign Portfolio Securities held by a Selected Foreign Sub-Custodian.
(e) The Bank provides the ability for Funds to respond to Corporate Actions through electronic means using either (i) the Bank's InvestCaps function or (ii) appropriate SWIFT messaging. In the event any Fund or its agent provides a Corporate Action Response other than by the aforementioned electronic means, the Bank shall not be responsible for any delay or failure to process such Response in a timely manner. In addition, the Bank may assess additional processing fees to cover the cost of manually processing Corporate Actions Responses provided to the Bank other than by the aforementioned electronic means.
6.4 Book-Entry System.
(a) The Bank may keep Portfolio Securities in the Book-Entry System provided that such Portfolio Securities are represented in an account ("Account") of the Bank (or its agent) in such System which shall not include any assets of the Bank (or such agent) other than assets held as a fiduciary, custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to a Fund's participation in the Book-Entry System through the Bank (or any such agent) will identify by book entry the Portfolio Securities which are included with other securities deposited in the Account and shall at all times during the regular business hours of the Bank (or such agent) be open for inspection by duly authorized officers, employees or agents of a Fund. Where securities are transferred to a Fund's account, the Bank shall also, by book entry or otherwise, identify as belonging to the Fund a quantity of securities in a fungible bulk of securities (i) registered in the name of the Bank or its nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve Bank;
(c) The Bank (or its agent) shall pay for securities purchased for
the account of the Fund or shall pay cash collateral against the return of
Portfolio Securities loaned by a Fund upon (i) receipt of advice from the
Book-Entry System that such Securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect
such payment and transfer for the account of the Fund. The Bank (or its agent)
shall transfer securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that payment for securities sold or payment of the initial cash collateral against the delivery of securities loaned by the Fund has been transferred to the Account; and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect such transfer and payment for the account of the Fund. Copies of all advices from the Book-Entry System of transfers of securities for the account of the Fund shall identify the Fund, be maintained for each Fund by the Bank and shall be provided to the Fund at its request. The Bank shall send the Fund a confirmation, as defined by Rule 17f-4 under the 1940 Act, of any transfers to or from the account of the Fund;
(d) The Bank will promptly provide each Fund with any report obtained by the Bank or its agent on the Book-Entry System's accounting system and its internal accounting control and procedures for safeguarding securities deposited in the Book-Entry System;
(e) Anything to the contrary notwithstanding, the Bank shall be liable to a Fund for any loss or damage to the Fund to the extent resulting from any negligence, willful misfeasance, bad faith or reckless disregard of its duties on the part of the Bank or any of its agents or any of its or their employees in connection with its or their use of the Book-Entry System.
6.5 Use of a Depository.
(a) The Bank may use a Depository to hold, receive, exchange, release, lend, deliver and otherwise deal with Portfolio Securities including stock dividends, rights and other items of like nature, and to receive and remit to the Bank on behalf of a Fund all income and other payments thereon and to take all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name of any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made through the clearing medium employed by such Depository for transactions of participants acting through it. Upon any purchase of Portfolio Securities, payment will be made only upon delivery of the securities to or for the account of a Fund and the Fund shall pay cash collateral against the return of Portfolio Securities loaned by the Fund only upon delivery of the Securities to or for the account of the Fund; and upon any sale of Portfolio Securities, delivery of the Securities will be made only against payment therefor or, in the event Portfolio Securities are loaned, delivery of Securities will be made only against receipt of the initial cash collateral to or for the account of the Fund; and
(d) The Bank shall use its best efforts to provide that:
(i) The Depository obtains replacement of any certificated Portfolio Security deposited with it in the event such Security is lost, destroyed, wrongfully taken or otherwise not available to be returned to the Bank upon its request;
(ii) Proxy materials received by a Depository with respect to Portfolio Securities deposited with such Depository are forwarded immediately to the Bank for prompt transmittal to the Fund;
(iii) Such Depository promptly forwards to the Bank confirmation of any purchase or sale of Portfolio Securities and of the appropriate book entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the Bank such records with respect to the performance of the Bank's obligations and duties hereunder as may be necessary for the Fund to comply with the recordkeeping requirements of Section 31(a) of the 1940 Act and Rule 31(a) thereunder; and
(v) Such Depository delivers to the Bank all internal accounting control reports, whether or not audited by an independent public accountant, as well as such other reports as the Fund may reasonably request in order to verify the Portfolio Securities held by such Depository.
6.6 Use of Book-Entry System for Commercial Paper. The Bank may maintain a system for the holding of commercial paper in book-entry form ("Book-Entry Paper"). Upon receipt of Proper Instructions and upon receipt of confirmation from an Issuer (as defined below) that each Fund has purchased such Issuer's Book-Entry Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund, commercial paper issued by issuers with whom the Bank has entered into a book-entry agreement (the "Issuers"). In maintaining procedures for Book-Entry Paper, the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held by the Fund in an account of the Bank that includes only assets held by it as a fiduciary or custodian for its customers;
(b) The records of the Bank with respect to the Fund's purchase of Book-Entry Paper through the Bank will identify, by book-entry, commercial paper belonging to the Fund which is included in the Book-Entry System and shall at all times during the regular business hours of the Bank be open for inspection by duly authorized officers, employees or agents of the Fund;
(c) The Bank shall pay for Book-Entry Paper purchased for the account of the Fund upon contemporaneous (i) receipt of advice from the Issuer that such sale of Book-Entry Paper has been effected, and (ii) the making of an entry on the records of the Bank to reflect such payment and transfer for the account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper obligation upon the maturity thereof upon contemporaneous (i) receipt of advice that payment for such Book-Entry Paper has been transferred to the Fund, and (ii) the making of an entry on the records of the Bank to reflect such payment for the account of the Fund; and
(e) The Bank will send to the Fund such reports on its system of internal accounting control with respect to the Book-Entry Paper as the Fund may reasonably request from time to time.
6.7 Eurodollar CDs. Any Portfolio Securities which are Eurodollar CDs may be physically held by the European branch of the U.S. banking institution that is the issuer of such Eurodollar CD (a "European Branch"), provided that such Portfolio Securities are identified on the books of the Bank as belonging to the Fund and that the books of the Bank identify the European Branch holding such Portfolio Securities. Notwithstanding any other provision of this Agreement to the contrary, except as stated in the first sentence of this subsection 6.7, the Bank shall be under no other duty with respect to such Eurodollar CDs belonging to the Fund.
6.8 Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or Over-the-Counter.
(i) The Bank shall take action as to put options ("puts") and call options ("calls") purchased or sold (written) by the Fund regarding escrow or other arrangements (i) in accordance with the provisions of any agreement entered into upon receipt of Proper Instructions among the Bank, any broker-dealer registered with the National Association of Securities Dealers, Inc. (the "NASD"), and, if necessary, a Fund, relating to the compliance with the rules of the Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations.
(ii) Unless another agreement requires it to do so, the Bank shall be under no duty or obligation to see that the Fund has deposited or is maintaining adequate margin, if required, with any broker in connection with any option, nor shall the Bank be under duty or obligation to present such option to the broker for exercise unless it receives Proper Instructions from the Fund. The Bank shall have no responsibility for the legality of any put or call purchased or sold on behalf of the Fund, the propriety of any such purchase or sale, or the adequacy of any collateral delivered to a broker in connection with an option or deposited to or withdrawn from a Segregated Account (as defined in subsection 6.9 below). The Bank specifically, but not by way of limitation, shall not be under any duty or obligation to: (i) periodically check or notify the Fund that the amount of such collateral held by a broker or held in a Segregated Account is sufficient to protect such broker or the Fund against any loss; (ii) effect the return of any collateral delivered to a broker; or (iii) advise the Fund that any option it holds, has or is about to expire. Such duties or obligations shall be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action as to puts, calls and futures contracts ("Futures") purchased or sold by the Fund in accordance with the provisions of any agreement entered into upon the receipt of Proper Instructions among the Fund, the Bank and a Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any contract market, or any similar organization or organizations, regarding account deposits in connection with transactions by any Fund.
(ii) The responsibilities of the Bank as to futures, puts and calls traded on commodities exchanges, any Futures Commission Merchant account and the Segregated Account shall be limited as set forth in subparagraph (a)(ii) of this Section 6.8 as if such subparagraph referred to Futures Commission Merchants rather than brokers, and Futures and puts and calls thereon instead of options.
6.9 Segregated Account. The Bank shall upon receipt of Proper Instructions establish and maintain a Segregated Account or Accounts for and on behalf of each Fund.
(a) Cash and/or Portfolio Securities may be transferred into a Segregated Account upon receipt of Proper Instructions in the following circumstances:
(i) in accordance with the provisions of any agreement among the Fund, the Bank and a broker-dealer registered under the Exchange Act and a member of the NASD or any Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Options Clearing Corporation and of any registered national securities exchange or the Commodity Futures Trading Commission or any registered contract market, or of any similar organizations regarding escrow or other arrangements in connection with transactions by the Fund;
(ii) for the purpose of segregating cash or securities in connection with options purchased or written by the Fund or commodity futures purchased or written by the Fund;
(iii) for the deposit of liquid assets, such as cash, U.S. Government securities or other high grade debt obligations, or liquid equity securities having a market value (marked to market on a daily basis) at all times equal to not less than the aggregate purchase price due on the settlement dates of all of the Fund's then outstanding forward commitment or "when-issued" agreements relating to the purchase of Portfolio Securities and all the Fund's then outstanding commitments under reverse repurchase agreements entered into with broker-dealer firms;
(iv) for the purposes of compliance by the Fund with the procedures required by Investment Company Act Release No. 10666, or any subsequent release or releases of the Securities and Exchange Commission relating to the maintenance of Segregated Accounts by registered investment companies;
(v) for other proper Fund purposes, but only, in the case of this clause (v), upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Board, or of the executive committee of the Board signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, setting forth the purpose or purposes of such Segregated Account and declaring such purposes to be proper Fund purposes.
(b) Cash and/or Portfolio Securities may be withdrawn from a Segregated Account pursuant to Proper Instructions in the following circumstances:
(i) with respect to assets deposited in accordance with the provisions of any agreements referenced in (a)(i) or (a)(ii) above, in accordance with the provisions of such agreements;
(ii) with respect to assets deposited pursuant to (a)(iii) or
(a)(iv) above, for sale or delivery to meet the Fund's obligations under
outstanding forward commitment or when-issued agreements for the purchase of
Portfolio Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal or greater value deposited in the Segregated Account;
(iv) to the extent that the Fund's outstanding forward commitment or when-issued agreements for the purchase of portfolio securities or reverse repurchase agreements are sold to other parties or the Fund's obligations thereunder are met from assets of the Fund other than those in the Segregated Account;
(v) for delivery upon settlement of a forward commitment or when-issued agreement for the sale of Portfolio Securities; or
(vi) with respect to assets deposited pursuant to (a)(v) above, in accordance with the purposes of such account as set forth in Proper Instructions.
6.10 Interest Bearing Call or Time Deposits. The Bank shall, upon receipt of Proper Instructions relating to the purchase by the Fund of interest-bearing fixed-term and call deposits, transfer cash, by wire or otherwise, in such amounts and to such bank or banks as shall be indicated in such Proper Instructions. The Bank shall include in its records with respect to the assets of a Fund appropriate notation as to the amount of each such deposit, the banking institution with which such deposit is made (the "Deposit Bank"), and shall retain such forms of advice or receipt evidencing the deposit, if any, as
may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed Portfolio Securities of the Fund and the responsibility of the Bank therefore shall be the same as and no greater than the Bank's responsibility in respect of other Portfolio Securities of the Fund.
6.11 Transfer of Securities. The Bank will transfer, exchange, deliver or release Portfolio Securities held by it hereunder, insofar as such Securities are available for such purpose, provided that the Bank will allow any transfer, exchange, delivery or release under this Section only upon receipt of Proper Instructions. The Proper Instructions shall state that such transfer, exchange or delivery is for a purpose permitted under the terms of this Section 6.11, and shall specify the applicable subsection, or describe the purpose of the transaction with sufficient particularity to permit the Bank to ascertain the applicable subsection. After receipt of such Proper Instructions, the Bank will transfer, exchange, deliver or release Portfolio Securities only in the following circumstances:
(a) Upon sales of Portfolio Securities for the account of a Fund, against contemporaneous receipt by the Bank of payment therefor in full, or against payment to the Bank in accordance with generally accepted settlement practices and customs in the jurisdiction or market in which the transaction occurs, each such payment to be in the amount of the sale price shown in a broker's confirmation of sale received by the Bank before such payment is made, as confirmed in the Proper Instructions received by the Bank before such payment is made;
(b) In exchange for or upon conversion into other securities alone or other securities and cash pursuant to any plan of merger, consolidation, reorganization, share split-up, change in par value, recapitalization or readjustment or otherwise, upon exercise of subscription, purchase or sale or other similar rights represented by such Portfolio Securities, or for the purpose of tendering shares in the event of a tender offer therefor, provided, however, that in the event of an offer of exchange, tender offer, or other exercise of rights requiring the physical tender or delivery of Portfolio Securities, the Bank shall have no liability for failure to so tender in a timely manner unless such Proper Instructions are received by the Bank at least two business days prior to the date required for tender, and unless the Bank (or its agent or subcustodian hereunder) has actual possession of such Security at least two business days prior to the date of tender;
(c) Upon conversion of Portfolio Securities pursuant to their terms into other securities;
(d) For the purpose of redeeming in-kind shares of the Fund upon authorization from the Fund;
(e) In the case of option contracts owned by the Fund, for presentation to the endorsing broker;
(f) When such Portfolio Securities are called, redeemed or retired or otherwise become payable;
(g) For the purpose of effectuating the pledge of Portfolio Securities held by the Bank in order to collateralize loans made to the Fund by any bank, including the Bank; provided, however, that such Portfolio Securities will be released only upon payment to the Bank for the account of the Fund of the moneys borrowed, provided further, however, that in cases where additional collateral is required to secure a borrowing already made, and such fact is made to appear in the Proper Instructions, Portfolio Securities may be released for that purpose without any such payment. In the event that any pledged Portfolio Securities are held by the Bank, they will be so held for the account of the lender, and
after notice to the Fund from the lender in accordance with the normal procedures of the lender and any loan agreement between the fund and the lender that an event of deficiency or default on the loan has occurred, the Bank may deliver such pledged Portfolio Securities to or for the account of the lender;
(h) for the purpose of releasing certificates representing Portfolio Securities, against contemporaneous receipt by the Bank of the fair market value of such security, as set forth in the Proper Instructions received by the Bank before such payment is made;
(i) for the purpose of delivering securities lent by the Fund to a bank or broker dealer, but only against receipt in accordance with street delivery custom except as otherwise provided herein, of adequate collateral as agreed upon from time to time by the Fund and the Bank, and upon receipt of payment in connection with any repurchase agreement relating to such securities entered into by the Fund;
(j) for other authorized transactions of the Fund or for other proper Fund purposes; provided that before making such transfer, the Bank will also receive a certified copy of resolutions of the Board, signed by an authorized officer of the Fund (other than the officer certifying such resolution) and certified by its Secretary or Assistant Secretary, specifying the Portfolio Securities to be delivered, setting forth the transaction in or purpose for which such delivery is to be made, declaring such transaction to be an authorized transaction of the Fund or such purpose to be a proper Fund purpose, and naming the person or persons to whom delivery of such securities shall be made; and
(k) upon termination of this Agreement as hereinafter set forth pursuant to Section 8 and Section 15 of this Agreement.
As to any deliveries made by the Bank pursuant to this Section 6.11, securities or cash receivable in exchange therefor shall be delivered to the Bank.
7. Redemptions. In the case of payment of assets of a Fund held by the Bank in connection with redemptions and repurchases by the Fund of outstanding common shares, the Bank will rely on notification by the Fund's transfer agent of receipt of a request for redemption and certificates, if issued, in proper form for redemption before such payment is made. Payment shall be made in accordance with the Articles of Incorporation or Declaration of Trust (the "Articles"), By-laws and the prospectuses and statements of additional information of the Fund from assets available for said purpose.
8. Merger, Dissolution, etc. of Fund. In the case of the following transactions, not in the ordinary course of business, namely, the merger of a Fund or Portfolio into, the consolidation of a Fund or Portfolio with, or the sale by a Fund or Portfolio of all, or substantially all, of its assets to another investment company, or the liquidation or dissolution of a Fund or Portfolio and the distribution of its assets, upon the payment of the fees, disbursements and expenses of the Bank through the end of the then current term of this Agreement with respect to the Fund, the Bank will deliver the Portfolio Securities held by it under this Agreement and disburse cash only upon the order of the Fund set forth in an Officers' Certificate, accompanied by a certified copy of a resolution of the Board authorizing any of the foregoing transactions. Upon completion of such delivery and disbursement and the payment of all such fees, disbursements and expenses of the Bank, this Agreement will terminate and the Bank shall be released from any and all obligations hereunder, except for obligations of the Bank arising prior to the date of such termination and those obligations under Section 14.
9. Actions of Bank Without Prior Authorization. Notwithstanding anything herein to the contrary, unless and until the Bank receives an Officers' Certificate to the contrary, the Bank will take the following actions without prior authorization or instruction of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name of the Fund all checks, drafts, or other negotiable or transferable instruments or other orders for the payment of money received by it for the account of the Fund and hold for the account of the Fund all income, dividends, interest and other payments or distributions of cash with respect to the Portfolio Securities held thereunder;
9.2 Present for payment all coupons and other income items held by it for the account of the Fund which call for payment upon presentation and hold the cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities received as a distribution on Portfolio Securities as a result of a stock dividend, share split-up, reorganization, recapitalization, merger, consolidation, readjustment, distribution of rights and similar securities issued with respect to any Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership and other certificates and affidavits required by the Internal Revenue Code or the regulations of the Treasury Department issued thereunder, or by the laws of any state, now or hereafter in effect, inserting the Fund's name on such certificates as the owner of the securities covered thereby, to the extent it may lawfully do so and as may be required to obtain payment in respect thereof. The Bank will execute and deliver such certificates in connection with Portfolio Securities delivered to it or by it under this Agreement as may be required under the provisions of the Internal Revenue Code and any Regulations of the Treasury Department issued thereunder, or under the laws of any State;
9.5 Present for payment all Portfolio Securities which are called, redeemed, retired or otherwise become payable, and hold cash received by it upon payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive securities.
10. Collections and Defaults. The Bank will use reasonable efforts to collect any funds which may to its knowledge become collectible arising from Portfolio Securities, including dividends, interest and other income, and to transmit to the appropriate Fund notice actually received by it of any call for redemption, offer of exchange, right of subscription, reorganization or other proceedings affecting such Securities. If Portfolio Securities upon which such income is payable are in default or payment is refused after due demand or presentation, the Bank will notify the appropriate Fund in writing of any default or refusal to pay within two business days from the day on which it receives knowledge of such default or refusal.
11. Maintenance of Records and Accounting Services. The Bank will prepare and maintain records with respect to transactions for which the Bank is responsible pursuant to the terms and conditions of this Agreement, and in compliance with the applicable rules and regulations of the 1940 Act. The books and records pertaining to a Fund that are in possession of the Bank shall be the property of the Fund. The books and records of the Bank pertaining to its actions under this Agreement and reports by the Bank or its independent accountants concerning its accounting system, procedures for safeguarding securities and internal accounting controls will be open to inspection and audit at all times during the Bank's normal business hours, upon reasonable notice, by officers of or auditors employed by the appropriate Fund. Such books and records shall include reports of sufficient scope and in sufficient
detail as may reasonably be required by a Fund to provide reasonable assurance that any material compliance inadequacies would be disclosed by the inspection or audit, and, if there are no such inadequacies, the appropriate reports shall so state. The books and records relating to a Fund will be preserved by the Bank in the manner and in accordance with the applicable rules and regulations under the 1940 Act. The Bank shall surrender these books and records to the Fund promptly upon request. Upon reasonable request of the Fund, the Bank shall, during the term of this agreement, provide copies of any books and records to the Fund or the Fund's authorized representative at the Fund's expense.
The Bank shall assist generally in the preparation of reports to shareholders and others, audits of accounts, and other ministerial matters of like nature.
12. Additional Services. The Bank shall perform the additional services for a Fund as are set forth on Appendix B hereto. Appendix B may be amended from time to time upon agreement of the parties to include further additional services to be provided by the Bank to the Fund.
13. Duties of the Bank.
13.1 Performance of Duties and Standard of Care. The Bank shall use the same care with respect to the safekeeping of Portfolio Securities and cash of the Fund held by it as it uses in respect of its own similar property but in no event less than a reasonable standard of care. In performing its duties hereunder and any other duties listed on any Schedule hereto, if any, the Bank will be entitled to receive and act upon the written advice of independent counsel of its own selection, which may be counsel for a Fund, and will be without liability for any action taken or thing done or omitted to be done in accordance with this Agreement in good faith in conformity with such advice.
The Bank will be under no duty or obligation to inquire into and will not be liable for:
(a) the validity of the issue of any Portfolio Securities purchased by or for the Fund, the legality of the purchases thereof or the propriety of the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or for the Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of the Fund or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any common shares of the Fund or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the Fund or the legality of the distribution of any Portfolio Securities as payment in kind of such dividend; and
(f) any property or moneys of the Fund unless and until received by it, and any such property or moneys delivered or paid by it pursuant to the terms hereof.
Moreover, the Bank will not be under any duty or obligation to ascertain whether any Portfolio Securities at any time delivered to or held by it for the account of the Fund are such as may properly be held by the Fund under the provisions of its Articles, By-laws, any federal or state statutes or any rule or regulation of any governmental agency.
13.2 Agents and Subcustodians with Respect to Property of the Fund Held in the United States. Upon notification to the appropriate Fund, the Bank may employ agents of its own selection in the performance of its duties hereunder and shall be responsible for the acts and omissions of such agents as if performed by the Bank hereunder.
Upon receipt of Proper Instructions, the Bank may employ subcustodians selected by or at the direction of a Fund, provided that any such subcustodian meets at least the minimum qualifications required by Section 17(f)(1) of the 1940 Act to act as a custodian of the Fund's assets with respect to property of the Fund held in the United States. The Bank shall have no liability to the Fund or any other person by reason of any act or omission of any such subcustodian and the Fund shall indemnify the Bank and hold it harmless from and against any and all actions, suits and claims, arising out of the performance of any subcustodian. Upon request of the Bank or if elected by the Fund, the Fund shall assume the entire defense of any action, suit, or claim subject to the foregoing indemnity. The Fund shall pay all fees and expenses of any subcustodian.
13.3 Duties of the Bank with Respect to Property of the Fund Held Outside of the United States.
(a) Appointment of Foreign Custody Manager.
(i) If a Fund has appointed the Bank Foreign Custody Manager (as that term is defined in Rule 17f-5 under the 1940 Act), the Bank's duties and obligations with respect to the Fund's Portfolio Securities and other assets maintained outside the United States shall be, to the extent not set forth herein, as set forth in the Delegation Agreement between the Fund and the Bank (the "Delegation Agreement").
(ii) If a Fund has appointed any other person or entity Foreign Custody Manager, the Bank shall act only upon Proper Instructions from the Fund with regard to any of the Fund's Portfolio Securities or other assets held or to be held outside of the United States, and the Bank shall be without liability for any Claim (as that term is defined in Section 14 hereof) arising out of maintenance of the Fund's Portfolio Securities or other assets outside of the United States. The Fund also agrees that it shall enter into a written agreement with such Foreign Custody Manager that shall obligate such Foreign Custody Manager to provide to the Bank in a timely manner all information required by the Bank in order to complete its obligations hereunder. The Bank shall not be liable for any Claim arising out of the failure of such Foreign Custody Manager to provide such information to the Bank.
(b) Segregation of Securities. The Bank shall identify on its books as belonging to the Fund the Foreign Portfolio Securities held by each foreign sub-custodian (each an "Eligible Foreign Custodian") selected by the Foreign Custody Manager, subject to receipt by the Bank of the necessary information from such Eligible Foreign Custodian if the Foreign Custody Manager is not the Bank.
(c) Access of Independent Accountants of the Fund. If the Bank is the Fund's Foreign Custody Manager, upon request of the Fund, the Bank will use its best efforts to arrange for the independent accountants of the Fund to be afforded access to the books and records of any foreign banking institution employed as an Eligible Foreign Custodian insofar as such books and records relate to the performance of such foreign banking institution with regard to the Fund's Portfolio Securities and other assets.
(d) Reports by Bank. If the Bank is the Fund's Foreign Custody Manager, the Bank will supply to the Fund the reports required under the Delegation Agreement.
(e) Transactions in Foreign Custody Account. Transactions with respect to the assets of a Fund held by an Eligible Foreign Custodian shall be effected pursuant to Proper Instructions from the Fund to the Bank and shall be effected in accordance with the applicable agreement between the Foreign Custody Manager and such Eligible Foreign Custodian.
Notwithstanding any provision of this Agreement to the contrary, settlement and payment for Foreign Portfolio Securities received for the account of a Fund and delivery of Foreign Portfolio Securities maintained for the account of the Fund may be effected in accordance with the customary established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivering securities to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) against a receipt with the expectation of receiving later payment for such securities from such purchaser or dealer.
In connection with any action to be taken with respect to the Foreign Portfolio Securities held hereunder, including, without limitation, the exercise of any voting rights, subscription rights, redemption rights, exchange rights, conversion rights or tender rights, or any other action in connection with any other right, interest or privilege with respect to such Securities (collectively, the "Rights"), the Bank shall promptly transmit to the appropriate Fund such information in connection therewith as is made available to the Bank by the Eligible Foreign Custodian, and shall promptly forward to the applicable Eligible Foreign Custodian any instructions, forms or certifications with respect to such Rights, and any instructions relating to the actions to be taken in connection therewith, as the Bank shall receive from the Fund pursuant to Proper Instructions. Notwithstanding the foregoing, the Bank shall have no further duty or obligation with respect to such Rights, including, without limitation, the determination of whether the Fund is entitled to participate in such Rights under applicable U.S. and foreign laws, or the determination of whether any action proposed to be taken with respect to such Rights by the Fund or by the applicable Eligible Foreign Custodian will comply with all applicable terms and conditions of any such Rights or any applicable laws or regulations, or market practices within the market in which such action is to be taken or omitted.
(f) Tax Law. The Bank shall have no responsibility or liability for any obligations now or hereafter imposed on the Fund or the Bank as custodian of the Fund by the tax laws of any jurisdiction, and it shall be the responsibility of the Fund to notify the Bank of the obligations imposed on the Fund or the Bank as the custodian of the Fund by the tax law of any non-U.S. jurisdiction, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Eligible Foreign Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with respect to any claim for exemption or refund under the tax law of jurisdictions for which the Fund has provided such information.
13.4 Insurance. The Bank need not maintain any special insurance for the benefit of a Fund, although the Bank shall at all times maintain insurance coverage adequate for the nature of its operations, including directors and officers, errors and omissions, and fidelity bond insurance coverage. The Bank shall notify the Funds if there are any material adverse changes to its insurance policies or coverage. The Bank shall notify the Funds of any material errors or omissions, interruptions in, or delay or unavailability of the Bank's abilities to safeguard and hold the securities and cash of a Fund in accordance with this Agreement as promptly as practicable, and proceed to correct the same as soon as is reasonably possible.
13.5 Advances by the Bank. The Bank may, in its sole discretion, advance funds on behalf of a Fund to make any payment permitted by this Agreement upon receipt of any proper authorization
required by this Agreement for such payments by the Fund. Should such a payment or payments, with advanced funds, result in an overdraft (due to insufficiencies of the Fund's account with the Bank, or for any other reason) this Agreement deems any such overdraft or related indebtedness a loan made by the Bank to the Fund payable on demand. Such overdraft shall bear interest at the current rate charged by the Bank for such loans unless the Fund shall provide the Bank with agreed upon compensating balances. The Fund agrees that the Bank shall have a continuing lien and security interest to the extent of any overdraft or indebtedness on the part of a Portfolio and to the extent required by law, in and to any property at any time held by it for the Portfolio's benefit or in which the Portfolio has an interest and which is then in the Bank's possession or control (or in the possession or control of any third party acting on the Bank's behalf). Such payment liability and the concomitant liens and security interests are not permitted to exceed a value equal to 33 1/3% of a Portfolio's total assets. The Fund authorizes the Bank, in the Bank's sole discretion, at any time to charge any overdraft or indebtedness, together with interest due thereon, against any balance of account standing to the credit of the Fund on the Bank's books.
13.6. Fees and Expenses of the Bank. For the services rendered by the Bank hereunder, each Fund will pay to the Bank such fees at such rate as shall be agreed upon in writing by the parties from time to time. The Fund will also pay or reimburse the Bank from time to time for any transfer taxes payable upon any transfers made hereunder, and for all necessary proper disbursements, expenses and charges made or incurred by the Bank in the performance of this Agreement (including any duties listed on any Schedule hereto, if any) including any indemnities for any loss, liabilities or expense to the Bank as provided herein. The Bank will also be entitled to reimbursement by the Fund for all reasonable expenses incurred in conjunction with termination of this Agreement and any conversion or transfer work done in connection therewith, except for a termination by a Fund due to a breach of this Agreement by the Bank.
Fees and expenses will be calculated monthly. Fees and expenses owed to the Bank for any month may be charged against any cash balance held by the Fund beginning on the first (1st) business day after the end of such month based on information then available. Fees charged to an account may result in an overdraft that will be subject to normal interest charges. The Fund will have sixty (60) days after the receipt of an invoice to dispute any charge that appears on such invoice. After such sixty (60) day period, the invoice will be deemed to be complete and accurate and may no longer be disputed.
13.7 Cooperation with Fund's Independent Public Accountants. The Bank shall cooperate with each Fund's independent public accountants and shall take all reasonable action in the performance of its obligations under this Agreement to assure that all necessary information is made available to the accountant for the expression of their unqualified opinion, including but not limited to the opinion included in the Funds' registration statements on Form N-1A, and periodic reports made on Forms N-SAR and N-CSR, and any other reports to the SEC and for any requirement of the SEC.
13.8 Reports to Fund by Bank's Independent Public Accountants. The Bank shall provide each Fund, at all times as a Fund may reasonably require, with reports from the Bank's independent public accountant on the Bank's accounting systems and internal accounting controls and procedures for safeguarding securities and cash of the Fund, including securities deposited and/or maintained in a Securities Depository or Book-Entry System, relating to the services the Bank provides under this Agreement and generally made available to the Bank's clients. These reports shall be of sufficient scope and in sufficient detail as a Fund may reasonably require to provide reasonable assurance that the examination would disclose any material inadequacies and, if there are no material inadequacies, the reports shall so state.
14. Limitation of Liability.
14.1 Notwithstanding anything in this Agreement to the contrary, in no event shall the Bank or any of its officers, directors or employees (collectively, the "Bank Indemnified Parties") be liable to the Fund or any third party, and the Fund shall indemnify and hold the Bank and the Bank Indemnified Parties harmless from and against any and all loss, damage, liability, actions, suits, claims, and reasonable costs and expenses, including reasonable legal fees, (a "Claim") arising as a result of any act or omission of the Bank or any Bank Indemnified Party under this Agreement, except to the extent any such Claim results from the negligence, willful misfeasance, bad faith or reckless disregard of its duties on the part of the Bank or any Bank Indemnified Party. Without limiting the foregoing, neither the Bank nor the Bank Indemnified Parties shall be liable for, and the Bank and the Bank Indemnified Parties shall be indemnified against, any Claim arising as a result of:
(a) Any act or omission by the Bank or any Bank Indemnified Party in good faith reliance upon the terms of this Agreement, any Officer's Certificate, Proper Instructions, resolution of the Board, telegram, telecopier, notice, request, certificate or other instrument reasonably believed by the Bank to genuine;
(b) Any act or omission of any subcustodian selected by or at the direction of the Fund;
(c) Any act or omission of any Foreign Custody Manager other than the Bank or any act or omission of any Eligible Foreign Custodian if the Bank is not the Foreign Custody Manager;
(d) Any Corporate Action, distribution or other event related to Portfolio Securities which, at the direction of the Fund, have not been registered in the name of the Bank or its nominee;
(e) Any Corporate Action requiring a Response for which the Bank has not received Proper Instructions or obtained actual possession of all necessary Securities, consents or other materials by 5:00 p.m. on the date specified as the Response Deadline; or
(f) Any act or omission of any European Branch of a U.S. banking institution that is the issuer of Eurodollar CDs in connection with any Eurodollar CDs held by such European Branch.
14.2 The Bank agrees to indemnify and hold harmless each Fund and its affiliates and their Directors/Trustees, officers and employees ("Fund Indemnified Parties") from and against any and all Claims arising as a result of any act or omission of the Bank or any Bank Indemnified Party under this Agreement to the extent any such Claim results from the negligence, willful misfeasance, bad faith or reckless disregard of its duties on the part of the Bank or any Bank Indemnified Party.
14.3 Notwithstanding anything to the contrary in this Agreement, neither Party shall be liable to the other party or any third party for lost profits or lost revenues or any special, consequential, punitive or incidental damages of any kind whatsoever in connection with this Agreement or any activities hereunder.
14.4 The obligations set forth in this Section 14 shall survive the termination of this Agreement.
15. Termination.
15.1 The term of this Agreement shall be three years commencing upon the date hereof (the "Initial Term"), unless earlier terminated as provided herein. After the expiration of the Initial Term, the term of this Agreement shall automatically renew for successive one-year terms (each a "Renewal Term") unless written notice of non-renewal (due to a Party's violation of a material provision of the contract or for any other reason) is delivered by the non-renewing party to the other party no later than ninety days if a Fund is the non-renewing party and one hundred eighty days if Bank is the non-renewing party prior to the expiration of the Initial Term or any Renewal Term, as the case may be.
Either party hereto may terminate this Agreement prior to the expiration of the Initial Term or any Renewal Term in the event the other party violates any material provision of this Agreement, provided that the terminating party gives written notice of such violation to the other party and such party does not cure such violation within 90 days of receipt of such notice. The Bank's right to termination shall be limited to the Portfolio in respect of which a violation has occurred. Termination by either party with respect to a Fund or a Portfolio will not affect the terms of this Agreement with respect to other Funds or Portfolios.
15.2 In the event of the termination of this Agreement, the Bank will immediately upon receipt or transmittal, as the case may be, of notice of termination, commence and prosecute diligently to completion the transfer of all cash and the delivery of all Portfolio Securities duly endorsed and all records maintained under Section 11 to the successor custodian when appointed by the Fund. The obligation of the Bank to deliver and transfer over the assets of the Fund held by it directly to such successor custodian will commence as soon as such successor is appointed and will continue until completed as aforesaid. If the Fund does not select a successor custodian within ninety (90) days from the date of delivery of notice of termination the Bank may, subject to the provisions of subsection 15.3, deliver the Portfolio Securities and cash of the Fund held by the Bank to a bank or trust company of the Bank's own selection which meets the requirements of Section 17(f)(1) of the 1940 Act and has a reported capital, surplus and undivided profits aggregating not less than $2,000,000, to be held as the property of the Fund under terms similar to those on which they were held by the Bank, whereupon such bank or trust company so selected by the Bank will become the successor custodian of such assets of the Fund with the same effect as though selected by the Board. Thereafter, the Bank shall be released from any and all obligations under this Agreement, except for any obligations arising prior to the date of delivery of such Portfolio Securities and cash and those obligations under Section 14.
15.3 Prior to the expiration of ninety (90) days after notice of termination has been given, the Fund may furnish the Bank with an order of the Fund advising that a successor custodian cannot be found willing and able to act upon reasonable and customary terms and that the Fund will be liquidated or will function without a custodian for the assets of the Fund held by the Bank. In that event the Bank will deliver the Portfolio Securities and cash of the Fund held by it, subject as aforesaid, in accordance with one of such alternatives, upon receipt by the Bank of a copy of the minutes of the meeting of the Board of Directors/Trustees at which action was taken, certified by the Fund's Secretary, and an opinion of counsel to the Fund in form and content satisfactory to the Bank. Thereafter, the Bank shall be released from any and all obligations under this Agreement, except for any obligations arising prior to the date of delivery of such Portfolio Securities and cash and those obligations under Section 14.
15.4 At any time after the termination of this Agreement, the Fund may, upon written request, have reasonable access to the records of the Bank relating to its performance of its duties as custodian.
16. Confidentiality. Both parties hereto agree than any non-public information obtained hereunder concerning the other party is confidential and may not be disclosed without the consent of the other party, except as may be required by applicable law or at the request of a governmental agency. The parties further agree that a breach of this provision would irreparably damage the other party and accordingly agree that each of them is entitled, in addition to all other remedies at law or in equity to an injunction or injunctions without bond or other security to prevent breaches of this provision. The parties agree that they shall abide by the provisions of the Gramm-Leach-Bliley Act ("GLB") and other applicable privacy laws and shall each establish commercially reasonable controls to ensure the confidentiality of confidential information and to ensure that confidential information is not disclosed contrary to the provisions of this Agreement, GLB or any other applicable privacy laws and regulations.
17. Notices. Any notice or other instrument in writing authorized or required by this Agreement to be given to either party hereto will be sufficiently given if addressed to such party and delivered via (i) United States Postal Service registered mail, (ii) telecopier with written confirmation, (iii) hand delivery with signature to such party at its office at the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
Treasurer
Eclipse Funds
Eclipse Funds, Inc.
The MainStay Funds
MainStay VP Series Fund, Inc.
McMorgan Funds
169 Lackawanna Avenue
Parsippany, NJ 07054
with a copy to:
Secretary
Eclipse Funds
Eclipse Funds, Inc.
The MainStay Funds
MainStay VP Series Fund, Inc.
169 Lackawanna Avenue
Parsippany, NJ 07054
and with a copy to Secretary McMorgan Funds One Bush Street, Suite 800 San Francisco, CA 94104
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company 200 Clarendon Street, P.O. Box 9130 Boston, Massachusetts 02117-9130 Attention: Christopher E. Jones, Director - Client Management With a copy to: John E. Henry, General Counsel
or at such other place as such party may from time to time designate in writing.
18. Amendments. This Agreement may not be altered or amended, except by an instrument in writing, executed by both parties.
19. Parties. This Agreement will be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement will not be assignable by the Fund without the written consent of the Bank or by the Bank without the written consent of the Fund, authorized and approved by its Board; and provided further that termination proceedings pursuant to Section 15 hereof will not be deemed to be an assignment within the meaning of this provision.
20. Governing Law. This Agreement and all performance hereunder will be governed by the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions.
21. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument.
22. Entire Agreement. This Agreement, together with its Appendices, constitutes the sole and entire agreement between the parties relating to the subject matter herein and does not operate as an acceptance of any conflicting terms or provisions of any other instrument and terminates and supersedes any and all prior agreements and undertakings between the parties relating to the subject matter herein.
23. Several Obligations of the Portfolios. This Agreement is an agreement entered into between the Bank and each Fund with respect to the Fund's respective Portfolios. With respect to any obligation of a Fund on behalf of any Portfolio arising out of this Agreement, the Bank shall look for payment or satisfaction of such obligation solely to the assets of the Portfolio to which such obligation relates as though the Bank had separately contracted with such Fund by separate written instrument with respect to each Portfolio.
24. Fund Disclaimer. It is expressly agreed that the obligations of the Funds hereunder shall not be binding upon any of their Directors/Trustees, shareholders, nominees, officers, agents or employees personally, but shall bind only the property or assets of the applicable Fund, as the case may be. The execution and delivery of this Agreement has been authorized by the Directors/Trustees, and this Agreement has been signed and delivered by an authorized officer of the Funds, acting as such, and neither such authorization by the Directors/Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the property or assets of the Funds, as the case may be, as provided in the Funds' respective organizational documents. With respect to any Fund that is organized as a Massachusetts business trust, a copy of such Fund's Agreement and Declaration of Trust establishing the Fund is on file with the Secretary of State of The Commonwealth of Massachusetts.
25. Business Recovery. The Bank represents and warrants that it has and will continue to have in place a commercially reasonable business recovery program.
26. Force Majeure. Notwithstanding anything otherwise to the contrary in this Agreement, no party shall be liable to the other for any loss or liability arising from any acts of God, earthquakes, fires, floods, storms or other disturbances of nature, epidemics, strikes, riots, nationalization, expropriation, currency restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion, fission or radiation,
the interruption, loss or malfunction of utilities, transportation or computers (hardware or software) and computer facilities, the unavailability of energy sources and other similar happenings or events, except to the extent that any such loss or liability results from the failure of the Bank to (a) maintain a commercially reasonable business recovery program, and (b) act reasonably to mitigate, as soon as practicable, the specific occurrence or event.
27. Use of Name. Neither party shall use the name of the other in any prospectus, sales literature or other material in a manner not approved by the other party prior thereto in writing; provided however, that the approval of a party shall not be required for any use of its name or that of its affiliates which merely refers in accurate and factual terms to its appointment hereunder or which is required by the Securities and Exchange Commission or any state securities authority or any other appropriate regulatory, governmental or judicial authority; provided further, that in no event shall such approval be unreasonably withheld or delayed.
28. Bank Loan Funds. The following provisions shall apply to any Fund holding Bank Loans:
(a) The Bank shall physically hold at such premises and under such conditions as the Bank may determine in its sole discretion each "Loan File" (as hereinafter defined) from time to time delivered to the Bank by a Portfolio, and shall segregate, keep and maintain the Loan Files for such Portfolio separate and apart from those of any other Portfolio.
(b) The Portfolio shall deliver to the Bank: (a) each Loan File relating to such Portfolio promptly upon the Portfolio's receipt of the same, and (b) a Proper Instruction specifying such Loan File as a Loan File of the Portfolio and the related identifying number described in paragraph (d) of this Section.
(c) The Bank shall have no duty or obligation with respect to, and no responsibility for, the quality, completeness, or authenticity of any Loan File or anything included therein, nor deemed to have for any purpose whatsoever actual or constructive knowledge of the contents of, or information contained in, any Loan File. As used herein the term "Loan File" shall mean a package of paper documents so designated as such by the Portfolio with respect to any promissory note or similar obligation purchased by the Portfolio, and any document received by the Bank with respect to any such promissory note or similar obligation shall be deemed a part of the Loan File.
(d) Whenever the Portfolio purchases any promissory note or similar obligation which will be included in a Loan File, the Portfolio shall provide the Bank with a Proper Instruction specifying: (a) the amount to be paid therefor; (b) the entity to which such payment is to be made, together with appropriate wiring instructions; (c) the date on which such payment is to be made, which date shall be at least three business days after the Bank's receipt of the Proper Instruction; and (d) the name and identifying number to be recorded and utilized by the Bank with respect to such Loan File and payments made, or received, by the Bank with respect to such promissory note or similar obligation. The Bank shall make such payment out of the monies held for the applicable Portfolio, and if monies are insufficient shall so advise the Portfolio and the Bank shall take no further action until it has received further instructions in a Proper Instruction. Any such payments made by the Bank shall not be "against receipt" of any Loan File unless the Portfolio has otherwise specified in its Proper Instructions. Where payments are not made "against receipt", the Portfolio understands and accepts the risk that the related Loan File may not be received.
(e) From time to time upon receipt of a Proper Instruction the Bank shall make such deliveries of any Loan File held hereunder as may be specified therein, including any "free" (and not against payment) deliveries. For any delivery against payment, the Portfolio understands that settlements, payments and deliveries may be effected by the Bank in accordance with the customary or established trading or processing practices and procedures in the jurisdiction in which the transaction occurs, including, without limitation, delivery to a purchaser or dealer therefor (or agent) against receipt with the expectation of receiving later payment. The Portfolio assumes full responsibility for all risks, including, without limitation, credit risks, involved in connection with such deliveries of Loan Files. When any deliveries are made "free", the Portfolio understands and accepts the risk that payments may not be received. Payments received by the Bank shall be credited to the account of the Portfolio.
(f) The Portfolio, and not the Bank, shall be solely responsible for
obtaining delivery of each Loan File, and where a payment described in paragraph
(d) of this Section is "against receipt" of a Loan File, such receipt shall be
by the Bank from the Portfolio.
(g) Each week the Bank shall provide to the Portfolio a report specifying by the related identifying number described in paragraph (d) of this Section each Loan File not yet delivered to and received by the Bank.
(h) Whenever a Portfolio anticipates receipt of any payment of principal or interest or other amount with respect to any Loan File, it shall provide the Bank, at least three days before such payment date, a Proper Instruction specifying: (i) the identifying number (described in paragraph (d) of this Section) of the Loan File to which such payment relates; (ii) the amount to be received; and (iii) the date on which payment of such amount is to be received. The Bank shall receive such amounts and credit the same to the account of the Portfolio and shall provide to Portfolio an advice setting forth the amount so received and any amounts which were specified to be received in the Proper Instruction but not received. The Portfolio, and not the Bank, shall be solely responsible for making demands for any such payments or taking further action if any such payment is not received.
(i) Each Portfolios understands that all credits to its account are provisional, may be reversed if the same are not finally collected, and that any such reversal may create indebtedness subject to Section 13.5 of this Agreement. For purposes of such Section 13.5, the Portfolio agrees that each Loan File and each right to receive payment shall be property as described therein, and further agrees that such rights shall constitute "financial assets" within the meaning of Article 8 of the New York Uniform Commercial Code and that the account of the Portfolio shall for such purposes be considered a "securities account" maintained by the Bank as a "financial intermediary", as such terms are defined in said Article 8.
(j) In the event the Bank receives any notices, demands, documents, or other materials with respect to a Loan File, the Bank's sole responsibility shall be to deliver the same to the Portfolio.
(k) In the event of any conflict between the provisions of this Section and any other provision of this Agreement, this Section shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first written above.
ECLIPSE FUNDS
ECLIPSE FUNDS INC
By: /s/ Gary E. Wendlandt
Name: Gary E. Wendlandt
Title: President
|
THE MAINSTAY FUNDS
By: /s/ Christopher O. Blunt
Name: Christopher O. Blunt
Title: President
|
MAINSTAY VP SERIES FUND, INC.
By: /s/ Anne F. Pollack
Name: Anne F. Pollack
Title: President
|
MCMORGAN FUNDS
By: /s/ Mark R. Taylor
Name: Mark R. Taylor
Title: President
|
INVESTORS BANK & TRUST COMPANY
By: /s/ Robert D. Mancuso
Name: Robert D. Mancuso
Title: Senior Vice President
|
APPENDIX A
TO THE
MASTER CUSTODIAN AGREEMENT
(as of January 2, 2006)
FUND PORTFOLIO
---- ---------
THE MAINSTAY FUNDS Capital Appreciation Fund
Common Stock Fund
Convertible Fund
Diversified Income Fund
Equity Index Fund
Global High Income Fund
Government Fund
High Yield Corporate Bond Fund
International Equity Fund
Large Cap Growth Fund
MAP Fund
Mid Cap Growth Fund
Mid Cap Value Fund
Money Market Fund
Small Cap Growth Fund
Small Cap Value Fund
Tax Free Bond Fund
Total Return Fund
Value Fund
ECLIPSE FUNDS Balanced Fund
Mid Cap Opportunity Fund
Small Cap Opportunity Fund
ECLIPSE FUNDS INC. All Cap Growth Fund
All Cap Value Fund
Cash Reserves Fund
Conservative Allocation Fund
Floating Rate Fund
Growth Allocation Fund
Growth Equity Fund
Income Manager Fund
Indexed Bond Fund
Intermediate Term Bond Fund
Large Cap Opportunity Fund
Moderate Allocation Fund
Moderate Growth Allocation Fund
S&P 500 Index Fund
Short Term Bond Fund
|
FUND PORTFOLIO
---- ---------
MAINSTAY VP SERIES FUND, INC. Balanced Portfolio
Basic Value Portfolio
Bond Portfolio
Capital Appreciation Portfolio
Cash Management Portfolio
Common Stock Portfolio
Conservative Allocation Portfolio
Convertible Portfolio
Developing Growth Portfolio
Floating Rate Portfolio
Government Portfolio
Growth Allocation Portfolio
High Yield Corporate Bond Portfolio
Income & Growth Portfolio
International Equity Portfolio
Large Cap Growth Portfolio
Mid Cap Core Portfolio
Mid Cap Growth Portfolio
Mid Cap Value Portfolio
Moderate Allocation Portfolio
Moderate Growth Allocation Portfolio
S&P 500 Index Portfolio
Small Cap Growth Portfolio
Total Return Portfolio
Value Portfolio
MCMORGAN FUNDS Balanced Fund
Equity Investment Fund
Fixed Income Fund
High Yield Fund
Intermediate Fixed Income Fund
Principal Preservation Fund
|
APPENDIX B
ADDITIONAL SERVICES
(as of January 2, 2006)
NONE
EXHIBIT g(2)
MASTER DELEGATION AGREEMENT
AGREEMENT, dated as of June 30, 2005 by and between INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the "Delegate"), and each of the registered investment companies (each a "Fund" and collectively "the Funds") listed on Appendix A) and their portfolios.
WHEREAS, pursuant to the provisions of Rule 17f-5 under the Investment Company Act of 1940, as amended (the "1940 Act"), and subject to the terms and conditions set forth herein, the Board of Directors / Trustees of each Fund desires to delegate to the Delegate certain responsibilities concerning Foreign Assets (as defined below), and the Delegate hereby agrees to retain such delegation, as described herein; and
WHEREAS, pursuant to the provisions of Rule 17f-7 under the 1940 Act, and subject to the terms and conditions set forth herein, the Board of Directors / Trustees of each Fund desires to retain the Delegate to provide certain services concerning Foreign Assets, and the Delegate hereby agrees to provide such services, as described herein;
NOW THEREFORE, in consideration of the premises and of the mutual agreements contained herein, the parties hereto agree as follows:
1. DEFINITIONS
Capitalized terms in this Agreement have the following meanings:
a. Authorized Representative
Authorized Representative means any one of the persons who are empowered, on behalf of the parties to this Agreement, to receive notices from the other party and to send notices to the other party.
b. Board
Board means the Board of Directors / Trustees (or the body authorized to exercise authority similar to that of the board of directors of a corporation) of each Fund.
c. Country Risk
Country Risk means all factors reasonably related to the systemic risk of holding Foreign Assets in a particular country including, but not limited to, such country's financial infrastructure (including any Securities Depositories operating in such country); prevailing custody and settlement practices; and laws applicable to the safekeeping and recovery of Foreign Assets held in custody.
d. Eligible Foreign Custodian
Eligible Foreign Custodian has the meaning set forth in Rule 17f-5(a)(1) and it is understood that such term includes foreign branches of U.S. Banks (as the term "U.S. Bank" is defined in Rule 17f-5(a)(7)).
e. Foreign Assets
Foreign Assets has the meaning set forth in Rule 17f-5(a)(2)
f. Foreign Custody Manager
Foreign Custody Manager has the meaning set forth in Rule 17f-5(a)(3).
g. Securities Depository
Securities Depository has the meaning set forth in Rule 17f-4(a).
h. Monitor
Monitor means to re-assess or re-evaluate, at reasonable intervals, a decision, determination or analysis previously made.
2. REPRESENTATIONS
a. Delegate's Representations
Delegate represents that it is a trust company chartered under the laws of the Commonwealth of Massachusetts. Delegate further represents that the persons executing this Agreement and any amendment or appendix hereto on its behalf are duly authorized to so bind the Delegate with respect to the subject matter of this Agreement.
b. Fund's Representations
Fund represents that the Board has determined that it is reasonable to rely on Delegate to perform the responsibilities described in this Agreement. Fund further represents that the persons executing this Agreement and any amendment or appendix hereto on its behalf are duly authorized to so bind the Fund with respect to the subject matter of this Agreement.
3. JURISDICTIONS AND DEPOSITORIES COVERED
a. Initial Jurisdictions and Depositories
The authority delegated by this Agreement in connection with Rule 17f-5 applies only with respect to Foreign Assets held in the jurisdictions listed in Appendix B1. Delegate's responsibilities under this Agreement in connection with Rule 17f-7 apply only with respect to the Securities Depositories listed in Appendix B2. Upon the creation of a new Securities Depository in any of the jurisdictions listed in Appendix A1 at the time of such creation, such Securities Depository will automatically be deemed to be listed in Appendix B2 and will be covered by the terms of this Agreement.
b. Added Jurisdictions and Depositories
Jurisdictions and related Securities Depositories may be added to Appendix B1 and Appendix B2, respectively, by written agreement in the form of Appendix C. Delegate's responsibility and authority with respect to any jurisdiction or Securities Depository, respectively, so added will commence at the later of (i) the time that Delegate's Authorized Representative and Board's Authorized Representative have both executed a copy of Appendix C listing such jurisdiction and/or Securities Depository, or (ii) the time that Delegate's Authorized Representative receives a copy of such fully executed Appendix C.
c. Withdrawn Jurisdictions
Board may withdraw its (i) delegation to Delegate with respect to any jurisdiction or (ii) retention of Delegate with respect to any Securities Depository, upon written notice to Delegate. Delegate may withdraw its (i) acceptance of delegation with respect to any jurisdiction or (ii) retention with respect to any Securities Depository, upon written notice to Board. Ten days (or such longer period as to which the parties agree in such event) after receipt of any such notice by the Authorized Representative of the party other than the party giving notice, Delegate shall have no further responsibility or authority under this Agreement with respect to the jurisdiction(s) or Securities Depository as to which delegation is withdrawn.
4. DELEGATION OF AUTHORITY TO ACT AS FOREIGN CUSTODY MANAGER
a. Selection of Eligible Foreign Custodians
Subject to the provisions of this Agreement and the requirements of Rule 17f-5 (and any other applicable law), Delegate is authorized and directed to place and maintain Foreign Assets in the care of any Eligible Foreign Custodian(s) selected by Delegate in each jurisdiction to which this Agreement applies, except that Delegate does not accept such authorization and direction with regard to Securities Depositories.
b. Contracts With Eligible Foreign Custodians
Subject to the provisions of this Agreement and the requirements of Rule 17f-5 (and any other applicable law), Delegate is authorized to enter into, on behalf of Fund, such written contracts governing Fund's foreign custody arrangements with such Eligible Foreign Custodians as Delegate deems appropriate.
5. MONITORING OF ELIGIBLE FOREIGN CUSTODIANS AND CONTRACTS
In each case in which Delegate has exercised the authority delegated under this Agreement to place Foreign Assets with an Eligible Foreign Custodian, Delegate is authorized to, and shall, on behalf of Fund, establish a system to Monitor the appropriateness of maintaining Foreign Assets with such Eligible Foreign Custodian. In each case in which Delegate has exercised the authority delegated under this Agreement to enter into a written contract governing Fund's foreign custody arrangements, Delegate is authorized to, and shall, on behalf of Fund, establish a system to Monitor the appropriateness of such contract.
6. SECURITIES DEPOSITORIES
a. In accordance with the requirements of Rule 17f-7, Delegate shall, upon execution of this Agreement, provide the Fund or its investment adviser with an analysis of the custody risks associated with maintaining assets with each Securities Depository listed on Appendix B2 hereto.
b. In accordance with the requirements of Rule 17f-7, Delegate shall Monitor the custody risks associated with maintaining assets with each Securities Depository listed on Appendix B2 hereto on a continuing basis, and shall promptly notify the Fund or its investment adviser of any material change in such risks.
7. GUIDELINES AND PROCEDURES FOR THE EXERCISE OF DELEGATED AUTHORITY
a. Board's Conclusive Determination Regarding Country Risk
In exercising its delegated authority under this Agreement, Delegate may assume, for all purposes, that Board (or Fund's investment advisor, pursuant to authority delegated by Board) has considered, and pursuant to its fiduciary duties to Fund and Fund's shareholders, determined to accept, such Country Risk as is incurred by placing and maintaining Foreign Assets in the jurisdictions to which this Agreement applies. In exercising its delegated authority under this Agreement, Delegate may also assume that Board (or Fund's investment advisor, pursuant to authority delegated by Board) has, and will continue to, Monitor such Country Risk to the extent Board deems necessary or appropriate.
Except as specifically described herein, nothing in this Agreement shall require Delegate to make any selection or to engage in any Monitoring on behalf of Fund that would entail consideration of Country Risk.
b. Selection of Eligible Foreign Custodians
In exercising the authority delegated under this Agreement to place Foreign Assets with an Eligible Foreign Custodian, Delegate shall determine that Foreign Assets will be subject to reasonable care, based on the standards applicable to custodians in the market in which the Foreign Assets will be held, after considering all factors relevant to the safekeeping of such Foreign Assets, including, without limitation;
i. The Eligible Foreign Custodian's practices, procedures, and internal controls, including, but not limited to, the physical protections available for certificated securities (if applicable), the method of keeping custodial records, and the security and data protection practices;
ii. Whether the Eligible Foreign Custodian has the financial strength to provide reasonable care for Foreign Assets;
iii. The Eligible Foreign Custodian's general reputation and standing;
iv. Whether Fund will have jurisdiction over and be able to enforce judgments against the Eligible Foreign Custodian, such as by virtue of the existence of any offices of the Eligible Foreign Custodian in the
United States or the Eligible Foreign Custodian's consent to service of process in the United States;
v. In the case of an Eligible Foreign Custodian that is a banking institution or trust company, any additional factors and criteria set forth in Appendix D to this Agreement; and
c. Evaluation of Written Contracts
In exercising the authority delegated under this Agreement to enter into written contracts governing Fund's foreign custody arrangements with an Eligible Foreign Custodian, Delegate shall determine that such contracts provide reasonable care for Foreign Assets based on the standards applicable to Eligible Foreign Custodians in the relevant market. In making this determination, Delegate shall ensure that the terms of such contracts comply with the provisions of Rule 17f-5(c)(2).
d. Monitoring of Eligible Foreign Custodians
In exercising the authority delegated under this Agreement to establish a system to Monitor the appropriateness of maintaining Foreign Assets with an Eligible Foreign Custodian or the appropriateness of a written contract governing Fund's foreign custody arrangements, Delegate shall consider any factors and criteria set forth in Appendix E to this Agreement. If, as a result of its Monitoring of Eligible Foreign Custodian relationships hereunder or otherwise, the Delegate determines in its sole discretion that it is in the best interest of the safekeeping of the Foreign Assets to move such Foreign Assets to a different Eligible Foreign Custodian, the Fund shall bear any expense related to such relocation of Foreign Assets.
8. STANDARD OF CARE
a. In exercising the authority delegated under this Agreement with regard to its duties under Rule 17f-5, Delegate agrees to exercise such reasonable care, prudence and diligence as is customary for persons having responsibility for the safekeeping of Foreign Assets of an investment company registered under the 1940 Act to exercise.
b. In carrying out its responsibilities under this Agreement with regard to Rule 17f-7, Delegate agrees to exercise such reasonable care, prudence and diligence as is customary for a person having responsibility for the safekeeping of Foreign Assets of an investment company registered under the 1940 Act to exercise.
9. REPORTING REQUIREMENTS
Delegate agrees to provide written reports notifying Board of the placement of Foreign Assets with a particular Eligible Foreign Custodian and of any material change in Fund's arrangements with such Eligible Foreign Custodians. Such reports shall be provided to Board quarterly for consideration at the next regularly scheduled meeting of the Board or earlier if deemed necessary or advisable by the Delegate in its sole discretion, with notice to the Authorized Representative.
10. PROVISION OF INFORMATION REGARDING COUNTRY RISK
With respect to the jurisdictions listed in Appendix B1, or added thereto pursuant to Article 3, Delegate agrees to provide the Board and the Fund's investment adviser with access to Eyes to the World(TM), a service available through the Delegate's Web Site at www.ibtco.com, containing information relating to Country Risk, if available, as is specified in Appendix F to this Agreement. Such information relating to Country Risk shall be updated from time to time as the Delegate deems necessary.
11. LIMITATION OF LIABILITY.
a. Notwithstanding anything in this Agreement to the contrary, in no event shall the Delegate or any of its officers, directors, employees or agents (collectively, the "Delegate Indemnified Parties") be liable to the Fund or any third party, and the Fund shall indemnify and hold the Delegate and the Delegate Indemnified Parties harmless from and against any and all loss, damage, liability, actions, suits, claims, and reasonable costs and expenses, including reasonable legal fees, (a "Claim") arising as a result of any act or omission of the Delegate or any Delegate Indemnified Party under this Agreement, except to the extent that any Claim results from the negligence, willful misfeasance, bad faith, or reckless disregard of its duties on the part of the Delegate or any Delegate Indemnified Party. Without limiting the foregoing, neither the Delegate nor the Delegate Indemnified Parties shall be liable for, and the Delegate and the Delegate Indemnified Parties shall be indemnified against, any Claim arising as a result of:
i. Any act or omission by the Delegate or any Delegate Indemnified Party in reasonable good faith reliance upon the terms of this Agreement, any resolution of the Board, telegram, telecopy, notice, request, certificate or other instrument from an Authorized Representative reasonably believed by the Delegate to be genuine; or
ii. Any information that the Delegate provides or does not provide under Section 10 hereof.
b. The Delegate agrees to indemnify and hold harmless each Fund, its Directors / Trustees, and its affiliates and their officers and employees ("Fund Indemnified Parties") from and against any and all Claims arising as a result of any act or omission of the Delegate or any Delegate Indemnified Party under this Agreement to the extent resulting from the negligence, willful malfeasance, bad faith, or reckless disregard of its duties on the part of the Delegate or the Delegate Indemnified Parties.
c. Notwithstanding anything to the contrary in this Agreement, in no event shall a party be liable to the other party or any third party for lost profits or lost revenues or any special, consequential, punitive or incidental damages of any kind whatsoever in connection with this Agreement or any activities hereunder.
12. EFFECTIVENESS AND TERMINATION OF AGREEMENT
This Agreement shall be effective as of the later of the date of execution on behalf of Fund or Delegate and shall remain in effect until terminated as provided herein. This Agreement may be terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Termination will become effective 30 days after receipt by the non-terminating party of such notice.
13. AUTHORIZED REPRESENTATIVES AND NOTICES
The respective Authorized Representatives of Fund and Delegate, and the addresses to which notices and other documents under this Agreement are to be sent to each, are as set forth in Appendix G. Any Authorized Representative of a party may add or delete persons from that party's list of Authorized Representatives by written notice to an Authorized Representative of the other party.
14. GOVERNING LAW
This Agreement shall be constructed in accordance with the laws of the Commonwealth of Massachusetts without regard to principles of choice of law.
15. BUSINESS RECOVERY.
The Bank represents and warrants that it has and will continue to have in place a commercially reasonable business recovery program.
16. FORCE MAJEURE.
Notwithstanding anything otherwise to the contrary in this Agreement, no party shall be liable to the other for any loss or liability arising from any acts of God, earthquakes, fires, floods, storms or other disturbances of nature, epidemics, strikes, riots, nationalization, expropriation, currency restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion, fission or radiation, the interruption, loss or malfunction of utilities, transportation or computers (hardware or software) and computer facilities, the unavailability of energy sources and other similar happenings or events, except to the extent that any such loss or liability results from the failure of the Delegate to (a) maintain a commercially reasonable business recovery program, and (b) act reasonably to mitigate, as soon as practicable, the specific occurrence or event.
17. Amendments. This Agreement may not be altered or amended, except by an instrument in writing, executed by both parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date first written above.
INVESTORS BANK & TRUST COMPANY
By: /s/ Robert D. Mancuso
--------------------------------------
Name: Robert D. Mancuso
Title: Senior Vice President
|
ECLIPSE FUNDS
ECLIPSE FUNDS INC.
By: /s/ Gary E. Wendlandt
--------------------------------------
Name: Gary E. Wendlandt
Title: President
|
THE MAINSTAY FUNDS
By: /s/ Christopher O. Blunt
--------------------------------------
Name: Christopher O. Blunt
Title: President
|
MAINSTAY VP SERIES FUND, INC.
By: /s/ Anne F. Pollack
--------------------------------------
Name: Anne F. Pollack
Title: President
|
LIST OF APPENDICES
A - Funds
B1 -- Jurisdictions Covered
B2 - Securities Depositories Covered
C -- Additional Jurisdictions/Securities Depositories Covered
D -- Additional Factors and Criteria To Be Applied in the Selection of Eligible Foreign Custodians That Are Banking Institutions or Trust Companies
E -- Factors and Criteria To Be Applied in Establishing Systems For the Monitoring of Foreign Custody Arrangements and Contracts
F -- Information Regarding Country Risk
G -- Authorized Representatives
Appendix A to the Master Delegation Agreement
(as of January 2, 2006)
FUND PORTFOLIO
---- ---------
THE MAINSTAY FUNDS Capital Appreciation Fund
Common Stock Fund
Convertible Fund
Diversified Income Fund
Equity Index Fund
Global High Income Fund
Government Fund
High Yield Corporate Bond Fund
International Equity Fund
Large Cap Growth Fund
MAP Fund
Mid Cap Growth Fund
Mid Cap Value Fund
Money Market Fund
Small Cap Growth Fund
Small Cap Value Fund
Tax Free Bond Fund
Total Return Fund
Value Fund
ECLIPSE FUNDS Mid Cap Opportunity Fund
Small Cap Opportunity Fund
Balanced Fund
ECLIPSE FUNDS INC. All Cap Growth Fund
All Cap Value Fund
Income Manager Fund
Cash Reserves Fund
Conservative Allocation Fund
Floating Rate Fund
Growth Allocation Fund
Indexed Bond Fund
Intermediate Term Bond Fund
Large Cap Opportunity Fund (as of July 29, 2005)
Moderate Allocation Fund
Moderate Growth Allocation Fund
S&P 500 Index Fund
Short Term Bond Fund
|
FUND PORTFOLIO
---- ---------
MAINSTAY
VP SERIES FUND, INC. Balanced Portfolio
Basic Value Portfolio
Bond Portfolio
Capital Appreciation Portfolio
Cash Management Portfolio
Common Stock Portfolio
Convertible Portfolio
Developing Growth Portfolio
Floating Rate Portfolio
Government Portfolio
Growth Portfolio
High Yield Corporate Bond Portfolio
Income and Growth Portfolio
International Equity Portfolio
Mid Cap Core Portfolio
Mid Cap Growth Portfolio
Mid Cap Value Portfolio
S&P 500 Index Portfolio
Small Cap Growth Portfolio
Total Return Portfolio
Value Portfolio
|
APPENDIX B1
JURISDICTIONS COVERED
[Delete those countries that are not delegated]
Argentina Kenya Austria Korea Australia Latvia Bahrain Lebanon Bangladesh Lithuania Belgium Luxembourg Bermuda Malaysia Bolivia Mauritius Botswana Mexico Brazil Morocco Bulgaria Namibia Canada Netherlands Chile New Zealand China Norway Clearstream (Cedel) Oman Colombia Pakistan Costa Rica Panama Croatia Papau New Guinea Cyprus Peru Czech Republic Philippines Denmark Poland Ecuador Portugal Egypt Romania Estonia Russia Euroclear Singapore Finland Slovak Republic France Slovenia Germany South Africa Ghana Spain Greece Sri Lanka Hong Kong Swaziland Hungary Sweden Iceland Switzerland India Taiwan Indonesia Thailand Ireland Turkey Israel Ukraine Italy United Kingdom Ivory Coast Uruguay Japan Venezuela Jordan Zambia Kazakhstan Zimbabwe |
B1-1
APPENDIX B2
SECURITIES DEPOSITORIES COVERED
Argentina CDV
CRYL
Australia Austraclear Ltd.
CHESS
RITS
Austria OeKB AG
Bahrain None
Bangladesh None
Belgium BKB
CIK
Bermuda None
Botswana None
Brazil CBLC
CETIP
SELIC
Bulgaria The Bulgarian National Bank
The Central Depository
Canada Bank of Canada
CDS
Chile DCV
China SSCC
SSCCRC
Clearstream
Colombia DCV
DECEVAL
|
B2-1
Costa Rica CEVAL
Croatia CNB
Ministry of Finance
SDA
Czech Republic SCP
TKD
Denmark VP
Ecuador DECEVALE, S.A.
Egypt Misr for Clearing, Settlement & Dep.
Estonia ECDSL
Euroclear
Finland APK
France Sicovam SA
Germany Clearstream
Ghana None
Greece Bank of Greece
CSD
Hong Kong CCASS
CMU
Hungary Keler Ltd.
|
B2-2
India CDSL
NSDL
Indonesia Bank Indonesia
PT.KSEI
Ireland CREST
Gilt Settlement Office
Israel TASE Clearing House Ltd.
Italy Banca d-Italia
Monte Titoli
Ivory Coast* Depositaire Central/ Banque de Reglement
Japan Bank of Japan
JASDEC
Jordan SDC
Kazakhstan Kazakhstan Central Securities Depository
Kenya Central Bank of Kenya Central Depository
Korea KSD
Latvia Bank of Latvia
LCD
Lebanon Banque de Liban
MIDCLEAR
Lithuania CSDL
Luxembourg Clearstream
|
B2-3
Malaysia BNM (SSTS)
MCD
Mauritius CDS
Mexico S.D. Indeval
Morocco Maroclear S.A.
Netherlands NECIGEF
New Zealand New Zealand Central Securities Depository
Norway VPS
Oman MDSRC
Pakistan Central Depository Co. of Pakistan Limited
State Bank of Pakistan
Peru CAVALI
Philippines PCD
RoSS
Poland CRBS
NDS
Portugal Central de Valores Mobiliarios
Romania NBR
SNCDD
Stock Exchange Registry, Clearing &
Settlement
Russia DCC
NDC
VTB
|
B2-4
Singapore CDP
MAS
Slovak Republic NBS
SCP
Slovenia KDD
South Africa STRATE
The Central Depository (Pty) Ltd.
Spain Banco de Espana
SCLV
Sri Lanka CDS
Sweden VPC AB
Switzerland SIS SegaIntersettle AG
Taiwan TSCD
Thailand TSD
Turkey CBT
Takasbank
Ukraine Depository of the National Bank of Ukraine
MFS Depository
Uruguay None
United Kingdom CMO
CREST
Venezuela BCV
CVV
Zambia Bank of Zambia
LuSE CSD
Zimbabwe None
|
* Benin, Burkina-Faso, Guinea Bissau, Mali, Nigeria, Senegal, and Togo are available through the Ivory Coast
B2-5
APPENDIX C
ADDITIONAL JURISDICTIONS COVERED
Pursuant to Article 3 of this Agreement, Delegate and Fund agree that the following jurisdictions shall be added to Appendix A1:
[Insert additional countries/depositories]
Investors Bank & Trust Company
By: _________________________________
Name:
Title:
[FUND]
By: __________________________________
Name:
Title:
DATE: _______________________________
APPENDIX D
ADDITIONAL FACTORS AND CRITERIA TO BE APPLIED
IN THE SELECTION OF ELIGIBLE FOREIGN CUSTODIANS
THAT ARE BANKING INSTITUTIONS OR TRUST COMPANIES
In addition to the factors set forth in Rule 17f-5(c)(1), in selecting Eligible Foreign Custodians that are banking institutions or trust companies, Delegate shall consider the following factors, if such information is available (check all that apply):
[ ] None
[X] Other (list below):
(i) indemnification or insurance arrangements (or any combination of the foregoing) such that each Fund will be adequately protected against the risk of loss of assets held in accordance with a contract with the Eligible Foreign Custodian;
(ii) each Fund's assets will not be subject to any right, charge, security interest, lien or claim of any kind in favor of the foreign custodian or its creditors except a claim of payment for their safe custody or administration or, in the case of cash deposits, liens or rights in favor of creditors of the foreign custodian arising under bankruptcy, insolvency, or similar laws;
(iii) beneficial ownership for each Fund's assets will be freely transferable without the payment of money or value other than for safe custody or administration;
(iv) adequate records will be maintained identifying the assets as belonging to each Fund or as being held by a third party for the benefit of the Fund;
(v) each Fund's independent public accountants will be given access to those records or confirmation of the contents of those records; and
(vi) each Fund will receive periodic reports with respect to the safekeeping of the Fund's assets, including, but not limited to, notification of any transfer to or from the Fund's account or a third-party account containing assets held for the benefit of the Fund.
APPENDIX E
FACTORS AND CRITERIA TO BE APPLIED
IN THE ESTABLISHING SYSTEMS FOR THE MONITORING OF
FOREIGN CUSTODY ARRANGEMENTS AND CONTRACTS
In establishing systems for the Monitoring of foreign custody arrangements and contracts with Eligible Foreign Custodians, Delegate shall consider the following factors, if such information is available:
1. Operating performance
2. Established practices and procedures
3. Relationship with market regulators
4. Contingency planning
APPENDIX F
INFORMATION REGARDING COUNTRY RISK
To aid the Board in its determinations regarding Country Risk, Delegate will furnish Board annually with respect to the jurisdictions specified in Article 3, the following information:
1. Copy of Addenda or Side Letters to Subcustodian Agreements
2. Legal Opinion, if available, with regard to:
a) Access to books and records by the Fund's accountants
b) Ability to recover assets in the event of bankruptcy of a custodian
c) Ability to recover assets in the event of a loss
d) Likelihood of expropriation or nationalization, if available
e) Ability to repatriate or convert cash or cash equivalents
3. Audit Report
4. Copy of Balance Sheet from Annual Report
5. Country Profile Matrix containing market practice for:
a) Delivery versus payment
b) Settlement method
c) Currency restrictions
d) Buy-in practice
e) Foreign ownership limits
f) Unique market arrangements
APPENDIX G
AUTHORIZED REPRESENTATIVES
The names and addresses of each party's authorized representatives are set forth below:
A. FUND
Treasurer
Eclipse Funds
Eclipse Funds, Inc.
The MainStay Funds
MainStay VP Series Fund, Inc.
McMorgan Funds
169 Lackawanna Avenue
Parsippany, NJ 07054
with a copy to:
Secretary
Eclipse Funds
Eclipse Funds, Inc.
The MainStay Funds
MainStay VP Series Fund, Inc.
169 Lackawanna Avenue
Parsippany, NJ 07054
and with a copy to
Secretary
McMorgan Funds
One Bush Street, Suite 800
San Francisco, CA 94104
B. DELEGATE
Investors Bank & Trust Company
200 Clarendon Street
P.O. Box 9130
Boston, MA 02117-9130
Attention: Christopher E. Jones, Director, Client Management
Fax: (617) 330-6033
With a copy to:
Investors Bank & Trust Company
200 Clarendon Street
P.O. Box 9130
Boston, MA 02117-9130
Attention: Andrew S. Josef, Assistant General Counsel
Fax: (617) 946-1929
Exhibit h(1)(a)
AMENDED AND RESTATED
TRANSFER AGENCY AND SERVICE AGREEMENT
BETWEEN
THE MAINSTAY FUNDS
AND
NYLIM SERVICE COMPANY LLC
TABLE OF CONTENTS
ARTICLE 1 TERMS OF APPOINTMENT; DUTIES OF NYLIM SC................... 3 ARTICLE 2 FEES AND EXPENSES.......................................... 7 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF NYLIM SC................. 8 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE FUND................. 8 ARTICLE 5 INDEMNIFICATION............................................ 9 ARTICLE 6 COVENANTS OF THE FUND AND NYLIM SC......................... 10 ARTICLE 7 INSURANCE.................................................. 11 ARTICLE 8 TERMINATION OF AGREEMENT................................... 12 ARTICLE 9 ADDITIONAL FUNDS........................................... 12 ARTICLE 10 ASSIGNMENT................................................. 12 ARTICLE 11 AMENDMENT.................................................. 12 ARTICLE 12 MASSACHUSETTS LAW TO APPLY................................. 13 ARTICLE 13 MERGER OF AGREEMENT........................................ 13 |
AMENDED AND RESTATED
TRANSFER AGENCY AND SERVICE AGREEMENT
AMENDED AND RESTATED AGREEMENT made as of the 1st day of August, 2002, by and between THE MAINSTAY FUNDS, a Massachusetts business trust, having its principal office and place of business at 51 Madison Avenue, New York, New York 10010 (the "Fund"), and NYLIM SERVICE COMPANY LLC, a Delaware limited liability corporation, having its principal office and place of business at 169 Lackawanna, Parsippany, New Jersey 07054 ("NYLIM SC").
WHEREAS, the Fund entered into a Transfer Agency and Service Agreement on April 28, 1997 by and between the Fund and MainStay Shareholder Services Inc. ("MMS") whereby MMS agreed to act as the Fund's transfer agent, dividend disbursing agent and agent in connection with certain other activities; and
WHEREAS, effective January 28, 2000, MMS converted from a corporation to a limited liability company under Delaware law and became MainStay Shareholder Services LLC ("MMS LLC"); and
WHEREAS, pursuant to a Certificate of Amendment to the Certificate of Formation of MMS LLC, dated December 22, 2000, MMS LLC was renamed NYLIM Service Company LLC ("NYLIM SC"); and
WHEREAS, this Agreement amends and restates, in its entirety, the Transfer Agency and Service Agreement, dated April 28, 1997, by and between the Fund and MMS in order to reflect the current parties of the Agreement and to make certain ministerial changes designed to facilitate the administration of this Agreement; and
WHEREAS, the Fund desires to appoint NYLIM SC as its named transfer agent, dividend disbursing agent and agent in connection with certain other activities, and NYLIM SC desires to accept such appointment effective May 1, 1997; and
WHEREAS, the Fund is authorized to issue shares in separate series and classes, with each such series representing interests in a separate portfolio of securities and other assets; and
WHEREAS, the Fund currently offers Shares in 24 series, (such series, together with all other series subsequently established by the Fund and made subject to this Agreement in accordance with Article 9, being herein referred to as the "Fund(s)");
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows:
ARTICLE 1: TERMS OF APPOINTMENT: DUTIES OF NYLIM SC
1.01. Subject to the terms and conditions set forth in this Agreement, effective August 1, 2002, the Fund hereby employs and appoints NYLIM SC to act as, and NYLIM SC agrees to act as, transfer agent for the Fund's authorized and issued shares of beneficial interest ("Shares"),
dividend disbursing agent and agent in connection with any accumulation, letter of intent or similar purchase plans provided to the shareholders of record of the Fund ("Shareholders") and set out in the Prospectus (which term when used in this Agreement includes the Statement of Additional Information) of the Fund, as now in effect or as hereafter amended or supplemented from time to time without written objection by NYLIM SC or as mutually agreed upon from time to time.
1.02. NYLIM SC agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by agreement between the Fund and NYLIM SC, NYLIM SC shall:
(i) receive for acceptance orders for the purchase of Shares, and promptly deliver payment and appropriate documentation therefor to the Custodian of the applicable Series duly appointed by the Trustees of the Fund (the "Custodian"); pursuant to orders for the purchase of Shares, record the purchase of the appropriate number of Shares in the Shareholder's account and, if requested by the Shareholder, and if the Trustees of the Fund have authorized the issuance of stock certificates, issue a certificate for the appropriate number of Shares;
(ii) pursuant to instructions provided by Shareholders, reinvest income dividends and capital gains distributions in additional shares of the Fund;
(iii) receive for acceptance redemption and repurchase requests and directions, and deliver the appropriate documentation therefor to the Custodian;
(iv) at the appropriate time as and when it receives monies paid to it by the Custodian with respect to any redemption and repurchase, pay over or cause to be paid over in the appropriate manner such monies as instructed by the redeeming Shareholders;
(v) determine, upon receipt of a request for the redemption or repurchase of Shares, for each Shareholder the amount, if any, of such redemption or repurchase which is subject to a contingent deferred sales charge as described in the Prospectus as from time to time in effect, withhold the amount of such sales charge from the redemption or repurchase proceeds, and remit the amount of such sales charge to the principal underwriter of the Shares of the Fund or such other person as the Fund shall designate in writing;
(vi) effect transfers of Shares by the registered owners thereof upon receipt of appropriate documentation meeting the requirements set forth in the Fund's current prospectus;
(vii) prepare and transmit payments for dividends and distributions declared by the Fund other than such dividends and distributions reinvested under 1.02(a)(iii);
(viii) maintain records of account for and advise the Fund and its Shareholders as to the foregoing; and
(ix) effect exchanges of Shares of one Series for shares of the same class of another Series at net asset value upon receipt of appropriate authorization meeting the requirements set forth in the Fund's current prospectus.
(b) In addition to and not in lieu of the services set forth in the above paragraph (a), NYLIM SC shall: (i) perform all of the customary services of a transfer agent, dividend disbursing agent and, as relevant, agent in connection with accumulation, letter of intent, or similar purchase plans. The detailed definition, frequency, limitations and associated costs (if any) set out in the attached fee schedule, may include but are not limited to: maintaining all Shareholder accounts, preparing Shareholder meeting lists, mailing proxy statements and proxies, receiving and tabulating proxies, mailing Shareholder reports and Prospectuses to current Shareholders, withholding taxes on U.S. residents and non-resident alien accounts where applicable, preparing and filing U.S. Treasury Department Forms 1099 and other appropriate forms required with respect to dividends and distributions by federal authorities for all registered Shareholders, preparing and mailing confirmations and statements of account to Shareholders for all purchases, redemptions and repurchases of Shares and other confirmable transactions in Shareholder accounts, preparing and mailing activity statements for Shareholders, and providing Shareholder account information and (ii) provide to the Fund daily and monthly a written report which will enable the Fund to monitor the total number of Shares sold and the aggregate public offering price thereof in each State by the Fund or each of the Funds, added by sales in each State of the registered Shareholder or dealer branch office, as requested by the Fund. If directed by the Fund, each confirmation of the purchase which establishes a new account will be accompanied by a Prospectus and any amendment or supplement thereto. A Prospectus and any amendment or supplement will be mailed to a Shareholder when such prospectus, amendment or supplement shall be effective. The Fund shall (i) identify to NYLIM SC in writing those transactions and assets to be treated as exempt from the blue sky reporting to the Fund for each State and (ii) approve those transactions to be included for each State on the system prior to activation and thereafter monitor the daily activity for each State. The responsibility of NYLIM SC for the Fund's blue sky State registration status is limited to the reporting of transactions as described above.
(c) Additionally, NYLIM SC shall:
(i) Utilize a system to identify all share transactions which involve purchase, redemption, and repurchase orders that are processed at a time other than the time of the computation of net asset value ("NAV") per share next computed after receipt of such orders, and shall compute the net effect upon the Fund of such transactions so identified on a daily and cumulative basis.
(ii) If upon any day the cumulative net effect of such transactions upon the Fund is negative (the Fund determines there is a Fund loss resulting from NYLIM SC's error) and the per share NAV error is less than 1/2 of 1% of the originally computed NAV, but greater than one cent, NYLIM SC shall promptly make a payment to the Fund in cash or through the use of a credit, in the manner described in paragraph (iv) below, in such amount as may be necessary to reimburse the Fund for the net loss; and if the per share NAV error equals or exceeds 1/2 of 1% of the originally computed per share NAV, and is greater than one cent, NYLIM SC shall make account adjustments or take such other action as is necessary to compensate shareholders for shareholder losses and reimburse the Fund for the amount of Fund losses.
(iii) If on the last business day of any month the
cumulative net effect upon the Fund
(adjusted by the amount of all prior
payments and credits by NYLIM SC and the
Fund) is negative, the Fund shall be
entitled to a reduction in the fee next
payable under the Agreement by an equivalent
amount, except as provided in paragraph (iv)
below. If on the last business day in any
month the cumulative net effect upon the
Fund (adjusted by the amount of all prior
payments and credits by NYLIM SC and the
Fund) is positive, NYLIM SC shall be
entitled to recover certain past payments
and reductions in fees, and to credit
against all future payments and fee
reductions that may be required under the
Agreement as herein described in paragraph
(iv) below.
(iv) At the end of each month, any positive cumulative net effect upon the Fund shall be deemed to be a credit to NYLIM SC which shall first be applied to permit NYLIM SC to recover any prior cash payments and fee reductions made by it to the Fund under paragraphs (ii) and (iii) above during the calendar year, by increasing the amount of the monthly fee under the Agreement next payable in an amount equal to prior payments and fee reductions made by NYLIM SC during such calendar year, but not exceeding the sum of that month's credit and credits arising in prior months during such calendar year to the extent such prior credits have not previously been utilized as contemplated by this
paragraph. Any portion of a credit to NYLIM SC not so used by it shall remain as a credit to be used as payment against the amount of any future negative cumulative net effects that would otherwise require a cash payment or fee reduction to be made to the Fund pursuant to paragraphs (ii) or (iii) above (regardless of whether or not the credit or any portion thereof arose in the same calendar year as that in which the negative cumulative net effects or any portion thereof arose).
(v) NYLIM SC shall supply to the Fund from time to time, as mutually agreed upon, reports summarizing the transactions identified pursuant to paragraph (i) above, and the daily and cumulative net effects of such transactions, and shall advise the Fund at the end of each month of the net cumulative effect at such time. NYLIM SC shall promptly advise the Fund if at any time the cumulative net effect exceeds a dollar amount equivalent to one cent per share.
(vi) In the event that this Agreement is terminated for whatever cause, or this provision 1.02(c) is terminated pursuant to paragraph (vii) below, the Fund shall promptly pay to NYLIM SC an amount in cash equal to the amount by which the cumulative net effect upon the Fund is positive or, if the cumulative net effect upon the Fund is negative, NYLIM SC shall promptly pay to the Fund an amount in cash equal to the amount of such cumulative net effect.
(vii) This provision 1.02(c) of the Agreement may be terminated by NYLIM SC at any time without cause, effective as of the close of business on the date written notice (which may be by telex or facsimile) is received by the Fund.
Procedures applicable to certain of these services may be established from time to time by agreement between the Fund and NYLIM SC.
ARTICLE 2 FEES AND EXPENSES
2.01. For performance by NYLIM SC pursuant to this Agreement, the Fund agrees to pay NYLIM SC an annual maintenance fee for each Shareholder account as set out in the fee schedule attached hereto. Such fees and out-of-pocket expenses and advances identified under Section 2.02 below may be changed from time to time by mutual written agreement between the Fund and NYLIM SC.
2.02. In addition to the fee paid under Section 2.01 above, the Fund agrees to reimburse NYLIM SC for reasonable out-of-pocket expenses or advances incurred by NYLIM SC for the items set out in the fee schedule attached hereto. In addition, any other expenses incurred by NYLIM SC at the request or with the consent of the Fund, will be reimbursed by the Fund.
2.03. The Fund agrees to pay all fees and reimbursable expenses promptly; the terms, method and procedures for which are detailed on the attached fee schedule.
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF NYLIM SC
NYLIM SC represents and warrants to the Fund that:
3.01. It is a division of a limited liability company duly organized and existing and in good standing under the laws of the State of Delaware.
3.02. It has the legal power and authority to carry on its business in the State of New Jersey.
3.03. It is empowered under applicable laws and by its charter and operating agreement to enter into and perform this Agreement.
3.04. All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement.
3.05. It is duly registered as transfer agent under Section 17A of the Securities Exchange Act of 1934, as amended (the "Act").
3.06. It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to NYLIM SC that:
4.01. It is a business trust duly organized and existing under the laws of The Commonwealth of Massachusetts.
4.02. It is empowered under applicable laws and by its Declaration of Trust and by laws to enter into and perform this Agreement.
4.03. All corporate proceedings required by said Declaration of Trust and By-Laws have been taken to authorize it to enter into and perform this Agreement.
4.04. It is an investment company registered under the Investment Company Act of 1940, as amended.
4.05. A registration statement under the Securities Act of 1933 has been filed, and appropriate state securities law filings have been made and will continue to be made, with respect to all Shares of the Fund being offered for sale. The Fund shall notify NYLIM SC when such registration statement shall have been amended to include additional series of the Fund and shall notify NYLIM SC if such registration statement or any state securities registration or qualification has been terminated or a stop order has been entered with respect to the Shares.
ARTICLE 5 INDEMNIFICATION
5.01. NYLIM SC shall not be responsible for, and the Fund shall indemnify and hold NYLIM SC harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to:
(a) All actions of NYLIM SC or its agents or subcontractors required to be taken pursuant to this Agreement, provided that such actions are taken in good faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this Agreement, or which arise out of the Fund's lack of good faith, negligence or willful misconduct or which arise out of the breach of any representation or warranty of the Fund hereunder.
(c) The reliance on or use by NYLIM SC or its agents or subcontractors of information, records and documents which (i) are received by NYLIM SC or its agents or subcontractors and furnished to it by or on behalf of the Fund, and (ii) have been prepared and/or maintained by the Fund or any other person or firm (except NYLIM SC or its agents ) on behalf of the Fund.
(d) The reliance on or the carrying out by NYLIM SC or its agents or subcontractors of any written instructions or requests of reasonably believed by NYLIM SC in good faith to be given by an authorized person of the Fund.
(e) The offer or sale of Shares in violation of any requirement under the federal securities laws or regulations, or the securities laws or regulations of any state that such Shares be registered in such state, or in violation of any stop order or other determination or ruling by any federal agency or any state with respect to the offer or sale of such Shares in such state, unless such violation is the result of NYLIM SC's negligent or willful failure to comply with the provisions of Section 1.02(b) of this Agreement unless the Fund shall have provided three days written notice to NYLIM SC not to accept purchases in any state.
5.02. NYLIM SC shall indemnify and hold the Fund harmless from any losses, damages, costs or expenses that arise out of NYLIM SC's refusal or failure to comply with the terms of this Agreement, or which arise out of NYLIM SC's negligence or willful misconduct or which arise out of the breach of any representation or warranty of NYLIM SC hereunder or which arise out of such refusal or failure, negligence or willful misconduct or breach by NYLIM SC's agents or subcontractors.
5.03. At any time NYLIM SC may apply to any officer of the Fund for instructions, and may consult with legal counsel of the Fund with respect to any matter arising in connection with the services to be performed by NYLIM SC under this Agreement, and NYLIM SC and its agents or subcontractors shall not be liable and shall be indemnified by the Fund for any action
taken or omitted by it in reliance upon such instructions or upon the opinion of such counsel. NYLIM SC, its agents and subcontractors shall be protected and indemnified in acting upon any paper or document furnished by or on behalf of the Fund, reasonably believed to be genuine and to have been signed by the proper person or persons, or upon any instruction, information, data, records or documents provided NYLIM SC or its agents or subcontractors by telephone, in person, machine readable input, telex, CRT data entry or other similar means authorized by the Fund, and shall not be held to have notice of any change of authority of any person, until receipt of written notice thereof from the Fund. NYLIM SC, its agents and subcontractors shall also be protected and indemnified in recognizing stock certificates which are reasonably believed to bear the proper manual of facsimile signatures of the officer or officers of the Fund, and the proper countersignature of any former transfer agent or registrar, or of a co-transfer agent or co-registrar.
5.04. In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, equipment or transmission failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes. Notwithstanding the above, NYLIM SC shall not be excused from liability in the event any telecommunications, power or equipment (of NYLIM SC, its agents or subcontractors) failures could have been avoided or minimized by such parties having maintained adequate industry standard backup systems and/or plan and a disaster recovery plan.
5.05. Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement or for any act or failure to act hereunder.
5.06. In order that the indemnification provisions contained in this Article 5 shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent.
ARTICLE 6 COVENANTS OF THE FUND AND NYLIM SC
6.01. The Fund shall promptly furnish to NYLIM SC the following:
(a) A certified copy of the resolution of the Trustees of the Fund authorizing the appointment of NYLIM SC and the execution and delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-laws of the Fund and all amendments thereto.
6.02. NYLIM SC hereby agrees to establish and maintain facilities and procedures reasonably acceptable to the Fund for safekeeping of stock certificates, check forms and
facsimile signature imprinting devices, if any; and for the preparation or use, and for keeping account of, such certificates, forms and devices.
6.03. NYLIM SC shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable. To the extent required by Section 31 of the Act and the Rules thereunder, NYLIM SC agrees that all such records, and those records that the Fund and NYLIM SC agree from time to time to be the records of the Fund, will be preserved, maintained at the expense of the Fund and made available in accordance with such Section and Rules and this Agreement, and will be surrendered promptly to the Fund at its request. Records surrendered hereunder shall be in machine readable form, except to the extent that NYLIM SC has maintained such a record only in paper form.
6.04. NYLIM SC and the Fund agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except as may be required by law.
6.05. In case of any requests or demands for the inspection of the Shareholder records of the Fund, NYLIM SC will endeavor to notify the Fund and to secure instructions from an authorized officer of the Fund as to such instruction. NYLIM SC reserves the right, however, to exhibit the Shareholder records to any person whenever it is advised by counsel to the Fund that it may be held liable for the failure to exhibit the Shareholder records to such person.
6.06. NYLIM SC agrees to maintain redundant facilities or a compatible configuration and to backup the Fund's master and input files and to store such files in a secure off premises location so that in the event of a power failure or other interruption of whatever cause at its principal place of business, the Fund's records are maintained intact, and transactions can be processed at another location.
6.07. NYLIM SC acknowledges that the Fund, as a registered investment company under the Act, is subject to the provisions of the Act and the rules and regulations thereunder, and that the offer and sale of the Fund's Shares are subject to the provisions of federal and state laws and regulations applicable to the offer and sale of securities. The Fund acknowledges that NYLIM SC is not responsible for the Fund's compliance with such laws and regulations. If the Fund advises NYLIM SC that a procedure of NYLIM SC related to the discharge of its obligations hereunder has or may have the effect of causing the Fund to violate any of such laws or regulations, NYLIM SC shall use its best efforts to develop an alternative procedure which does not have such effect.
ARTICLE 7 INSURANCE
7.01. NYLIM SC shall maintain insurance of the types and in the amounts required by the State of New Jersey. To the extent that policies of insurance may provide for coverage of claims for liability or indemnity by the parties set forth in this Agreement, the contracts of insurance shall take precedence, and no provision of this Agreement shall be construed to relieve an insurer of any obligation to pay claims to the Fund, NYLIM SC or other insured party which would otherwise be a covered claim in the absence of any provision of this Agreement.
7.02. NYLIM SC shall notify the Trust should its insurance coverage with respect to professional liability or errors and omissions coverage be canceled or reduced. Such notification shall include the date of change and the reasons therefor. NYLIM SC shall notify the Trust of any material claims against it with respect to services performed under this Agreement, whether or not they may be covered by insurance, and shall notify the Trust from time to time as may be appropriate of the total outstanding claims made by NYLIM SC under its insurance coverage.
ARTICLE 8 TERMINATION OF AGREEMENT
8.01. This Agreement may be terminated by either party upon one hundred twenty (120) days written notice to the other.
8.02. Should the Fund exercise its right to terminate other than for cause, all out-of-pocket expenses associated with the movement of records and material will be borne by the Fund. Additionally, NYLIM SC reserves the right to charge for any other reasonable expenses associated with such termination and/or a charge equivalent to the average of the most recent three (3) months' fees.
ARTICLE 9 ADDITIONAL FUNDS
9.01. In the event that the Fund establishes one or more series or classes of Shares in addition to the existing series or classes with respect to which it desires to have NYLIM SC render services as transfer agent under the terms hereof, it shall so notify NYLIM SC in writing, and unless NYLIM SC objects in writing to providing such services, the term "Fund" hereunder, unless the context otherwise requires, shall be deemed to include such series of Shares.
ARTICLE 10 ASSIGNMENT
10.01. Except as provided in Section 10.03 below, neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the other party.
10.02. This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns.
10.03. NYLIM SC, may, at its own expense and without further consent on the part of the Fund, subcontract for the performance hereof with (i) Boston Financial Data Services, Inc., a Massachusetts corporation ("BFDS") which is duly registered as a transfer agent or (ii) any affiliate of NYLIM SC or BFDS provided, however, that NYLIM SC shall be as fully responsible to the Fund for the acts and omissions of any subcontractor as it is for its own acts and omissions.
ARTICLE 11 AMENDMENT
11.01. This Agreement may be amended or modified by a written agreement executed by both parties.
ARTICLE 12 MASSACHUSETTS LAW TO APPLY
12.01. This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of the Commonwealth of Massachusetts.
ARTICLE 13 MERGER OF AGREEMENT
13.01. This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject hereof whether oral or written.
The name "The MainStay Funds" is the designation of the Trustees for the time being under a Declaration of Trust dated January 9, 1986, as amended, and all persons dealing with the Fund must look solely to the trust property for the enforcement of any claims against the Fund as neither the Trustees, officers, agents nor Shareholders assume any personal liability for obligations entered into on behalf of the Fund.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed in their names and on their behalf under their seals by and through their duly authorized officers as of the day and year first above written.
THE MAINSTAY FUNDS
ATTEST: /s/ Patrick J. Farrell By: /s/ Stephen C. Roussin
----------------------------------- ------------------------
Name: Patrick J. Farrell Name: Stephen C. Roussin
Title: Vice President, Treasurer, and Chief Title: President and Chief
Financial and Accounting Officer Executive Officer
NYLIM SERVICE COMPANY LLC
ATTEST: /s/ Penny L. Nelson By: /s/ Robert E. Brady
--------------------------------- ------------------------
Name: Penny L. Nelson Name: Robert E. Brady
Title: Vice President and Chief Operating Title: President and Chief
Officer Executive Officer
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FEE SCHEDULE
EFFECTIVE JANUARY 1, 1998
AS AMENDED AND RESTATED AUGUST 1, 2002
1) MAINTENANCE AND TRANSACTION CHARGES - BILLABLE MONTHLY*
A) Per Account Annual Fee:
The following funds will be billed at a rate of 1/12 of the annual fee for each fund account serviced during the month. Accounts serviced is defined as all open accounts at month end and accounts which close during the month.
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FUNDS ACCOUNT RATES EQUITY
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MainStay Equity Index Fund $22.19
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MainStay International Equity Fund $22.19
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MainStay Capital Appreciation Fund $22.19
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MainStay Value Fund $22.19
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MainStay Strategic Value Fund $22.19
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MainStay Blue Chip Growth Fund $22.19
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MainStay Research Value Fund $22.19
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MainStay Growth Opportunities Fund $22.19
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MainStay Equity Income Fund $22.19
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MainStay Small Cap Value Fund $22.19
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MainStay Small Cap Growth Fund $22.19
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MainStay MAP Fund $22.19
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MainStay Mid Cap Growth Fund $22.19
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MainStay Select 20 Equity Fund $22.19
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MainStay U.S. Large Cap Equity Fund $22.19
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FIXED INCOME
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MainStay Convertible Fund $25.98
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MainStay High Yield Corporate Bond Fund $25.98
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MainStay Government Fund $25.98
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MainStay Tax-Free Bond Fund $25.98
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MainStay Total Return Fund $25.98
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MainStay International Bond $25.98
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MainStay Strategic Income Fund $25.98
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MainStay Global High Yield Fund $25.98
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MONEY MARKET
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MainStay Money Market Fund $30.86
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The fees and charges set forth shall increase annually over the fees and charges during the prior 12 months in an amount equal to the annual percentage of change in the Northeastern Consumer Price Index as last reported by the U.S. Bureau of Labor Statistics.
*Fund Minimum (Cusip/Class/Fund)
$1,017.91 per month per Cusip
IN WITNESS WHEREOF, The MainStay Funds and NYLIM Service Company LLC have agreed upon this fee schedule and have caused this fee schedule to be executed in their names and on their behalf through duly authorized officers.
THE MAINSTAY FUNDS
By: /s/ Stephen C. Roussin
----------------------------------------
Name: Stephen C. Roussin
Title: President and Chief Executive Officer
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NYLIM SERVICE COMPANY LLC
By: /s/ Robert E. Brady
----------------------------------------
Name: Robert E. Brady
Title: President and Chief Executive Officer
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Exhibit h(3)
AMENDED AND RESTATED SERVICE AGREEMENT
Amended and Restated Services Agreement (the "Agreement") made as of August 1, 2002, by and among The MainStay Funds (the "Funds"), a Massachusetts business trust; New York Life Benefit Services LLC (the "Service Organization"), a Delaware limited liability company; and NYLIFE Distributors Inc. ("Distributors"), a New York corporation and the distributor for the Funds.
RECITALS
WHEREAS, Service Organization desires to provide administrative services and functions comprised of, but not limited to, certain recordkeeping, reporting and processing services for certain defined contribution, other employee benefit plans and other retirement investment programs (the "Plans"), which services include processing and transfer arrangements for the investment and reinvestment of Plan assets in Funds specified by an investment adviser, sponsor or administrative committee of the Plan (a "Plan Representative") generally upon the direction of Plan beneficiaries (the "Participants");
WHEREAS, Service Organization and Distributors desire to facilitate the purchase and redemption of shares of the Funds on behalf of the Plans and their Participants through one account in each Fund (an "Account") to be maintained of record by Service Organization as nominee of the Plan, subject to the terms and conditions of this Agreement;
WHEREAS, the Trust entered into a Service Agreement dated May 7, 1997 with New York Life Benefit Services Inc.;
WHEREAS, on January 28, 2000, New York Life Benefit Services Inc. converted from a Massachusetts corporation to a Delaware limited liability company organized as New York Life Benefit Services LLC; and
WHEREAS, this Service Agreement amends and restates, in its entirety, the Service Agreement, dated May 7, 1997, in order to reflect the current parties and certain ministerial changes designed to facilitate the administration of the Agreement;
NOW, THEREFORE, in consideration of the mutual promises set forth herein, the parties agree as follows:
1. Performance of Services. Service Organization agrees to perform the administrative functions and services specified in Schedule A attached hereto with respect to the shares of the Funds owned by the Plans and included in the Accounts (the "Services") as may be requested by the Plans.
2. The Accounts.
(a) Each Account will be opened upon completion of the application forms then applicable to the desired Fund. In connection with each Account, Service Organization
represents and warrants that it is authorized to act on behalf of each Plan effecting transactions in the Account in connection with the Services pursuant to an agreement with the Plan Representative, and it is satisfied that the person or persons who signed Service Organization's contracts with the Plan were themselves properly authorized by the Plan and the entity which they represent.
(b) The Funds shall designate each Account with an account number. Account numbers will be the means of identification when the parties are transacting in the Accounts. The assets in the Accounts are assets of the Plans and are segregated from Service Organization's own assets. Distributors agrees to cause the Accounts to be kept open on each Fund's books regardless of a lack of activity or small position size except to the extent Service Organization takes specific action to close an Account or to the extent the Fund's prospectus reserves the right to close accounts which are inactive or of a small position size. In the latter two cases, Distributors will give prior notice to Service Organization before closing an Account.
(c) Service Organization agrees to provide Distributors, by the 1st day of each month, with (i) a report which indicates the number of Participants that hold, through a Plan, interests in each Account as of the last day of the prior month and (ii) such other information as Distributors may reasonably request concerning such Participants as may be necessary or advisable to enable Distributors to comply with applicable laws, including state "Blue Sky" laws relating to the sales of Fund shares to the Accounts.
3. Pricing Information. For each Fund, Distributors shall use its best efforts to furnish to the Service Organization its pricing information, by facsimile or other electronic transmission acceptable to Service Organization, including closing net asset value, net change in closing net asset value between the prior business day and current business day and, in the case of those Funds for which such information is calculated, the daily accrual for interest rate factor (mil rate), determined at the close of regular trading each day that such Fund is open (each such day, a "Business Day") by 6:00 p.m. Eastern time on such business day.
4. Price Errors.
(a) In the event adjustments are required to correct any error in the computation of the net asset value of Fund shares, Distributors shall notify Service Organization as soon as practicable after discovering the need for those adjustments which result in a reimbursement to an Account in accordance with such Fund's then current policies on reimbursement. Notification may be made via facsimile or via direct or indirect systems access. Any such notification shall be promptly followed by a letter written on Distributors' letterhead stating for each day for which an error occurred the incorrect price, the correct price, and, to the extent communicated to the Fund's shareholders, the reason for the price change.
(b) If an Account received amounts in excess of the amounts to which it otherwise would have been entitled prior to an adjustment for an error, Service Organization, when requested by Distributors, will use reasonable efforts to collect such excess amounts from the applicable Plans.
(c) If an adjustment is to be made in accordance with subsection 4(a) above to correct an error which has caused an Account to receive an amount less than that to which it is entitled, Distributors shall make all necessary adjustments (within the parameters specified in subsection 4(a)) to the number of shares owned in the Account and distribute to the Plan the amount of such underpayment for credit to the Participants' subaccounts.
5. Purchase and Redemption Orders. On each Business Day, Service Organization, through Distributors, shall aggregate and calculate the net purchase and redemption orders for each Plan from Participants or Plan Representatives for shares of a Fund that it received prior to 4:00 p.m., Eastern time (i.e., the close of trading), and communicate to Distributors, by telephone or facsimile (or by such other means as the parties hereto may agree to in writing), the net aggregate purchase or redemption order (if any) for each Account for such Business Day (such Business Day is sometimes referred to herein as the "Trade Date"). Service Organization, through Distributors, will communicate such orders to the Funds prior to 9:00 a.m., Eastern time, on the next Business Day following the Trade Date. All trades communicated to Distributors by the foregoing deadline shall be treated by Distributors as if they were received by Distributors prior to 4:00 p.m., Eastern time, on the Trade Date.
6. Settlement of Transactions.
(a) Purchases. Service Organization, through
Distributors, will wire or arrange for the wire of, the purchase price of each
purchase order to the custodian for the Funds in accordance with written
instructions provided by Distributors to Service Organization so that either (1)
such funds are received by the custodian for the Fund prior to 11:30 a.m.,
Eastern time, on the next business day following the Trade Date, or (2)
Distributors is provided with a Federal Funds wire system reference number prior
to such 11:30 a.m. deadline evidencing the entry of the wire transfer of the
purchase price to the custodian into the Federal Funds wire system prior to such
time. For purposes of determining the length of settlement, Service Organization
agrees to treat the Funds no less favorably than other funds being purchased by
the Plans. Service Organization agrees that if (i) the wire for payment of
purchase price is not received by the custodian for the Funds before such 11:30
a.m. deadline or (ii) Distributors fails to receive the Federal Funds wire
system reference number for such transfer prior to such 11:30 a.m. deadline, it
will indemnify and hold harmless Distributors and/or the Fund for which such
purchase order was placed from any liabilities, costs and damages either may
suffer as a result of such failure.
(b) Redemptions. Distributors will use its best efforts to cause to be transmitted to such custodial account as Service Organization shall direct in writing, the proceeds of all redemption orders placed by the Service Organization by 9:00 a.m., Eastern time, on the Business Day immediately following the Trade Date, by wire transfer on that Business Day. Should Distributors need to extend the settlement on a trade, it will contact Service Organization to discuss the extension. For purposes of determining the length of settlement, Distributors agrees to treat the Accounts no less favorably than other shareholders of the Funds. Each wire transfer of redemption proceeds shall indicate, on the Federal Fund wire system the amount thereof attributable to each Fund; provided, however, that if the number of entries would be too great to be transmitted through the Federal Funds wire system, Distributors shall, on the day the
wire is sent, fax such entries to Service Organization or if possible, send via direct or indirect systems access until otherwise directed by Service Organization in writing.
7. Agency. Distributors hereby appoints Service Organization as its agent for the limited purpose of accepting purchase and redemption instructions from the Plans and their Participants for the purchase and redemption of shares of the Funds by Service Organization on behalf of each Plan.
8. Maintenance of Records.
(a) Recordkeeping and other administrative services to Participants shall be the responsibility of the Service Organization and shall not be the responsibility of the Funds or Distributors. Neither the Funds nor Distributors shall maintain separate accounts or records for Participants. Service Organization shall maintain and preserve all records as required by law to be maintained and preserved in connection with providing the Services and in making shares of the Funds available to the Plans.
(b) Upon request of Distributors, Service Organization shall provide copies of all the historical records relating to transactions between the Funds and the Plans, written communications regarding the Funds to or from the Plans and other materials, in each case (1) as are maintained by Service Organization in the ordinary course of its business, and (2) as may reasonably be requested to enable Distributors, or its representatives, including without limitation its auditors or legal counsel, to (A) monitor and review the Services, (B) comply with any request of a governmental body or self-regulatory organization or the Plans, (C) verify compliance by the Service Organization with the terms of this Agreement, (D) make required regulatory reports, or (E) perform general customer supervision. Service Organization agrees that it will permit Distributors or its representatives to have reasonable access to its personnel and records in order to facilitate the monitoring of the quality of the Services.
(c) The parties agree to cooperate in good faith in providing records to one another pursuant to this Section 8.
9. Account Activity and Distribution Information.
(a) Distributors will provide Service Organization (1)
confirmations of Account activity prepared in accordance with Rule 10b-10 under
the Securities Exchange Act of 1934, as amended, within five Business Days after
each day on which a purchase or redemption of Shares is effected for an Account,
(2) statements detailing activity in each Account no less frequently than
monthly, and (3) such other information as may be reasonably requested by
Service Organization, including such information as is reasonably necessary to
verify the receipt and accurate processing of all purchase and redemption orders
placed by Service Organization. Where reasonably possible, Distributors will
provide Service Organization with direct or indirect systems access to
Distributors' systems for obtaining such information.
(b) As to each Fund, Distributors shall provide Service Organization with all distribution announcement information as soon as it is announced by each Fund. The distribution information shall set forth ex-dates, record date, payable date, distribution rate per share, record date share balances, cash and reinvested payment amounts and all other information reasonably
requested by Service Organization. Where possible, Distributors shall provide Service Organization and its affiliates with direct or indirect systems access to Distributors' systems for obtaining such distribution information.
(c) All dividends and capital gains distributions will be automatically reinvested on the payable date at net asset value in accordance with each Fund's then current prospectus.
10. Proxies. Service Organization will distribute, or arrange for the distribution of, all proxy material furnished by the Funds to each Plan and will use its best efforts to cause to be voted the Plans' shares as directed by the Plan Representatives. Service Organization and its agents will in no way recommend action in connection with or oppose or interfere with the solicitation of such proxies.
11. Fund Expenses. Service Organization shall not bear any of the expenses for the cost of registration of the Funds' shares, preparation of the Funds' prospectuses, proxy materials and reports, and the preparation of other related statements and notices required by law.
12. Plan and Participant Communications. Distributors shall, as applicable, provide in bulk to Service Organization or its authorized representative, at a single address and at no expense to Service Organization, the following shareholder communication materials prepared for circulation to shareholders of record of a Fund in quantities requested by Service Organization which are sufficient to allow mailing thereof by Service Organization or a Plan Representative and, to the extent required by applicable law, to all Participants: proxy or information statements, annual reports, semi-annual reports, and all updated prospectuses, supplements and amendments thereof. Neither the Funds nor Distributors shall be responsible for the cost of distributing such materials to Plan Representatives or Participants unless such materials are required by applicable law to be distributed to such persons.
13. Compliance with Laws.
(a) Distributors shall comply with all laws, rules and
regulations applicable to them by virtue of entering into this Agreement
including, but not limited to: (1) any information contained in any prospectus,
registration statements, annual report, proxy statement, or item of advertising
or marketing material prepared by Distributors of, or relating to, any Fund, and
(2) the registration or qualification of any shares of any Fund under any
federal or applicable state laws.
(b) Service Organization shall comply with all laws, rules and regulations applicable to it by virtue of entering into this Agreement including, but not limited to: (1) the Services, (2) the services which the Service Organization provides to the Plans, (3) the responsibilities and duties of Service Organization to the Plans, (4) all sales literature prepared by Service Organization, its affiliates or agents relating to Distributors or any Funds, and (5) the activities, if any, of Service Organization, its affiliates relating to the decisions of Participants to have the Plans purchase Fund shares.
(c) Each party hereto is entitled to rely on any written records or instructions provided to it by the other party.
14. Indemnification.
(a) Service Organization shall indemnify, defend and hold harmless Distributors and each Fund and each of their affiliates, directors, officers, employees and agents and each person who controls them within the meaning of the Securities Act of 1933, as amended (the "Securities Act") (the "Fund Indemnities"), from and against any and all losses, claims, damages, liabilities and expenses (including reasonable attorney's fees) they incur ("Losses") insofar as such Losses arise out of or are based upon (1) the provision of Services by Service Organization, (2) Service Organization's negligence, willful misconduct or violation of applicable law in the performance of its duties and obligations under this Agreement, (3) any breach by Service Organization of any material provisions of this Agreement (including the failure to wire funds or provide the Federal Funds reference number thereof by the deadline established in Section 6(a) hereof, and (4) any material breach by Service Organization of a representation, warranty or covenant made by it in this Agreement. Service Organization shall also reimburse the Fund Indemnities for any legal or other expenses reasonably incurred by them in connection with investigating or defending against such Losses. This indemnity agreement is in addition to any other liability which Service Organization may otherwise have.
(b) Distributors shall indemnify, defend and hold harmless Service Organization, its affiliates and each of their respective directors, officers, employees and agents and each person who controls it within the meaning of the Securities Act (the "Service Organization Indemnities"), from and against any and all Losses insofar as such Losses arise out of or are based upon (1) Distributors' negligence, willful misconduct or violation of applicable law in the performance of their duties and obligations under this Agreement, (2) any breach by Distributors of any material provision of this Agreement, (3) any untrue or alleged untrue statement of a material fact contained in the prospectus or statement of additional information of any Fund or any promotional material or other information furnished to Service Organization, in writing, for distribution to the Plans, or any omission or alleged omission to state a material fact necessary to make the facts stated therein not misleading, and (4) any material breach by Distributors of a representation, warranty or covenant made in this Agreement. Distributors shall also reimburse the Service Organization Indemnities for any legal or other expenses reasonably incurred by them in connection with investigating or defending against such Losses. This indemnity agreement is in addition to any other liability which Distributors may otherwise have.
(c) Promptly after receipt by a party entitled to indemnification under this Section 14 (an "Indemnified Party") of notice of the commencement of an investigation, action, claim or proceeding, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 14, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any Indemnified Party otherwise than under this Section. In case any such action is brought against any Indemnified Party, and it notified the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, assume the defense thereof, with counsel satisfactory to such Indemnified Party. After notice from the indemnifying party of its intention to assume the defense of an action, the Indemnified Party shall bear the expenses of any additional counsel obtained by it, and the indemnifying party shall not be liable to such Indemnified Party under this Section for any legal or other expenses subsequently incurred by
such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation. The Indemnified Party may not settle any action without the written consent of the indemnifying party. The indemnifying party may not settle any action without the written consent of the Indemnified Party unless such settlement completely and finally releases the Indemnified Party from any and all liability. In either event, consent shall not be unreasonably withheld.
15. Fees. In consideration for the Services to be provided, Service Organization will be entitled to receive from the Funds such fees and reimbursement for out of pocket expenses as the Funds and the Service Organization shall agree to from time to time and as set forth in Schedule B to this Agreement. The parties agree that the fees are solely for shareholder servicing and other administrative services provided by the Service Organization and its affiliates and do not constitute payment in any manner for investment advisory, distribution, trustee, or custodial services.
16. Representations and Warranties.
(a) Distributors. Distributors hereby represents and warrants to Service Organization:
(1) It has full power and authority under applicable law, and has taken all action necessary, to enter into and perform this Agreement and the person executing this Agreement on its behalf is duly authorized and empowered to execute and deliver this Agreement;
(2) This Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms;
(3) No consent or authorization of, filing with, or other act by or in respect of any governmental authority, is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement;
(4) The execution, performance and delivery of this Agreement by Distributors, as the case may be, will not result in it violating any applicable law or breaching or otherwise impairing any of its contractual obligations; and
(5) The Funds are each registered as investment companies under the Investment Company Act of 1940, as amended, and Fund shares sold by the Funds are, and will be, registered under the Securities Act of 1933, as amended.
(b) Service Organization. Service Organization hereby represents and warrants to Distributors:
(1) It has full power and authority under applicable law, and has taken all action necessary, to enter into and perform this Agreement and the
person executing this Agreement on its behalf is duly authorized and empowered to execute and deliver this Agreement;
(2) This Agreement constitutes its legal, valid and binding obligation and is enforceable against it in accordance with its terms;
(3) No consent or authorization of, filing with, or other act by or in respect of any governmental authority, is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement;
(4) The execution, performance and delivery of this Agreement will not result in it violating any applicable law or breaching or otherwise impairing any of its contractual obligations;
(5) It is registered as a transfer agent pursuant to Section 17A of the Securities Exchange Act of 1934, as amended (the "1934 Act") or is not required to be registered as such;
(6) It will not be a "fiduciary" with respect to the provision of the Services for any Plan as such term is defined in Section 3(21) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code");
(7) The receipt of the fees described in Section
15 hereof by it and the provision of the Services to
the Plans under this Agreement by the Service
Organization will not constitute a non-exempt
"prohibited transaction" as such term is defined in
Section 406 of ERISA and Section 4975 of the Code;
and
(8) It is registered as a broker-dealer under the 1934 Act and any applicable state securities laws, including as a result of entering into and performing the Services set forth in this Agreement, or is not required to be registered as such.
17. Termination.
(a) Any party may terminate this Agreement by providing 90 days' written notice to the other parties.
(b) Notwithstanding the foregoing, this Agreement may be terminated by any party (1) at any time by giving 30 days' written notice to the other parties in the event of a material breach of this Agreement by the other party or parties that is not cured during such 30-day period; and (2) at any time by giving written notice to the other parties (A) upon institution of formal proceedings relating to the legality of the terms and conditions of this Agreement by the National Association of Securities Dealers, Inc., the Securities and Exchange Commission or any other regulatory body provided that the terminating party has a reasonable belief that the
institution of formal proceedings is not without foundation and will have a material adverse impact on the terminating party, (B) upon assignment of the Agreement in contravention of the terms hereof, (C) in the event shares of a Fund are not registered, issued or sold in conformance with Federal law or such law precludes the use of Fund shares as an underlying investment medium of the Plans; prompt notice shall be given by either party to the other in the event the conditions of this provision occur; and (D) as is required by law, order, or instruction by a court of competent jurisdiction or a regulatory body or self-regulatory organization with jurisdiction over the terminating party.
(c) The obligation to continue to pay the fees specified in Section 15 shall survive the termination of this Agreement, provided that Service Organization continues to provide Services to the Plans with respect to those assets invested in the Funds and provided that this Agreement has not been terminated because of an event described in Section 17(b).
18. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York applicable to agreements fully executed and to be performed therein, exclusive of conflicts of laws.
19. Amendment and Waiver. No modification of any provision of this Agreement will be binding unless in writing and executed by the party to be bound thereby. No waiver of any provision of this Agreement will be binding unless in writing and executed by the party granting such waiver. Any valid waiver of a provision set forth herein shall not constitute a waiver of any other provision of this Agreement. In addition, any such waiver shall constitute a present waiver of such provision and shall not constitute a permanent future waiver of such provision.
20. Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns; provided, however, that neither this Agreement nor any rights, privileges, duties or obligations of the parties may be assigned by either party without the written consent of the other party or as expressly contemplated by this Agreement.
21. Entire Agreement. This Agreement contains the full and complete understanding between the parties with respect to the transactions covered and contemplated hereunder, and supersedes all prior agreements or understandings between the parties relating to the subject matter hereof, whether oral or written, express or implied.
22. Relationship of Parties; No Joint Venture, Etc. Except for the limited purpose provided in Section 7, it is understood and agreed that all Services performed hereunder by the Service Organization and its affiliates shall be as independent contractors and not as employees or agents of Distributors or the Funds, and none of the parties shall hold itself out as an agent of any other party with the authority to bind such party. Neither the execution nor performance of this Agreement shall be deemed to create a partnership or joint venture by and among any of the parties hereto.
23. Operations of Funds. In no way shall the provisions of this Agreement limit the authority of any Fund or Distributors to take such action as it may deem appropriate or advisable in connection with all matters relating to the operation of the Funds and the sale of their Shares.
In no way shall the provisions of this Agreement limit the authority of a Service Organization to take such action as it may deem appropriate or advisable in connection with all matters relating to the provision of Services or the shares of funds other than Funds offered to the Plans.
24. Representations with Respect to the Funds. The Service Organization and its agents shall not make representations concerning a Fund or its shares except those contained in the then current prospectus of such Fund or in current sales materials furnished or approved in advance by Distributors. In particular, the Service Organization, and its agents will not make representations concerning a Fund's historical or current performance in a format that has not been approved in advance by Distributors.
25. Notices. All notices hereunder shall be in writing (and shall be deemed to have been duly given upon receipt) by delivery in person, by facsimile, by registered or certified mail or by overnight delivery (postage prepaid, return receipt requested) to the respective parties as follows:
If to the Funds:
The MainStay Funds
NYLIM Center
169 Lackawanna Avenue
Parsippany, NJ 07054
Attention: Stephen C. Roussin
Facsimile No.: (973) 394-4670
If to New York Life Benefit Services LLC:
New York Life Benefit Services LLC
846 University Avenue
Norwood, Massachusetts 02062
Attention: Thomas Clough
Facsimile No.: (781) 255-6932
If to Distributors:
NYLIFE Distributors Inc.
51 Madison Avenue, Room 3000
New York, New York 10010
Attention:___________, President
Facsimile No.: (212) 576-7543
26. Expenses. All expenses incident to the performance by each party of its respective duties under this Agreement shall be paid by that party.
27. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.
28. Survival. The provisions of Sections 8, 13 and 14 shall survive termination of this Agreement.
29. Non-Exclusivity. Each of the parties acknowledges and agrees that this Agreement and the arrangements described herein are intended to be non-exclusive and that each of the parties is free to enter into similar agreements and arrangements with other entities.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.
THE MAINSTAY FUNDS
By: /s/ Stephen C. Roussin
-------------------------
Name: Stephen C. Roussin
Title: President and
Chief Executive Officer
|
NEW YORK LIFE BENEFIT SERVICES LLC
By: /s/ Thomas A. Clough
----------------------
Name: Thomas A. Clough
Title: President
|
NYLIFE DISTRIBUTORS INC.
By: /s/ Robert E. Brady
---------------------
Name: Robert E. Brady
Title: Vice President
|
SCHEDULE A
THE SERVICES
Service Organization shall, to the extent required by each Plan or applicable law, perform the following services. Such services shall be the responsibility of Service Organization and shall not be the responsibility of the Funds or Distributors.
1. Service Organization shall maintain separate records for each Plan, which records shall reflect the Funds' shares of beneficial interest ("Shares") purchased and redeemed, including the date and price for all transactions, Share balances, and the name and address of each Participant, including zip codes and tax identification numbers.
2. Service Organization shall disburse or credit to the Plans, and maintain records of, all proceeds of redemptions of Shares and all other distributions not reinvested in Shares.
3. Service Organization shall prepare, and transmit to the Plans and Participants, periodic account statements showing, among other things, the total number of Shares owned by the Plan as of the statement closing date, purchases and redemptions of Shares by the Plan during the period covered by the statement, the net asset value of the Funds as of a recent date, and the dividends and other distributions paid to the Plan during the statement period (whether paid in cash or reinvested in Shares), and individualized data for Participants.
4. Service Organization shall transmit to the Plans prospectuses, proxy materials, shareholder reports, and other information provided by Distributors or a Fund and required to be sent to shareholders under the Federal securities laws.
5. Acting through Distributors, Service Organization shall transmit to the Funds purchase orders and redemption requests placed by the Plans and arrange for the transmission of funds to and from the Funds.
6. Service Organization shall transmit to Distributors such periodic reports as Distributors shall reasonably conclude is necessary to enable a Fund to comply with applicable Federal and state Blue Sky requirements.
7. Service Organization shall transmit to each Plan confirmations of purchase orders and redemption requests placed by each Plan.
8. Service Organization shall maintain all account balance information for the Plans and daily and monthly purchase summaries expressed in Shares and dollar amounts.
9. Service Organization shall prepare file or transmit all Federal state and local government reports and returns as required by law with respect to each account maintained on behalf of the Plans.
10. Service Organization shall respond to Participants' inquiries regarding, among other things, Share prices, account balances, and other applicable Share information.
SCHEDULE B
FEES
Each Fund shall pay a monthly fee to Service Organization equal to $12.00 per account maintained by Service Organization for a Plan Participant, payable in arrears. In addition, each Fund shall reimburse Service Organization for all reasonable out of pocket expenses incurred in connection with the provision of Services as contemplated by this Agreement.
Exhibit h(4)
AMENDED AND RESTATED
FUND ACCOUNTING AGREEMENT
BETWEEN
THE MAINSTAY FUNDS
AND
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
AMENDED AND RESTATED
FUND ACCOUNTING AGREEMENT
AMENDED AND RESTATED AGREEMENT, dated as of the 1st day of August, 2002, made by and between THE MAINSTAY FUNDS (the "Trust"), a business trust operating as an open end investment company, duly organized and existing under the laws of the Commonwealth of Massachusetts, and New York Life Investment Management LLC ("NYLIM") a Delaware limited liability company.
WITNESSETH:
WHEREAS, the Trust entered into a Fund Accounting Agreement, dated October 27, 1997, by and between the Trust and MainStay Management Inc. ("MMI"), whereby MMI agreed to maintain and keep current the accounting records, including all journals, the general ledger and other records of original entry relating to the business of the Trust; and
WHEREAS, on January 1, 2000, MMI converted from a corporation to a limited liability company under Delaware law and organized as MainStay Management LLC ("MM LLC"); and
WHEREAS, pursuant to a Substitution Agreement, dated March 31, 2001, by and between MM LLC and New York Life Investment Management LLC ("NYLIM"), NYLIM assumed all the interests, rights and responsibilities of MM LLC under the Management Agreement, dated October 21, 1997, as further amended effective October 1, 1999, by and between the Trust and MM LLC, and agreed to perform all of MM LLC's duties and responsibilities as Manager to the Trust under such Agreement; and
WHEREAS, the Trust desires to appoint NYLIM, the Trust's Manager, as its Accounting Services Agent to maintain and keep current the accounting records, including all journals, the general ledger and other records of original entry relating to the business of the Trust as set forth in Section 3 of this Agreement (the "Accounts and Records") and to perform certain daily functions in connection with such Accounts and Records; and
WHEREAS, NYLIM is willing to perform such functions upon the terms and conditions set forth below; and
WHEREAS, the Trust will cause to be provided certain information to NYLIM as set forth below; and
WHEREAS, this Amended and Restated Fund Accounting Agreement amends and restates, in its entirety, the Fund Accounting Agreement, dated October 27, 1997, by and between the Trust and MM LLC in order to reflect the current parties of the Fund Accounting Agreement and to make certain other ministerial changes designed to facilitate the administration of this Agreement;
NOW THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto, intending to be legally bound, do hereby agree as follows:
Section 1. APPOINTMENT. The Trust hereby appoints NYLIM as Accounting Services Agent of the Trust and NYLIM hereby accepts such appointment, all in accordance with the terms and conditions of this Agreement. This appointment shall continue to be in effect since October 27, 1997.
Section 2. FURNISHING OF EXISTING ACCOUNTS AND RECORDS. The Trust shall promptly turn over to NYLIM such of the Accounts and Records previously maintained by or for it as are necessary for NYLIM to perform its functions under this Agreement. The Trust authorizes NYLIM to rely on such Accounts and Records turned over to it and hereby indemnifies and will hold NYLIM, its successors and assigns, harmless of and from any and all expenses, damages, claims, suits, liabilities, actions, demands and losses whatsoever arising out of or in connection with any error, omission, inaccuracy or other deficiency of such Accounts and Records or in the failure of the Trust to provide any portion of such or to provide any information needed by NYLIM to knowledgeably perform its functions.
Section 3. MAINTENANCE OF ACCOUNTS AND RECORDS. To the extent it receives the necessary information from the Trust and its agents by Written or Oral Instructions, NYLIM shall maintain in accordance with Rule 31a-1 under the Investment Company Act of 1940, as amended (the "1940 Act"), the following Accounts and Records relating to the business of the Trust, in such form as may be mutually agreed to between the Trust and NYLIM:
(a) Cash Receipts Journal
(b) Cash Disbursements Journal
(c) Dividends Paid Record
(d) Purchase and Sales Journal - Portfolio Securities
(e) Subscription and Redemption Journals
(f) Security Ledgers
(g) Broker-Dealer Ledger
(h) General Ledger
(i) Daily Expense Accruals
(j) Daily Interest Accruals
(k) Securities and Monies borrowed or loaned and collateral therefor
(l) Daily Trial Balances
(m) Investment Income Journal
The Trust will, prior to 4:00 p.m. (12:00 Noon with respect to the Trust's Money Market funds), Eastern time, furnish NYLIM with Written or Oral Instructions containing all necessary information (exclusive of portfolio prices) to perform the above functions and to calculate the net asset value of each Fund of the Trust, as provided below. The Trust shall indemnify and hold harmless NYLIM from and against any liability arising from any discrepancy between the information received by NYLIM and used in such calculations and any subsequent information received from the Trust or any of its designated agents.
It shall be the responsibility of the Trust to furnish or cause to be furnished to NYLIM, the declaration, record, payment dates and amounts of any dividends or income and any other special actions required on or concerning each of its portfolio securities.
Section 4. CALCULATION OF NET ASSET VALUE. NYLIM shall perform the calculations necessary to calculate the net asset value of each Fund of the Trust daily, in accordance with that Fund's current prospectus except where the Trust has given or caused to be given specific Written or Oral Instructions to utilize a different method of calculation. NYLIM shall notify the Trust if quotes are not available and portfolio securities shall be given such values as the Trust or its agent provides by Written or Oral Instructions. NYLIM shall have no responsibility or liability for the accuracy of prices provided by the Trust or its agents as described in the preceding sentence; for the accuracy of the information supplied by the Trust; or for any loss, liability, damage or cost arising out of any inaccuracy of such data. NYLIM shall have no responsibility or duty to include information or valuations to be provided by the Trust or its designated agent in any computation unless and until it is timely supplied to NYLIM in useable form. Unless the necessary information to calculate the net asset value daily is furnished by Written or Oral Instructions from the Trust or its designated agent, NYLIM shall incur no liability, and the Trust shall indemnify and hold harmless NYLIM from and against any liability arising from any failure to provide complete information or from any discrepancy between the information received by NYLIM and used in such calculation and any subsequent information received from the Trust or any of its designated agents.
Section 5. WRITTEN AND ORAL INSTRUCTIONS. Written Instructions as used throughout this Agreement mean a writing signed or initialed by one or more person or persons as the Board of Trustees shall have from time to time authorized. Each such writing shall set forth the specific transaction or type of transaction involved, including a specific statement of the purpose for which such action is requested. Oral Instructions will be considered proper instructions if NYLIM reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Trust shall cause all Oral Instructions to be confirmed in writing. Upon receipt of a certificate of the Secretary or an Assistant Secretary as to the authorization by the Board of Trustees of the Trust, Oral Instructions may include communications effected directly between electromechanical or electronic devices provided that the Board of Trustees and NYLIM are satisfied that such procedures afford adequate safeguards for the Trust's assets.
Section 6. RELIANCE ON INSTRUCTIONS. For all purposes under this Agreement, NYLIM is authorized to act upon receipt of the first of any Written or Oral Instruction it receives from the Trust or its agents on behalf of the Trust. In cases where the first Instruction is an Oral Instruction, a confirmatory Written Instruction shall be delivered, and in cases where NYLIM receives an Instruction, whether Written or Oral, to enter a portfolio transaction on the records, the Trust shall cause the Broker-Dealer to send a written confirmation to NYLIM.
NYLIM shall be entitled to rely reasonably on the first Instruction received, and for any act or omission undertaken in compliance therewith shall be free of liability and fully indemnified and held harmless by the Trust, provided however, that in the event a Written or Oral Instruction received by NYLIM is countermanded by a timely later Written or Oral Instruction received by NYLIM prior to acting upon such countermanded Instruction, NYLIM shall act upon such later Written or Oral Instruction. The sole obligation of NYLIM with respect to any follow-up or confirmatory Written Instruction, Oral Instruction in documentary or written form, or Broker-Dealer written confirmation shall be to make reasonable efforts to detect any
discrepancy between the original Instruction and such confirmation and to report such discrepancy to the Trust. The Trust shall be responsible, at the Trust's expense, for taking any action, including any reprocessing, necessary to correct any discrepancy or error, and to the extent such action requires NYLIM to act, the Trust shall give NYLIM specific Written Instructions as to the action required.
Section 7. MONTHLY STATEMENTS. At the end of each month, the Trust shall cause each custodian to forward to NYLIM a monthly statement of cash and portfolio transactions, which will be reconciled with NYLIM's Accounts and Records maintained for the Trust. NYLIM will report any discrepancies to each custodian, and report any unreconciled items to the Trust.
Section 8. PERIODIC REPORTS.
(a) NYLIM shall promptly supply daily and periodic reports to the Trust or its agents as requested by the Trust and agreed upon by NYLIM. NYLIM shall prepare and maintain work papers to support the following accounts: cash reconciliation, portfolio of investments, accrued interest, amounts due to/from brokers, subscriptions and redemptions of Shares, Share reconciliation and dividends payable.
(b) NYLIM will prepare the following financial reports:
(i) Daily Trial Balances
(ii) Statement of assets and liabilities (balance sheet)
(iii) Statement of operations (income and expense statement)
(iv) Statement of changes in net assets
(v) Schedules of purchases and sales of securities
Section 9. SHARE INFORMATION. The Trust shall, and shall require each of its agents (including without limitation its Transfer Agent and its Custodian), to provide NYLIM as of the close of each business day, or on such other schedule as the Trust determines is necessary (to be delivered to NYLIM by 10:00 a.m. the next following business day), all data and information necessary for NYLIM to maintain the Trust's Accounts and Records and NYLIM may conclusively assume that the information it receives is complete and accurate. Among the information to be received by NYLIM are reports of Share purchases, redemptions, and total shares outstanding on the next business day after each net asset valuation. If supplied by the Trust, any such information shall be supplied by Written or Oral Instructions.
Section 10. AVAILABILITY OF ACCOUNTS AND RECORDS. The Accounts and Records, in the agreed upon format, maintained by NYLIM shall be the property of the Trust, and shall be made available to the Trust promptly upon request and shall be maintained for the periods prescribed in Rule 31a-2 under the 1940 Act. NYLIM shall assist the Trust's independent auditors, or upon approval of the Trust, or upon demand, any regulatory body, in any requested review of the Trust's Accounts and Records but shall be reimbursed for all
expenses and employee time invested in any such review outside of routine and normal periodic reviews. Upon receipt from the Trust of the necessary information, NYLIM shall supply the necessary data for the Trust or accountant's completion of any necessary tax returns, questionnaires, periodic reports to shareholders and such other reports and information requests as the Trust and NYLIM shall agree upon from time to time.
Section 11. OTHER PROCEDURES. NYLIM and the Trust may from time to time adopt such procedures as they agree upon in writing, and NYLIM may conclusively rely on a determination by the Trust that any procedure approved by the Trust or directed by the Trust, does not conflict with or violate any requirements of the respective Prospectus, Declaration of Trust, By-Laws, or any rule or regulation of any regulatory body or governmental agency. The Trust shall be responsible for notifying NYLIM of any changes in regulations or rules which would necessitate changes in NYLIM's procedures, and for working out with NYLIM such changes.
Section 12. INDEMNIFICATION. NYLIM, in performing under the terms and conditions of this Agreement, shall incur no liability for any reasonable actions taken or omitted in good faith except as result from its negligence or misconduct, or that of its officers, agents or employees, and the Trust hereby agrees to indemnify and hold NYLIM harmless from any and all loss, liability and expense, including any legal expenses, arising out of NYLIM's performance, or any act or omission of NYLIM except such as shall result from its negligence, misconduct or that of its officers, agents and employees in the performance of this Agreement. Without limitation of the foregoing:
(a) NYLIM may rely upon the advice of the Trust or of counsel, who may be counsel for the Trust or counsel for NYLIM and upon statements of accountants, brokers and other persons believed by it in good faith to be expert in the matters upon which they are consulted and NYLIM shall not be liable to anyone for any actions taken in good faith upon such statements.
(b) NYLIM may act upon any Oral Instruction which it receives and which it believes in good faith was transmitted by the person or persons authorized by the Board of Trustees of the Trust to give such Oral Instructions. NYLIM shall have no duty or obligation to make any inquiry or effort of certification of such Oral Instruction.
(c) NYLIM shall not be liable for any reasonable action taken in good faith reliance upon any Written Instruction or certified copy of any resolution of the Board of Trustees of the Trust, and NYLIM may rely upon the genuineness of any such document or copy thereof reasonably believed in good faith by NYLIM to have been validly executed.
(d) NYLIM may rely and shall be protected in acting upon any signature, instruction, request, letter of transmittal, certificate, opinion of counsel, statement, instrument, report, notice, consent, order, or other paper document reasonably believed by it to be genuine and to have been signed or presented by the purchaser, Trust or other proper party or parties.
(e) If the Trust is required to indemnify NYLIM under the terms of this Agreement for any reason, NYLIM shall be entitled to indemnification only from the assets of the one or
more series with respect to which such right of indemnification has arisen and not from the assets or any other series or the Trust generally.
Section 13. COMPENSATION. NYLIM's compensation shall be as set forth in Schedule A hereto attached, or as shall be set forth in amendments to such Schedule approved in writing by the Trust and NYLIM.
Section 14. DAYS OF SERVICE. Nothing contained in this Agreement is intended to or shall require NYLIM, in any capacity hereunder, to perform any functions or duties on any holiday, day of special observance or any other day on which the New York Stock Exchange is closed. Functions or duties normally scheduled to be performed on such days shall be performed on, and as of, the next scheduling business day on which both the New York Stock Exchange and NYLIM are open. Notwithstanding the foregoing, NYLIM shall compute the net asset value of the Fund on each day required pursuant to Rule 22c-1 promulgated under the 1940 Act.
Section 15. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which, when so executed shall be deemed to be an original, but such counterparts shall together constitute but one and the same instrument.
Section 16. TERMINATION. The Trust or NYLIM may give written notice to the other of the termination of this Agreement, such termination to take effect at the time specified in the notice not less than sixty (60) days after the giving of notice. Upon the effective termination date, subject to payment to NYLIM by the Trust of all amounts due to NYLIM as of said date, NYLIM shall produce to the Trust or its designated recordkeeping successor, all of the records of the Trust maintained and required to be maintained under this Agreement then in NYLIM's possession.
Section 17. SUCCESSORS AND ASSIGNS. This Agreement shall extend to and shall be binding upon the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by the Trust without the written consent of NYLIM, or by NYLIM, without the written consent of the Trust authorized or approved by a resolution of the Board of Trustees.
Section 18. GOVERNING LAW. This Agreement shall be governed by the laws of the State of New York.
Section 19. NO LIABILITY OF TRUSTEES OR SHAREHOLDERS. The execution and delivery of this Agreement have been authorized by the Trustees of the Trust and signed by an authorized officer of the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on them personally, and the obligations of this Agreement are not binding upon any of the trustees or shareholders of the Trust, but bind only the trust property of the Trust as provided in the Declaration of Trust.
Section 20. MISCELLANEOUS.
(a) The headings of this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.
(b) NYLIM shall not be liable for delays or errors occurring by reason of circumstances beyond its control including, but not limited to, acts of civil or military authority, national emergencies, work stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or failure of communication or power supply.
(c) NYLIM shall notify the Trust should any of NYLIM's insurance coverage be changed for any reason. Such notification shall include the date of change and reasons therefor. NYLIM shall notify the Trust of any material claims against NYLIM whether or not they may be covered by insurance and shall notify the Trust from time to time as may be appropriate of the total outstanding claims made by NYLIM under its insurance coverage.
(d) No provision of this Agreement shall prevent NYLIM from offering services similar or identical to those covered by this Agreement to any other corporations, associations or entities of any kind. Any and all operational procedures, techniques and devices developed by NYLIM in connection with the performance of its duties and obligations under this Agreement, including those developed in conjunction with the Trust, shall be and remain the property of NYLIM, and NYLIM shall be free to employ such procedures, techniques and devices in connection with the performance of any other contract with any other person whether or not such contract is similar or identical to this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers and attested, as of the day and year first above written.
THE MAINSTAY FUNDS
Attest: /s/ Arphiela Arizmendi By: /s/ Stephen C. Roussin
---------------------- -------------------------------
Name: Arphiela Arizmendi Name: Stephen C. Roussin
Title: Assistant Treasurer President and Chief Executive Officer
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
Attest: /s/ Robert A. Anselmi By: /s/ Gary E. Wendlandt
--------------------- --------------------------------
Name: Robert A. Anselmi Name: Gary E. Wendlandt
Title: Senior Managing Director Title: Chairman and Chief Executive
Officer
|
SCHEDULE A
(Fees)
Accounting services will be provided to the Trust by NYLIM at the lower of its cost or the fee schedule below. These services include its salaries and overhead expenses for personnel, facilities and equipment costs attributable to the accounting functions. In the event this Agreement is in effect for only a portion of any one year, the fee payable shall be reduced proportionately on the basis of the number of business days (any day on which the New York Stock Exchange is open for trading) during which the Agreement was in effect for that year.
ANNUAL FEES PER PORTFOLIO
Fund Net Assets Accounting Fee Schedule --------------- ----------------------- First $20 Million 1/20 of 1% Next $80 Million 1/30 of 1% Excess 1/100 of 1% Minimum Monthly Charge $1,000 |
This accounting services fee shown above is an annual charge, billed and payable monthly, based upon average monthly net assets.
Exhibit h(5)
SHAREHOLDER SERVICES PLAN
FOR CLASS R1 SHARES OF
WHEREAS, The MainStay Funds, a Massachusetts business trust (the "Trust"), engages in business as an open-end management investment company and is registered under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, shares of beneficial interest of the Trust currently are divided into a number of separate series (each individually, a "Fund," and collectively, the "Funds") as set forth in Schedule A, as amended from time to time; and
WHEREAS, shares of each of the Funds may be issued in six classes, including "Class R1;" and
WHEREAS, the Board of Trustees of the Trust has determined that there is a reasonable likelihood that the adoption of this Shareholder Services Plan (the "Plan") will benefit the Trust, each of the Funds and their respective shareholders; and
WHEREAS, on behalf of the Funds, the Trust desires to appoint New York Life Investment Management LLC ("NYLIM"), its affiliates, or independent third-party service providers to provide certain services to holders of the Class R1 Shares of the Funds under the terms and conditions described herein;
NOW, THEREFORE, the Trust hereby adopts this Plan, on behalf of the Class R1 Shares of the Funds, subject to the following terms and conditions:
A. Each Fund is authorized to pay NYLIM, its affiliates, or independent third-party service providers, as compensation for service activities (as defined in Paragraph D hereof ) rendered to holders of the Class R1 Shares of the Fund, a shareholder service fee at the annual rate of 0.10% of the average daily net asset value of the Class R1 Shares of the Fund (the "Fee"). Such Fee shall be calculated daily and paid monthly or at such other intervals as the Board shall determine. NYLIM is authorized to pay its affiliates or independent third-party service providers for performing service activities consistent with this Plan.
B. This Plan shall not take effect until it, together with any related agreements, have been approved by votes of a majority of both: (a) the Trustees of the Trust and (b) those Trustees of the Trust who are not "interested persons" of the Trust (as defined in the Act) and who have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Plan Trustees"), cast in person at a meeting (or meetings) called for the purpose of voting on this Plan and such related agreements.
C. This Plan shall continue in full force and effect as to a Fund for so long as such continuance is specifically approved at least annually in the manner provided for approval of the Plan in Paragraph B hereof.
D. NYLIM shall provide to the Board, and the Board shall review at least quarterly, a written report of the amounts expended in connection with the performance of "service activities," as defined in this Paragraph D, and the purposes for which such expenditures were made. NYLIM shall submit only information regarding amounts expended for "service activities" to the Board in support of the Fee payable hereunder.
For purposes of the Plan, "service activities" shall include any personal services or account maintenance services, which may include but are not limited to activities in connection with the provision of personal, continuing services to investors in each Fund; transfer agent and subtransfer agent services for beneficial owners of Fund shares; receiving, aggregating and processing purchase and redemption orders; providing and maintaining retirement plan records; communicating periodically with shareholders and answering questions and handling correspondence from shareholders about their accounts; acting as the sole shareholder of record and nominee for shareholders; maintaining account records and providing beneficial owners with account statements; processing dividend payments; issuing shareholder reports and transaction confirmations; providing subaccounting services for Fund shares held beneficially; forwarding shareholder communications to beneficial owners; receiving, tabulating and transmitting proxies executed by beneficial owners; performing daily investment ("sweep") functions for shareholders; providing investment advisory services; and general account administration activities. Overhead and other expenses related to "service activities," including telephone and other communications expenses, may be included in the information regarding amounts expended for such activities.
E. The amount of the Fee payable to NYLIM, its affiliates, or independent third-party service providers under Paragraph A hereof is not related directly to expenses incurred by NYLIM, its affiliates, or independent third-party service providers on behalf of a Fund in servicing holders of Class R1 Shares of the Fund. The Fee set forth in Paragraph A hereof will be paid by a Fund to NYLIM, its affiliates, or independent third-party service providers until the Plan is terminated or not renewed with respect to that Fund. If the Plan is terminated or not renewed with respect to a Fund, any expenses incurred by NYLIM, its affiliates or independent third-party service providers, on behalf of the Fund, in excess of the payments of the Fee specified in Paragraph A hereof which NYLIM, its affiliates, or independent third-party service providers has received or accrued through the termination date are the sole responsibility and liability of NYLIM, its affiliates, or independent third-party service providers, and are not obligations of the Fund.
F. This Plan may be terminated as to any Fund at any time, without payment of any penalty, by vote of a majority of the Plan Trustees or by a vote of a majority of the outstanding voting securities of the affected class of a Fund on not more than 30 days' written notice to any other party to the Plan.
G. While this Plan is in effect, the selection and nomination of Trustees who are not interested persons (as defined in the Act) of the Trust shall be committed to the discretion of the Trustees who are not such interested persons.
H. The Trust shall preserve copies of this Plan and any related agreements and all reports made pursuant to Paragraph D hereof, for a period of not less than six years from the date of this Plan, any such agreement or any such report, as the case may be, the first two years in an easily accessible place.
I. This Plan may be amended at any time with respect to a Fund provided that any material amendment, including any amendment to increase materially the amount of the Fee provided for in Paragraph A, is invalid and unenforceable unless such amendment is approved in the manner provided for approval in Paragraph B hereof.
Adopted by the Board of Trustees of the Trust on December 9, 2003.
SCHEDULE A
(Amended and Restated as of June 28, 2005)
CAPITAL APPRECIATION FUND
COMMON STOCK FUND
CONVERTIBLE FUND
DIVERSIFIED INCOME FUND
INTERNATIONAL EQUITY FUND
GLOBAL HIGH INCOME FUND
GOVERNMENT FUND
HIGH YIELD CORPORATE BOND FUND
LARGE CAP GROWTH FUND
MAP FUND
MID CAP GROWTH FUND
MID CAP VALUE FUND
MONEY MARKET FUND
SMALL CAP GROWTH FUND
SMALL CAP VALUE FUND
TAX FREE BOND FUND
TOTAL RETURN FUND
VALUE FUND
Exhibit h(6)
SHAREHOLDER SERVICES PLAN
FOR CLASS R2 SHARES OF
WHEREAS, The MainStay Funds, a Massachusetts business trust (the "Trust"), engages in business as an open-end management investment company and is registered under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, shares of beneficial interest of the Trust currently are divided into a number of separate series (each individually, a "Fund," and collectively, the "Funds") as set forth in Schedule A, as amended from time to time; and
WHEREAS, shares of each of the Funds may be issued in six classes, including "Class R2;" and
WHEREAS, the Board of Trustees of the Trust has determined that there is a reasonable likelihood that the adoption of this Shareholder Services Plan (the "Plan") will benefit the Trust, each of the Funds, and their respective shareholders; and
WHEREAS, on behalf of the Funds, the Trust desires to appoint New York Life Investment Management LLC ("NYLIM"), its affiliates, or independent third-party service providers to provide certain services to holders of the Class R2 Shares of the Funds under the terms and conditions described herein.
NOW, THEREFORE, the Trust hereby adopts this Plan, on behalf of the Class R2 Shares of the Funds, subject to the following terms and conditions:
A. Each Fund is authorized to pay NYLIM, its affiliates, or independent third-party service providers, as compensation for service activities (as defined in Paragraph D hereof) rendered to holders of the Class R2 Shares of the Fund, a shareholder service fee at the annual rate of 0.10% of the average daily net asset value of the Class R2 Shares of the Fund (the "Fee"). Such Fee shall be calculated daily and paid monthly or at such other intervals as the Board shall determine. NYLIM is authorized to pay its affiliates or independent third-party service providers for performing service activities consistent with this Plan.
B. This Plan shall not take effect until it, together with any related agreements, have been approved by votes of a majority of both: (a) the Trustees of the Trust and (b) those Trustees of the Trust who are not "interested persons" of the Trust (as defined in the Act) and who have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Plan Trustees"), cast in person at a meeting (or meetings) called for the purpose of voting on this Plan and such related agreements.
C. This Plan shall continue in full force and effect as to a Fund for so long as such continuance is specifically approved at least annually in the manner provided for approval of the Plan in Paragraph B hereof.
D. NYLIM shall provide to the Board, and the Board shall review at least quarterly, a written report of the amounts expended in connection with the performance of "service activities," as defined in this Paragraph D, and the purposes for which such expenditures were made. NYLIM shall submit only information regarding amounts expended for "service activities" to the Board in support of the Fee payable hereunder.
For purposes of the Plan, "service activities" shall include any personal services or account maintenance services, which may include but are not limited to activities in connection with the provision of personal, continuing services to investors in each Fund; transfer agent and subtransfer agent services for beneficial owners of Fund shares; receiving, aggregating and processing purchase and redemption orders; providing and maintaining retirement plan records; communicating periodically with shareholders and answering questions and handling correspondence from shareholders about their accounts; acting as the sole shareholder of record and nominee for shareholders; maintaining account records and providing beneficial owners with account statements; processing dividend payments; issuing shareholder reports and transaction confirmations; providing subaccounting services for Fund shares held beneficially; forwarding shareholder communications to beneficial owners; receiving, tabulating and transmitting proxies executed by beneficial owners; performing daily investment ("sweep") functions for shareholders; providing investment advisory services; and general account administration activities. Overhead and other expenses related to "service activities," including telephone and other communications expenses, may be included in the information regarding amounts expended for such activities.
E. The amount of the Fee payable to NYLIM, its affiliates, or independent third-party service providers under Paragraph A hereof is not related directly to expenses incurred by NYLIM, its affiliates, or independent third-party service providers on behalf of a Fund in servicing holders of Class R2 Shares of the Fund. The Fee set forth in Paragraph A hereof will be paid by a Fund to NYLIM, its affiliates, or independent third-party service providers until the Plan is terminated or not renewed with respect to that Fund. If the Plan is terminated or not renewed with respect to a Fund, any expenses incurred by NYLIM, its affiliates or independent third-party service providers, on behalf of the Fund, in excess of the payments of the Fee specified in Paragraph A hereof which NYLIM, its affiliates, or independent third-party service providers has received or accrued through the termination date are the sole responsibility and liability of NYLIM, its affiliates, or independent third-party service providers, and are not obligations of the Fund.
F. This Plan may be terminated as to any Fund at any time, without payment of any penalty, by vote of a majority of the Plan Trustees or by a vote of a majority of the outstanding voting securities of the affected class of a Fund on not more than 30 days' written notice to any other party to the Plan.
G. While this Plan is in effect, the selection and nomination of Trustees who are not interested persons (as defined in the Act) of the Trust shall be committed to the discretion of the Trustees who are not such interested persons.
H. The Trust shall preserve copies of this Plan and any related agreements and all reports made pursuant to Paragraph D hereof, for a period of not less than six years from the date of this Plan, any such agreement or any such report, as the case may be, the first two years in an easily accessible place.
I. This Plan may be amended at any time with respect to a Fund provided that any material amendment, including any amendment to increase materially the amount of the Fee provided for in Paragraph A, is invalid and unenforceable unless such amendment is approved in the manner provided for approval in Paragraph B hereof.
Adopted by the Board of Trustees of the Trust on December 8, 2003.
EXHIBIT (h)(6)(a)
SHAREHOLDER SERVICES PLAN
FOR CLASS R2 SHARES OF
THE MAINSTAY FUNDS
SCHEDULE A
(Amended and Restated as of June 28, 2005)
CAPITAL APPRECIATION FUND
COMMON STOCK FUND
CONVERTIBLE FUND
DIVERSIFIED INCOME FUND
INTERNATIONAL EQUITY FUND
GLOBAL HIGH INCOME FUND
GOVERNMENT FUND
HIGH YIELD CORPORATE BOND FUND
LARGE CAP GROWTH FUND
MAP FUND
MID CAP GROWTH FUND
MID CAP VALUE FUND
MONEY MARKET FUND
SMALL CAP GROWTH FUND
SMALL CAP VALUE FUND
TAX FREE BOND FUND
TOTAL RETURN FUND
VALUE FUND
EXHIBIT (H)(7)
SHAREHOLDER SERVICES PLAN
FOR CLASS R3 SHARES OF
THE MAINSTAY FUNDS
WHEREAS, The MainStay Funds, a Massachusetts business trust (the "Trust"), engages in business as an open-end management investment company and is registered under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, shares of beneficial interest of the Trust currently are divided into a number of separate series (each individually, a "Fund," and collectively, the "Funds") as set forth in Schedule A, as amended from time to time; and
WHEREAS, shares of the Funds may be issued in seven classes, including "Class R3"; and
WHEREAS, the Board of Trustees of the Trust has determined that there is a reasonable likelihood that the adoption of this Shareholder Services Plan (the "Plan") will benefit the Trust, each of the Funds, and their respective shareholders; and
WHEREAS, on behalf of the Funds, the Trust desires to appoint New York Life Investment Management LLC ("NYLIM"), its affiliates, or independent third-party service providers to provide certain services to holders of the Class R3 Shares of the Funds under the terms and conditions described herein.
NOW, THEREFORE, the Trust hereby adopts this Plan, on behalf of the Class R3 Shares of the Funds, subject to the following terms and conditions:
A. Each Fund is authorized to pay NYLIM, its affiliates, or independent third-party service providers, as compensation for service activities (as defined in Paragraph D hereof) rendered to holders of the Class R3 Shares of the Fund, a shareholder service fee at the annual rate of 0.10% of the average daily net asset value of the Class R3 Shares of the Fund (the "Fee"). Such Fee shall be calculated daily and paid monthly or at such other intervals as the Board shall determine. NYLIM is authorized to pay its affiliates or independent third-party service providers for performing service activities consistent with this Plan.
B. This Plan shall not take effect until it, together with any related agreements, has been approved by votes of a majority of both: (a) the Trustees of the Trust and (b) those Trustees of the Trust who are not "interested persons" of the Trust (as defined in the Act) and who have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Plan Trustees"), cast in person at a meeting (or meetings) called for the purpose of voting on this Plan and such related agreements.
C. This Plan shall continue in full force and effect as to a Fund for so long as such continuance is specifically approved at least annually in the manner provided for approval of the Plan in Paragraph B hereof.
D. NYLIM shall provide to the Board, and the Board shall review at least quarterly, a written report of the amounts expended in connection with the performance of "service activities," as defined in this Paragraph D, and the purposes for which such expenditures were made. NYLIM shall submit only information regarding amounts expended for "service activities" to the Board in support of the Fee payable hereunder.
For purposes of the Plan, "service activities" shall include any personal services or account maintenance services, which may include but are not limited to activities in connection with the provision of personal, continuing services to investors in each Fund; transfer agent and subtransfer agent services for beneficial owners of Fund shares; receiving, aggregating and processing purchase and redemption orders; providing and maintaining retirement plan records; communicating periodically with shareholders and answering questions and handling correspondence from shareholders about their accounts; acting as the sole shareholder of record and nominee for shareholders; maintaining account records and providing beneficial owners with account statements; processing dividend payments; issuing shareholder reports and transaction confirmations; providing subaccounting services for Fund shares held beneficially; forwarding shareholder communications to beneficial owners; receiving, tabulating and transmitting proxies executed by beneficial owners; performing daily investment ("sweep") functions for shareholders; providing investment advisory services; and general account administration activities. Overhead and other expenses related to "service activities," including telephone and other communications expenses, may be included in the information regarding amounts expended for such activities.
E. The amount of the Fee payable to NYLIM, its affiliates, or independent third-party service providers under Paragraph A hereof is not related directly to expenses incurred by NYLIM, its affiliates, or independent third-party service providers on behalf of a Fund in servicing holders of Class R3 Shares of the Fund. The Fee set forth in Paragraph A hereof will be paid by a Fund to NYLIM, its affiliates, or independent third-party service providers until the Plan is terminated or not renewed with respect to that Fund. If the Plan is terminated or not renewed with respect to a Fund, any expenses incurred by NYLIM, its affiliates or independent third-party service providers, on behalf of the Fund, in excess of the payments of the Fee specified in Paragraph A hereof which NYLIM, its affiliates, or independent third-party service providers has received or accrued through the termination date are the sole responsibility and liability of NYLIM, its affiliates, or independent third-party service providers, and are not obligations of the Fund.
F. This Plan may be terminated as to any Fund at any time, without payment of any penalty, by vote of a majority of the Plan Trustees or by a vote of a majority of the outstanding voting securities of the affected class of a Fund on not more than 30 days' written notice to any other party to the Plan.
G. While this Plan is in effect, the selection and nomination of Trustees who are not interested persons (as defined in the Act) of the Trust shall be committed to the discretion of the Trustees who are not such interested persons.
H. The Trust shall preserve copies of this Plan and any related agreements and all reports made pursuant to Paragraph D hereof, for a period of not less than six years from the date of this Plan, any such agreement or any such report, as the case may be, the first two years in an easily accessible place.
I. This Plan may be amended at any time with respect to a Fund provided that any material amendment, including any amendment to increase materially the amount of the Fee provided for in Paragraph A, is invalid and unenforceable unless such amendment is approved in the manner provided for approval in Paragraph B hereof.
Adopted by the Board of Trustees of the Trust on March 17, 2006.
SCHEDULE A
(As of January 1, 2006)
CAPITAL APPRECIATION FUND
COMMON STOCK FUND
CONVERTIBLE FUND
DIVERSIFIED INCOME FUND
GLOBAL HIGH INCOME FUND
GOVERNMENT FUND
HIGH YIELD CORPORATE BOND FUND
INTERNATIONAL EQUITY FUND
LARGE CAP GROWTH FUND
MAP FUND
MID CAP GROWTH FUND
MID CAP VALUE FUND
MONEY MARKET FUND
SMALL CAP GROWTH FUND
SMALL CAP VALUE FUND
TAX FREE BOND FUND
TOTAL RETURN FUND
VALUE FUND
EXHIBIT (h)(8)
[NEW YORK LIFE LOGO] 169 Lackawanna Avenue Parsippany, NJ 07054
www.nylim.com
August 1, 2005
Board of Trustees
The MainStay Funds
51 Madison Avenue
New York, NY 10010
Re: Expense Reimbursements
Dear Board of Trustees:
(1) This letter will confirm our intent that, in the event the annualized ratio of total ordinary operating expenses (excluding taxes, interest, litigation, extraordinary expenses, and brokerage and other transaction expenses relating to the purchase or sale of portfolio investments) to average daily net assets of Class A shares for each of the MainStay Funds listed below (the "Funds"), calculated daily in accordance with generally accepted accounting principles consistently applied, exceeds the percentage set forth below, we will waive fees or reimburse the expenses of each Fund (and each class thereof, in equal proportion) in the amount of such excess:
FUND EXPENSE LIMIT ---- ------------- MainStay Common Stock 1.30% MainStay Convertible 1.20% MainStay Diversified Income 1.30% MainStay Equity Index 0.65% MainStay Global High Income 1.40% MainStay Government 1.05% MainStay International Equity 1.75% MainStay Large Cap Growth 1.40% MainStay MAP 1.35% MainStay Mid Cap Growth 1.50% MainStay Mid Cap Value 1.35% MainStay Money Market 0.70% MainStay Small Cap Growth 1.48% MainStay Small Cap Value 1.90% MainStay Tax Free Bond 0.89% |
MainStay Total Return 1.19% MainStay Value 1.17% |
(2) Our undertaking to waive fees and reimburse expenses as stated above may not be terminated without prior approval of the Board of Trustees.
(3) The foregoing expense limitations supersede any prior agreement regarding expense limitations. Each expense limitation is an annual, not monthly, expense limitation, and is based on the fiscal years of the Funds. Consequently, if the amount of expenses accrued during a month is less than an expense limitation, the following shall apply: (i) we shall be reimbursed by the respective Fund(s) in an amount equal to such difference, but not in an amount in excess of any deductions and/or payments previously made during the year; and (ii) to the extent reimbursements are not made pursuant to (i), the Fund(s) shall establish a credit to be used in reducing deductions and/or payments which would otherwise be made in subsequent months of the year. We shall be entitled to reimbursement from a Fund of any fees waived pursuant to this arrangement if such reimbursement does not cause the Fund to exceed existing expense limitations, and the reimbursement is made within three years.
(4) We authorize the Funds and their administrator to reduce our monthly management fees to the extent necessary to effectuate the limitations stated in Paragraph 1, above. In the event accrued expenses exceed the limitations stated in Paragraph 1, above after the reduction in our management fees, we authorize the Funds and their administrator to invoice us quarterly for the difference. We will pay to the Funds any such amounts promptly after receipt of an invoice.
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
By: /s/ Gary E. Wendlandt
--------------------------------------
Gary E. Wendlandt
Chairman and Chief Executive Officer
|
ACKNOWLEDGED:
The MainStay FUNDS
By: /s/ Christopher O. Blunt
-----------------------------
Christopher O. Blunt
President
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EXHIBIT h(9)
AMENDMENT
TO THE
FUND ACCOUNTING AGREEMENT
WHEREAS, New York Life Investment Management LLC ("NYLIM") and The MainStay Funds (the "Trust") are parties to an Amended and Restated Fund Accounting Agreement dated August 1, 2002 (the "Agreement"); and
WHEREAS, the Trust and NYLIM desire to amend the Agreement to reflect the ability of NYLIM to delegate some or all of NYLIM's duties under the Agreement;
NOW, THEREFORE, the Trust and NYLIM agree that the Agreement shall be hereby amended to add the following paragraph to Section 20:
(e) With respect to any or all series of the Trust, NYLIM may enter into one or more contracts with a third party in which NYLIM delegates to such third party any or all of its duties specified in this Agreement, provided that such contract meets all the applicable requirements of the 1940 Act and rules thereunder.
IN WITNESS HEREOF, the parties hereto have executed this Amendment as of this 14th day of June, 2005.
THE MAINSTAY FUNDS
By: /s/ Christopher O. Blunt
-------------------------------
Christopher O. Blunt
President
|
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
By: /s/ Gary E. Wendlandt
---------------------------
Gary E. Wendlandt
Chairman and Chief Executive Officer
|
EXHIBIT h(10)
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is made as of the date set forth on the signature page by and between The MainStay Funds, a Massachusetts business trust (the "Trust"), and the trustee of the Trust whose name is set forth on the signature page (the "Trustee").
WHEREAS, the Trustee is a trustee of the Trust, and the Trust wishes the Trustee to continue to serve in that capacity; and
WHEREAS, the Declaration of Trust, dated as of January 9, 1986 (as amended, amended and restated, supplemented, or otherwise modified from time to time, the "Declaration of Trust"), and Bylaws of the Trust and applicable laws permit the Trust to contractually obligate itself to indemnify the Trustee to the fullest extent permitted by law;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual agreements set forth herein, the parties hereby agree as set forth below.
1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings:
(a) "Board" means the Board of Trustees of the Trust.
(b) "Change in Control" means during any period of two consecutive years (or less), a majority of the existing members of the Board of Trustees of the Trust at the commencement of that period cease, for any reason, to constitute at least a majority of the Board of Trustees.
(c) "Disabling Conduct" shall be as defined in Section 2 below.
(d) "Expenses" shall include without limitation all judgments, penalties, fines, amounts paid or to be paid in settlement, ERISA excise taxes, liabilities, losses, interest, expenses of investigation, attorneys' fees, retainers, court costs, transcript costs, fees of experts and witnesses, expenses of preparing for and attending depositions and other proceedings, travel expenses, duplicating costs, printing and binding costs, computerized legal research costs, telephone charges, postage, delivery service fees, and all other costs, disbursements or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or acting as a witness in a Proceeding.
(e) "Final decision" or "final judgment" shall mean a final adjudication by court order or judgment of the court or other body before which a matter is pending.
(f) "Independent counsel" shall mean a law firm, or a member of a law firm, that is experienced in matters of investment company law and neither at the time of designation is, nor in the five years immediately preceding such designation was, retained to represent (A) the Trust or the Trustee in any matter material to either, or (B) any other party to the Proceeding giving rise to a claim for indemnification or advancements hereunder. Notwithstanding the foregoing,
however, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Trust or the Trustee in an action to determine the Trustee's rights pursuant to this Agreement, regardless of when the Trustee's act or failure to act occurred.
(g) "Independent Trustee" shall mean a trustee of the Trust who is neither an "interested person" of the Trust as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended (the "Investment Company Act"), nor a party to the Proceeding with respect to which indemnification or advances are sought.
(h) The term "Proceeding" shall include without limitation any threatened, pending or completed claim, demand, threat, discovery request, request for testimony or information, action, suit, arbitration, alternative dispute resolution mechanism, investigation, hearing, or other proceeding, including any appeal from any of the foregoing, whether civil, criminal, administrative or investigative, whether formally or informally initiated, and shall also include any proceeding brought by the Trustee against the Trust if, but only if, the Trustee is the prevailing party in such proceeding against the Trust.
(i) The Trustee's "service to the Trust" shall include without limitation the Trustee's service as a trustee, officer, employee, agent or representative of the Trust, and his or her service at the request of the Trust as a director, officer, employee, agent or representative of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise.
2. INDEMNIFICATION. The Trust shall indemnify and hold harmless the Trustee against any Expenses actually and reasonably incurred by the Trustee in any Proceeding arising out of or in connection with the Trustee's service to the Trust, to the maximum extent permitted by the Massachusetts General Laws, Chapter 182, et al., (the "Massachusetts General Laws"), the Investment Company Act, and the Declaration of Trust as now or hereafter in force, subject to the conditions set forth in subparagraphs (a) and (b) below:
(a) Disabling Conduct. The Trustee shall be indemnified pursuant to this
Section 2 against any Expenses unless: (i) the Trustee incurred such Expenses by
reason of the Trustee's willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his or her office as
defined in Section 17(h) of the Investment Company Act; or (ii) the Trustee did
not act in good faith in the reasonable belief that such Trustee's actions were
in or not opposed to the best interests of the Trust (the conduct described in
the foregoing clauses (i) and (ii) shall hereinafter be referred to as
"Disabling Conduct").
(b) Conditions to Indemnification. The Trustee shall be indemnified pursuant to this Section 2 if either:
(1) the court or other body before which the Proceeding relating to the Trustee's liability is brought shall have rendered a final decision on the merits, finding that the Trustee is not liable, is not liable by reason of Disabling Conduct, and/or is entitled to indemnification;
(2) the Proceeding against the Trustee shall have been dismissed for insufficiency of evidence of any Disabling Conduct with which the Trustee has been charged; or
(3) in the absence of such a final decision, dismissal or withdrawal, a determination shall have been made that the Trustee is not liable by reason of Disabling Conduct, based upon a review of the available facts, by either the vote of a majority of a quorum of Independent Trustees or by Independent Counsel in a written opinion.
3. ADVANCEMENT OF EXPENSES. The Trust shall promptly advance funds to the Trustee to cover any and all Expenses the Trustee incurs with respect to any Proceeding arising out of or in connection with the Trustee's service to the Trust, to the fullest extent permitted by the Massachusetts General Laws, the Investment Company Act and the Declaration of Trust, as now or hereafter in force, subject to the provisions of subparagraphs (a) and (b) below.
(a) Affirmation of Conduct and Undertaking. A request by the Trustee for advancement of funds pursuant to this Section 3 shall be accompanied by the Trustee's (i) written affirmation of his or her good faith belief that he or she met the standard of conduct necessary for indemnification, and (ii) (or on the Trustee's behalf) written undertaking to repay such advancements upon the occurrence of any of the events barring indemnification set forth in subparagraphs 2(a) through (c).
(b) Conditions to Advancement. Funds shall be advanced to the Trustee pursuant to this Section 3 if (1) the Trust is insured against losses arising by reason of any such lawful advancements to the Trustee; (2) a determination is made by the vote of a majority of a quorum of Independent Trustees, or by Independent Counsel in a written opinion, based on a review of the readily available facts then known (as opposed to a full trial-type inquiry), that there is reason to believe that the Trustee ultimately will be found to be entitled to indemnification pursuant to Section 1, or (3) in the absence of insurance or such a determination by Independent Trustees or Independent Counsel, such undertaking as required by Paragraph 3(a) above is secured by a surety bond or other appropriate security provided by the Trustee. In any such determination by the Independent Trustees or Independent Counsel pursuant to subpart (2) of this subparagraph, the Trustee shall be afforded a rebuttable presumption that the Trustee did not engage in Disabling Conduct.
4. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION AND ADVANCEMENTS. A request by the Trustee for indemnification or advancement of Expenses shall be made in writing, and shall be accompanied by such relevant documentation and information as is reasonably available to the Trustee. The Secretary of the Trust shall promptly advise the Board of such request.
(a) Methods of Determination. Upon the Trustee's request for indemnification or advancement of Expenses, a determination with respect to the Trustee's entitlement thereto shall be made: (i) if there has been no change of control, by a quorum of the Board consisting of Independent Trustees, or (if such a quorum is not obtainable or such Independent Trustees so direct) by Independent Counsel, or (ii) if there has been a change of control, by Independent Counsel; provided in any event that with regard to advancements no such determination shall be
necessary if (x) the Trust shall have received written confirmation in reasonably acceptable form that the Trust is insured against all such losses arising by reason of any lawful advancements and that the insurer will pay all Expenses of the Trustee in a reasonably prompt manner, or (y) the Trustee has provided an adequate security interest in addition to his affirmation and undertaking to repay (as required by Paragraph 3(a) above). The Trustee shall cooperate with the person or persons making such determination, including without limitation providing to such persons upon reasonable advance request any documentation or information that is not privileged or otherwise protected from disclosure and is reasonably available to the Trustee and reasonably necessary to such determination. Any Expenses incurred by the Trustee in so cooperating shall be borne by the Trust, irrespective of the determination as to the Trustee's entitlement to indemnification or advancement of Expenses.
(b) Independent Counsel. If the determination of entitlement to indemnification or advancement of Expenses is to be made by Independent Counsel, the Independent Counsel shall be selected by the Board, and the Trust shall give written notice to the Trustee advising the Trustee of the identity of the Independent Counsel selected. The Trustee may, within five days after receipt of such written notice, deliver to the Trust a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirement of independence set forth in the definition of Independent Counsel in Section 1, and shall set forth with particularity the factual basis of such assertion. Upon receipt of such objection, the Board shall select another Independent Counsel.
If within fourteen days after submission by the Trustee of a written request for indemnification or advancement of expenses no such Independent Counsel shall have been selected by the Board (whether or not an objection by the Trustee is the cause of the delay), then either the Trust or the Trustee may petition a court of competent jurisdiction in Massachusetts for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom an objection is favorably resolved or the person so appointed shall act as Independent Counsel.
The Trust shall pay all reasonable fees and Expenses charged or incurred by Independent Counsel in connection with his or her determinations pursuant to this Agreement, and shall pay all reasonable fees and Expenses incident to the procedures described in this paragraph, regardless of the manner in which such Independent Counsel was selected or appointed.
(c) Failure to Make Timely Determination. If the person or persons empowered or selected under subparagraphs (a) or (b) to determine whether the Trustee is entitled to indemnification or advancement of Expenses shall not have made such determination within thirty days after receipt by the Trust of the request therefore, the requisite determination of entitlement to indemnification or advancement of Expenses shall be deemed to have been made, and the Trustee shall be entitled to such indemnification or advancement, absent (i) an intentional misstatement by the Trustee of a material fact, or an intentional omission of a material fact necessary to make the Trustee's statement not materially misleading, in connection with the request for indemnification or advancement of Expenses, or (ii) a prohibition of such indemnification or advancements under applicable law; provided, however, that such period may be extended for a reasonable period of time, not to exceed an additional thirty days, if the person
or persons making the determination in good faith require such additional time to obtain or evaluate documentation or information relating thereto.
(d) Payment Upon Determination of Entitlement. If a determination is made pursuant to Sections 2, 3, and 4 (a) through (c) above that the Trustee is entitled to indemnification or advancement of Expenses, payment of any indemnification amounts or advancements owing to the Trustee shall be made within ten days after such determination (and, in the case of advancements of further Expenses, within ten days after submission of supporting information).
(e) Arbitration Upon Determination of Non-Entitlement. If a determination is made that the Trustee is not entitled to indemnification or advancement of Expenses pursuant to Sections 2 through 4(c) above, the Trustee shall be entitled to an adjudication of the Trustee's entitlement to such indemnification or advancement by a single arbitrator appointed by the American Arbitration Association, New York City Office, in an arbitration conducted pursuant to that Association's then-existing commercial arbitration rules. The Trustee shall commence such arbitration seeking an adjudication within one year following the date on which receives the determination denying indemnification or advancement. In any such proceeding, the Trustee and the Trust shall be bound by the determination of the arbitrator, subject to rights of appeal to a court of competent jurisdiction to review such an arbitration award and to vacate such an award only on one or more of the bases set forth in Sections 10 and 11 of the Federal Arbitration Act, 9 U.S.C. Sections 10 and 11. The Trust shall advance the costs of such an arbitration to the American Arbitration Association but the arbitrator shall, as part of the award, make a final award of such costs (including arbitrator's fees) to the prevailing party in the arbitration.
SECTION 5. GENERAL PROVISIONS.
(a) No Indemnification if Otherwise Reimbursed. The Trust shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that the Trustee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.
(b) Continuation of Provisions. This Agreement shall be binding upon and inure to the benefit of all successors of the Trust, including without limitation any transferee of all or substantially all assets of the Trust and any successor by merger, consolidation, or operation of law, and shall inure to the benefit of the Trustee's spouse, heirs, assigns, devisees, executors, administrators and legal representatives. No amendment of the Declaration of Trust or Bylaws of the Trust shall limit or eliminate the right of the Trustee to indemnification and advancement of expenses set forth in this Agreement. Moreover, unless contrary to applicable law, the procedures set forth in Paragraphs 3 through 5 of this Agreement shall be the exclusive means by which the parties' rights and obligations with regard to indemnification and advancement of Expenses shall be determined, regardless of whether those rights and obligations arise by operation of law, Declaration of Trust or this Agreement.
(c) Selection of Counsel. The Trustee agrees to choose Counsel to represent him/her in any Proceeding for which indemnification is claimed in a manner designed to minimize Expenses, consistent with the goal of vigorously defending the Trustee. In that regard, the
Trustee shall seek joint representation by Counsel with other Trustee defendants in any such Proceeding to the extent such Trustees' interests may be jointly represented by Counsel consistent with the applicable canons of ethics regarding conflicts of interest. Moreover, where the Trust and the Trustee are both defendants in a Proceeding, the Trustee and Trust shall agree to be jointly represented by Counsel to the extent consistent with the applicable canons of ethics regarding conflicts of interest.
(d) D&O Insurance. For a period of six years after the Trustee has ceased
to provide services to the Trust, the Trust shall purchase and maintain in
effect one or more policies of insurance on behalf of the Trustee which
collectively provide limits of coverage for claims made against the Trustee in
the event of the insolvency of the Trust which are consistent with the limits of
coverage available for that Trustee in such circumstances when he or she ended
service as a Trustee, unless (1) such insurance is not reasonably available, or
(2) (i) the limits of coverage which the Trustee had upon the termination of his
service as a Trustee is in excess of that provided to any of the current
Trustees and (ii) the current Board of Trustees provides the coverage to the
Trustee at least equal to the highest limit available to those current Trustees.
(e) Subrogation. In the event of any payment by the Trust pursuant to this Agreement, the Trust shall be subrogated to the extent of such payment to all of the rights of recovery of the Trustee, who shall, upon reasonable written request by the Trust and at the Trust's expense, execute all such documents and take all such reasonable actions as are necessary to enable the Trust to enforce such rights. Nothing in this Agreement shall be deemed to diminish or otherwise restrict the right of the Trust or the Trustee to proceed or collect against any insurers and to give such insurers any rights against the Trust under or with respect to this Agreement, including without limitation any right to be subrogated to the Trustee's rights hereunder, unless otherwise expressly agreed to by the Trust in writing, and the obligation of such insurers to the Trust and the Trustee shall not be deemed to be reduced or impaired in any respect by virtue of the provisions of this Agreement.
(f) Notice of Proceedings. The Trustee shall promptly notify the Trust in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document commencing any Proceeding which may be subject to indemnification or advancement of expense pursuant to this Agreement, but no delay in providing such notice shall in any way limit or affect the Trustee's rights or the Trust's obligations under this Agreement. Thereafter, the Trustee, and/or his Counsel, shall work with the representative(s) of the Trust to keep the Trust informed of the status of the Proceeding and the positions taken by the parties to the Proceeding as the matter progresses.
(g) Notices. All notices, requests, demands and other communications to a party pursuant to this Agreement shall be in writing, addressed to such party (and/or designated representative) at the address(es) specified on the signature page of this Agreement (or such other address as may have been furnished by such party by notice in accordance with this paragraph), and shall be deemed to have been duly given when delivered personally (with a written receipt signed by the addressee or his/her representative) or two days after being sent (1) by certified or registered mail, postage prepaid, return receipt requested, or (2) by nationally recognized overnight courier service.
(h) Severability. If any provision of this Agreement shall be held to be
invalid, illegal, or unenforceable, in whole or in part, for any reason
whatsoever, (1) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any provision that is not itself invalid,
illegal or unenforceable) shall not in any way be affected or impaired thereby,
and (2) to the fullest extent possible, the remaining provisions of this
Agreement shall be construed so as to give effect to the intent manifested by
the provision held invalid, illegal or unenforceable.
(i) Modification and Waiver. This Agreement supersedes any existing or prior agreement between the Trust and the Trustee pertaining to the subject matter of indemnification, advancement of expenses and insurance and any such prior written or oral agreement shall be of no further force or effect. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both parties or their respective successors or legal representatives. Any waiver by either party of any breach by the other party of any provision contained in this Agreement to be performed by the other party must be in writing and signed by the waiving party or such party's successor or legal representative, and no such waiver shall be deemed a waiver of similar or other provisions at the same or any prior or subsequent time.
(j) Headings. The headings of the Sections of this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.
(k) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be an original, and all of which when taken together shall constitute one document.
(l) Applicable Law. This Agreement shall be governed by and construed and enforce in accordance with the laws of the Commonwealth of Massachusetts without reference to principles of conflict of laws of the Commonwealth of Massachusetts.
(THE REMAINDER OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK.
THE SIGNATURE PAGE FOLLOWS.)
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth below.
Dated: __________________
By:_______________________________ Name: Christopher O. Blunt Title: President
Address for notices:
169 Lackawanna Avenue
Parsippany, NJ 07054
TRUSTEE:
By: _____________________________
Name: [ ]
Address for notices:
Exhibit h (11)
MASTER FUND SUB-ACCOUNTING AND SUB-ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of the 30th day of June, 2005, by and between New York Life Investment Management LLC ("NYLIM"), and Investors Bank & Trust Company, a Massachusetts trust company (the "Bank").
WHEREAS, NYLIM is the manager and/or administrator of the Funds listed on Appendix A (each a "Fund", collectively "the Funds"), and, each Fund is an open-end investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act") and is authorized to issue shares of common stock (the "Shares") in separate series with each such series representing interests in a separate portfolio of securities and other assets; and
WHEREAS, the Bank provides services as a fund accounting agent and administrator of registered investment companies; and
WHEREAS, NYLIM provides certain administration and accounting services to the series of the Funds and NYLIM wishes to continue to perform such services; and
WHEREAS, NYLIM and the Bank desire to enter into an agreement pursuant to which the Bank shall provide fund sub-accounting and sub-administrative services on behalf of those certain investment portfolios of the Funds listed on Appendix A hereto (each hereinafter, a "Portfolio"), as such Appendix A may be amended from time to time
NOW, THEREFORE, in consideration of the mutual promises and agreements herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:
1. APPOINTMENT.
NYLIM hereby retains the Bank as sub-administrator and fund sub-accountant of the Portfolios for the period and on the terms set forth in this Agreement. The Bank accepts such appointment and agrees to render the services herein set forth, for the compensation as may be agreed to from time to time in writing between the parties.
2. DEFINITIONS.
Whenever used herein, the terms listed below will have the following meaning:
2.1 Authorized Person. Authorized Person will mean any of the persons duly authorized to give Proper Instructions or otherwise act on behalf of NYLIM, and set forth in a certificate in such form as may be acceptable to the Bank, it being understood that upon the occurrence of any change in the information set forth in the most recent certification on file (including without limitation any person named in the most recent certification who is no longer an Authorized Person as designated therein), NYLIM will provide a new or amended certification setting forth the change and the new, additional or omitted names or signatures. The Bank will be entitled to rely and act upon any Proper Instruction given to it by NYLIM which has been signed by Authorized Persons named in the most recent certification received by the Bank.
2.2 Proper Instructions. Unless otherwise provided in this agreement, the Bank shall act only upon Proper Instructions. Proper Instructions shall mean instructions (which may be continuing
instructions) to the Bank regarding the provision of services under this Agreement given by an Authorized Person, such instructions to be given in such form and manner as the Bank and a Fund shall agree upon from time to time. Oral instructions will be considered Proper Instructions if the Bank reasonably believes them to have been given by an Authorized Person. NYLIM shall cause all oral instructions to be promptly confirmed in writing by an Authorized Person. The Bank shall act upon and comply with any subsequent Proper Instruction which modifies a prior instruction and the sole obligation of the Bank with respect to any follow-up or confirming instruction shall be to make reasonable efforts to detect any discrepancy between the original instruction and such confirmation and to report such discrepancy to an Authorized Person. NYLIM shall be responsible, at its own expense, for taking any action, including any reprocessing, necessary to correct any such discrepancy or error, and to the extent such action requires the Bank to act, NYLIM shall give the Bank specific Proper Instructions as to the action required. Proper Instructions may include communication effected directly between electro-mechanical or electronic devices. The Bank shall make available to NYLIM, typically by 7:00 p.m. EST each business day, all transaction activity posted on such Fund's account(s) on such business day, together with historical transaction activity for such Fund.
3. SERVICES AS PORTFOLIO ACCOUNTANT.
(a) Subject to the direction and control of NYLIM, as manager and/or
administrator of the Funds, and utilizing information provided by each Fund and
its current and prior agents and service providers, the Bank will, all as set
forth in Appendixes B and C hereto: (1) calculate daily net asset values of the
Portfolio (i) in accordance with each Fund's operating documents and valuation
procedures adopted by the Board of Trustees/Directors of each Fund as provided
to the Bank, (ii) based on security valuations provided or directed by each
Fund, each Fund's investment adviser, and pricing service(s) as provided herein,
and (iii) based on expense accrual amounts provided by the Fund or a
representative or agent of the Fund; (2) maintain all general ledger accounts
and related sub-ledgers needed as a basis for the calculation of each
Portfolio's net asset value; (3) communicate at an agreed-upon time the net
asset values for each Portfolio to parties as agreed upon from time to time, and
(4) assist NYLIM in conducting various aspects of the Funds' administrative
operations. The duties of the Bank shall be confined to those expressly set
forth therein, and no implied duties are assumed by or may be asserted against
the Bank hereunder. The Bank represents and warrants that it will use reasonable
best efforts in performing its duties outlined in Appendixes B and C hereto and
will perform such duties in compliance with the requirements of the federal
securities laws, and in conformity with industry practices.
(b) NYLIM shall use its reasonable best efforts to cause the officers, directors, investment adviser(s) and sub-advisers, legal counsel, independent accountants, administrator, transfer agent, and other service providers and agents, past or present, for each Portfolio to cooperate with the Bank and to provide the Bank with such information, documents and advice relating to the Portfolio and the Fund as necessary and/or appropriate or as requested by the Bank, in order to enable the Bank to perform its duties hereunder. In connection with its duties hereunder, the Bank shall (without investigation or verification) be entitled and is hereby instructed to, rely upon any and all Proper Instructions, advice, information or documents provided to the Bank by any Authorized Person. The Bank shall be entitled to rely on any document that it reasonably believes to be genuine and to have been signed or presented by an Authorized Person. The Bank shall not be held to have notice of any change of authority of any Authorized Person until receipt of written notice thereof from the Fund. As used in this Agreement, the term "investment adviser" includes all sub-advisers or persons performing similar services to the Funds. Upon termination of this Agreement, the Bank will deliver all records related to the services performed under this agreement.
(c) To the extent required by Rule 31a-3 under the 1940 Act, the Bank hereby agrees that all records which it maintains for each Fund pursuant to its duties hereunder are the property of the Fund and
further agrees to surrender promptly to the Fund any of such records upon the Fund's request. Subject to the terms of Section 6, and where applicable, the Bank further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records which are maintained by the Bank for the Fund.
(d) The Bank shall employ one or more pricing services, as directed by NYLIM, on behalf of each Fund, to determine valuations of portfolio securities. NYLIM shall identify to the Bank the pricing service(s) to be utilized on behalf of each Fund. The Bank shall value the securities at prices provided by such services. For those securities where prices are not provided by the pricing service(s) utilized by the Bank, each Fund's Board of Directors/Trustees or its Valuation Committee shall approve, in good faith, the method for determining the fair value of the securities and provide a copy of the Fund's Valuation Procedures to the Bank. The Fund's investment adviser shall determine or obtain the valuation of the securities in accordance with those procedures and shall deliver to the Bank the resulting prices for use in connection with its marking to market the value of a Portfolio's portfolio securities. The Bank is authorized to rely on the prices provided by such service(s) or by the Fund's investment adviser(s) or other authorized representative of the Fund without investigation or verification.
(e) Each party will comply with all applicable requirements of the 1940 Act, the Internal Revenue Code of 1986, as amended, the USA PATRIOT ACT of 2002, the Sarbanes Oxley Act of 2002, and with respect to such laws, rules and regulations promulgated thereunder, and the policies and limitations of each Portfolio relating to the portfolio investments as set forth in the Prospectus and Statement of Additional Information, or as otherwise directed in Proper Instructions. The Bank' monitoring and other functions hereunder shall not relieve the Board and the investment adviser(s) of their primary day-to-day responsibility for assuring such compliance.
(f) The Bank shall use its reasonable best efforts to cause its employees who are deemed to be "access persons" under a Fund's code of ethics to report all personal securities transactions as required by such code of ethics.
4. FUND EVALUATION AND YIELD CALCULATION.
(a) Fund Evaluation. The Bank shall compute and, unless otherwise directed
by the Board of a Fund, determine as of the close of regular trading on the New
York Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by the
Board of a Fund, the net asset value and the public offering price of a share of
capital stock of each Fund, such determination to be made in accordance with the
provisions of the Articles and By-laws of the Fund and the Prospectus and
Statement of Additional Information relating to the Fund, as they may from time
to time be amended, and any applicable resolutions of the Board at the time in
force and applicable; and promptly to notify the Fund, the proper exchange and
the NASD or such other persons as the Fund may request of the results of such
computation and determination. In computing the net asset value hereunder, the
Bank may rely in good faith upon information furnished to it by any Authorized
Person in respect of (i) the manner of accrual of the liabilities of the Fund
and in respect of liabilities of a Fund not appearing on its books of account
kept by the Bank, (ii) reserves, if any, authorized by the Board or that no such
reserves have been authorized, (iii) the source of the quotations to be used in
computing the net asset value, (iv) the value to be assigned to any security for
which no price quotations are available, and (v) the method of computation of
the public offering price on the basis of the net asset value of the shares, and
the Bank shall not be responsible for any loss occasioned by such reliance or
for any good faith reliance on any quotations received from a source pursuant to
(iii) or (iv) above.
(b) Yield Calculation. The Bank will compute the performance results of the Portfolios (the "Yield Calculation") in accordance with the provisions of Release No. 33-6753 and Release No. IC-
16245 (February 2, 1988) (the "Releases") promulgated by the Securities and Exchange Commission, and any subsequent amendments to, published interpretations of or general conventions accepted by the staff of the Securities and Exchange Commission with respect to such releases or the subject matter thereof ("Subsequent Staff Positions"), and as may be defined in the Funds' prospectuses and statements of additional information, subject to the terms set forth below:
(i) The Bank shall compute the Yield Calculation for each Portfolio for the stated periods of time as shall be mutually agreed upon, and communicate in a timely manner the result of such computation to NYLIM.
(ii) In performing the Yield Calculation for a Portfolio, the Bank will derive the items of data necessary for the computation from the records it generates and maintains for the Portfolio pursuant Section 16 hereof. The Bank shall have no responsibility to review, confirm, or otherwise assume any duty or liability with respect to the accuracy or correctness of any such data supplied to it by NYLIM, the Fund, any of the Fund's designated agents or any of the Fund's designated third party providers.
(iii) At the request of the Bank, a Fund shall provide, and the Bank shall be entitled to rely on, written standards and guidelines to be followed by the Bank in interpreting and applying the computation methods set forth in the Releases or any Subsequent Staff Positions as they specifically apply to a Portfolio. In the event that the computation methods in the Releases or the Subsequent Staff Positions or the application to a Portfolio of a standard or guideline is not free from doubt or in the event there is any question of interpretation as to the characterization of a particular security or any aspect of a security or a payment with respect thereto (e.g., original issue discount, participating debt security, income or return of capital, etc.) or otherwise or as to any other element of the computation which is pertinent to the Fund, NYLIM, the Fund or any of the Fund's designated agents shall have the full responsibility for making the determination of how the security or payment is to be treated for purposes of the computation and how the computation is to be made and shall inform the Bank thereof on a timely basis. The Bank shall have no responsibility to make independent determinations with respect to any item which is covered by this Section, and shall not be responsible for its computations made in accordance with such determinations so long as such computations are mathematically correct.
(iv) NYLIM shall keep the Bank informed of all publicly available information and of any non-public advice, or information obtained by the Fund from its independent auditors or by its personnel or the personnel of its investment adviser, or Subsequent Staff Positions related to the computations to be undertaken by the Bank pursuant to this Agreement and the Bank shall not be deemed to have knowledge of such information (except as contained in the Releases) unless it has been furnished to the Bank in writing.
5. FEES; DELEGATION; EXPENSES.
(a) For the services rendered by the Bank hereunder, NYLIM will pay to the Bank such fees at such rate as shall be agreed upon in writing by the parties from time to time. NYLIM will also pay or reimburse the Bank from time to time for any necessary and proper disbursements, expenses and charges made or incurred by the Bank in the performance of this Agreement (including any duties listed on any Schedule hereto, if any, but excluding Bank's overhead) including any indemnities for any loss, liabilities or expense to the Bank as provided herein. The Bank will also be entitled to reimbursement by NYLIM for all reasonable expenses incurred in conjunction with termination of this Agreement and any conversion or transfer work done in connection therewith, except with respect to a termination by NYLIM due to a breach by Bank of this Agreement.
(b) Fees and expenses will be calculated monthly. Fees and expenses are owed between Bank and NYLIM. No claim, including a lien, shall be permitted against a Portfolio by Bank. NYLIM will have sixty (60) days after the receipt of an invoice to dispute any charge that appears on such invoice. After such sixty (60) day period, the invoice will be deemed to be complete and accurate and may no longer be disputed.
(c) The Bank shall not be required to pay or finance any costs and expenses incurred in the operation of a Portfolio, including, but not limited to: security pricing services; outside auditing and legal expenses; expenses in connection with the electronic transmission of documents and information; research and statistical data services; fees and expenses associated with internet, e-mail and other related activities; and extraordinary expenses.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION.
Both parties hereto agree than any non-public information obtained hereunder concerning the other party or a Fund is confidential and may not be disclosed without the consent of the other party or the Fund, as the case may be, except as may be required by applicable law or at the request of a governmental agency. The parties further agree that a breach of this provision would irreparably damage the other party and accordingly agree that each of them is entitled, in addition to all other remedies at law or in equity, to an injunction or injunctions without bond or other security to prevent breaches of this provision.
The Bank agrees on behalf of itself and its employees to treat confidentially and as proprietary information of NYLIM and of each Fund and nonpublic personal information of the Funds' "customers" (each as defined in Rule 3 of Regulation S-P) (collectively, "Confidential Information"), not to use such Confidential Information for any purpose other than performance of its responsibilities and duties hereunder, and not to disclose such Confidential Information except where the Bank may be exposed to civil or criminal proceedings for failure to comply, when requested to divulge such information by duly constituted authorities or court process, when subject to governmental or regulatory audit or investigation, or when so requested by NYLIM on behalf of a Fund. In case of any requests or demands for inspection of the records of a Portfolio, the Bank will endeavor to notify NYLIM promptly and to secure instructions from a representative of NYLIM as to such inspection. Records and information which have become known to the public through no wrongful act of the Bank or any of its employees, agents or representatives, and information which was already in the possession of the Bank prior to receipt thereof, shall not be subject to this paragraph. The parties agree that they shall abide by the provisions of the Gramm-Leach-Bliley Act ("GLB") and other applicable privacy laws and shall each establish commercially reasonable controls to ensure the confidentiality of the Confidential Information and to ensure that the Confidential Information is not disclosed contrary to the provisions of this Agreement, GLB or any other applicable privacy laws and regulations.
7. LIMITATION OF LIABILITY.
(a) Notwithstanding anything in this Agreement to the contrary, in no event shall the Bank or any of its officers, directors or employees (collectively, the "Bank Indemnified Parties") be liable to NYLIM or any third party, and NYLIM shall indemnify and hold the Bank and the Bank Indemnified Parties harmless from and against any and all loss, damage, liability, actions, suits, claims, and reasonable costs and expenses, including reasonable legal fees, (a "Claim") arising as a result of any act or omission of the Bank or any Bank Indemnified Party under this Agreement, except to the extent any such Claim results from the negligence, willful misfeasance, bad faith or reckless disregard of its duties on the part of the Bank or any Bank Indemnified Party. Without limiting the foregoing, neither the Bank nor the Bank Indemnified Parties shall be liable for, and the Bank and the Bank Indemnified Parties shall be indemnified against, any Claim arising as a result of:
(i) Any act or omission by the Bank or any Bank Indemnified Party in good faith reliance upon the terms of this Agreement, any Officer's Certificate, Proper Instructions, resolution of the Board of Directors/Trustees of a Fund, telegram, telecopier, notice, request, certificate or other instrument reasonably believed by the Bank to be genuine; or
(ii) Information relied on in good faith by the Bank and supplied by any Authorized Person in connection with the calculation of (i) the net asset value and public offering price of the shares of capital stock of a Fund or (ii) yield calculations;
(b) The Bank agrees to indemnify and hold harmless NYLIM and its affiliates and their officers and employees ("NYLIM Indemnified Parties") from and against any and all Claims to the extent resulting from the negligence, willful malfeasance, bad faith, reckless disregard of its duties or breach of this Agreement on the part of the Bank, except to the extent any such Claim results from the negligence or willful malfeasance of the NYLIM Indemnified Parties.
(c) Notwithstanding anything to the contrary in this Agreement, neither party shall be liable to the other party or any third party for lost profits or lost revenues or any special, consequential, punitive or incidental damages of any kind whatsoever in connection with this Agreement or any activities hereunder.
8. TERM AND TERMINATION.
(a) The term of this Agreement shall be three years commencing upon the date hereof (the "Initial Term"), unless earlier terminated as provided herein. After the expiration of the Initial Term, the term of this Agreement shall automatically renew for successive one-year terms (each a "Renewal Term") unless written notice of non-renewal is delivered by the non-renewing party to the other party no later than ninety days if NYLIM is the non-renewing party, and one hundred eighty days, if Bank is the non-renewing party prior to the expiration of the Initial Term or any Renewal Term, as the case may be.
Either party hereto may terminate this Agreement prior to the expiration of the Initial Term or any Renewal Term in the event the other party violates any material provision of this Agreement, provided that the terminating party gives written notice of such violation to the other party and such party does not cure such violation within 90 days of receipt of such notice. The Bank's right to termination shall be limited to the Portfolio in respect of which a violation occurred. Termination by either party with respect to a Fund or a Portfolio will not affect the terms of this Agreement with respect to other Funds or Portfolios. This Agreement shall automatically terminate with respect to a Fund sixty (60) days after that Fund's Board of Directors/Trustees votes in person or by consent to terminate the agreement(s) between the Fund and NYLIM pursuant to which NYLIM provides the Fund with administrative and accounting services.
(b) Notwithstanding anything herein to the contrary, upon the termination of this Agreement or the liquidation of a Portfolio or the Fund, the Bank shall deliver the records of the Portfolio and/or Fund as the case may be, in the form maintained by the Bank (to the extent permitted by applicable license agreements) to NYLIM on behalf of the Fund or person(s) designated by the Fund at NYLIM's cost and expense and thereafter NYLIM, the Fund or its designee shall be solely responsible for preserving the records for the periods required by all applicable laws, rules and regulations. NYLIM shall be responsible for all expenses associated with the movement (or duplication) of records and materials and conversion thereof to a successor fund accounting agent, including all reasonable trailing expenses incurred by the Bank, except for a termination by NYLIM due to a breach of this Agreement by Bank. In addition, in the event of termination of this Agreement, or the proposed liquidation or merger of a Portfolio, and NYLIM requests the Bank to provide additional services to those outlined in this
Agreement in connection therewith, the Bank shall provide such services and be entitled to such compensation as the parties may mutually agree.
(c) NYLIM may terminate this Agreement upon 30 days' notice in the event
(i) Bank is finally convicted of violating any securities law, banking law or
other applicable law, (ii) Bank fails to cure a curable material SAS 70
exception relating to the services performed by Bank hereunder within 90 days,
or (iii) any other event or incident occurs which adversely affects the ability
of the Bank to perform the services required of it hereunder in a material
respect. Any such termination will be deemed to be a termination by NYLIM for a
breach of this Agreement by Bank.
9. NOTICES.
Any notice or other instrument in writing authorized or required by this Agreement to be given to either party hereto will be sufficiently given if addressed to such party and delivered via (i) United States Postal Service registered mail, (ii) telecopier with written confirmation, (iii) hand delivery with signature to such party at its office at the address set forth below, namely:
(a) In the case of notices sent to NYLIM to:
Jeffrey Gaboury
Managing Director, Fund Accounting & Administration
New York Life Investment Management LLC
169 Lackawanna Avenue
Parsippany, NJ 07054
Marguerite E. H. Morrison
Managing Director & Associate General Counsel
New York Life Investment Management LLC
169 Lackawanna Avenue
Parsippany, NJ 07054
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company 200 Clarendon Street, P.O. Box 9130 Boston, Massachusetts 02117-9130 Attention: Christopher E. Jones, Director - Client Management With a copy to: John E. Henry, General Counsel
or at such other place as such party may from time to time designate in writing.
10. AMENDMENTS.
This Agreement may not be altered or amended, except by an instrument in writing, executed by both parties.
11. PARTIES.
This Agreement will be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement will not be assignable by
NYLIM without the written consent of the Bank or by the Bank without the written
consent of NYLIM; and provided further that termination proceedings pursuant to
Section 8 hereof will not be deemed to be an assignment within the meaning of
this provision.
12. GOVERNING LAW.
This Agreement and all performance hereunder will be governed by the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions.
13. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument.
14. ENTIRE AGREEMENT.
This Agreement, together with its Appendices, constitutes the sole and entire agreement between the parties relating to the subject matter herein and does not operate as an acceptance of any conflicting terms or provisions of any other instrument and terminates and supersedes any and all prior agreements and undertakings between the parties relating to the subject matter herein.
15. LIMITATION OF FUNDS.
The Bank agrees that the obligations assumed by NYLIM hereunder shall be limited in all cases to the assets of NYLIM and that the Bank shall not seek satisfaction of any such obligation from the officers, agents, employees, trustees, or shareholders of the Funds, or any portfolio of a Fund.
16. MAINTENANCE AND AVAILABILITY OF RECORDS.
The Bank will prepare and maintain records with respect to transactions for which the Bank is responsible pursuant to the terms and conditions of this Agreement, and in compliance with the applicable rules and regulations of the 1940 Act. The books and records pertaining to a Fund that are in possession of the Bank shall be the property of the Fund.
The books and records of the Bank pertaining to its actions under this Agreement and reports by the Bank or its independent accountants concerning its accounting system, and internal accounting controls will be open to inspection and audit at all times during the Bank's normal business hours, upon reasonable notice, by external auditors employed by the appropriate Fund. Such books and records shall include reports of sufficient scope and in sufficient detail as may reasonably be required by a Fund to provide reasonable assurance that any material compliance inadequacies would be disclosed by the inspection or audit, and, if there are no such inadequacies, the appropriate reports shall so state.
The books and records relating to a Fund will be preserved by the Bank in the manner and in accordance with the applicable rules and regulations under the 1940 Act. The Bank shall surrender these books and records to the Fund or NYLIM promptly upon request. Upon reasonable request of the Fund, the Bank shall, during the term of this agreement, provide copies of any books and records to the Fund or NYLIM at NYLIM's expense.
17. COMPLIANCE PROGRAM
The Bank agrees to assist the NYLIM and each Fund's Chief Compliance Officer ("CCO") in complying with each Fund's obligations under Rule 38a-1 under the 1940 Act, including but not limited to: (a) periodically providing the Funds with information about, and any available independent third-party reports on, the Bank's compliance program ("Bank's Compliance Program"); (b) reporting any material deficiencies in the Bank's Compliance Program to the Funds within a reasonable time; (c) reporting any material changes to the Bank's Compliance Program to the Funds within a reasonable time, and (d) providing the Funds with such periodic certifications regarding the foregoing as may reasonably be requested by the Funds and the CCO. The Bank understands that the Boards of Directors/Trustees of the Funds are required to approve the Bank's Compliance Program on at least an annual basis, and acknowledges that this Agreement is conditioned upon the Board of Directors/Trustees approval of the Bank's Compliance Program. In this regard, the Bank shall use reasonable efforts to make available information, including information on the Bank's internal controls and procedures, reasonably required by the CCO to allow the CCO and the Funds to comply with the requirements of relevant rules, regulations and guidance regarding the duties of a CCO, the Funds and their Board of Directors/Trustees for registered investment companies.
18. ASSIGNMENT; DELEGATION.
This Agreement will be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement will not be assignable by a party without the written consent of the other party.
19. USE OF NAME.
Neither party shall use the name of the other in any prospectus, sales literature or other material in a manner not approved by the other party prior thereto in writing; provided however, that the approval of a party shall not be required for any use of its name or that of its affiliates which merely refers in accurate and factual terms to its appointment hereunder or which is required by the Securities and Exchange Commission or any state securities authority or any other appropriate regulatory, governmental or judicial authority; provided further, that in no event shall such approval be unreasonably withheld or delayed.
20. BUSINESS RECOVERY.
The Bank represents and warrants that it has and will continue to have in place a commercially reasonable business recovery program.
21. FORCE MAJEURE.
Notwithstanding anything otherwise to the contrary in this Agreement, no
party shall be liable to the other for any loss or liability arising from any
acts of God, earthquakes, fires, floods, storms or other disturbances of nature,
epidemics, strikes, riots, nationalization, expropriation, currency
restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion,
fission or radiation, the interruption, loss or malfunction of utilities,
transportation or computers (hardware or software) and computer facilities, the
unavailability of energy sources and other similar happenings or events, except
to the extent that any such loss or liability results from the failure of the
Bank to (a) maintain a commercially reasonable business recovery program, and
(b) act reasonably to mitigate, as soon as practicable, the specific occurrence
or event..
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by a duly authorized officer as of the day and year first above written.
NEW YORK LIFE INVESTMENT MANAGEMENT LLC
By: /s/ Christopher O. Blunt
-----------------------------------
Christopher O. Blunt
Executive Vice President
|
INVESTORS BANK & TRUST COMPANY
By: /s/ Robert D. Mancuso
-----------------------------------
Name: Robert D. Mancuso
Title: Senior Vice President
|
APPENDIX A
TO THE
MASTER FUND SUB-ACCOUNTING AND SUB-ADMINISTRATION AGREEMENT
BY AND BETWEEN
NEW YORK LIFE INVESTMENT MANAGEMENT
AND
INVESTORS BANK & TRUST COMPANY
(AS OF JANUARY 2, 2006)
FUND PORTFOLIO
---- ---------
THE MAINSTAY FUNDS Capital Appreciation Fund
Common Stock Fund
Convertible Fund
Diversified Income Fund
Equity Index Fund
Global High Income Fund
Government Fund
High Yield Corporate Bond Fund
International Equity Fund
Large Cap Growth Fund
MAP Fund
Mid Cap Growth Fund
Mid Cap Value Fund
Money Market Fund
Small Cap Growth Fund
Small Cap Value Fund
Tax Free Bond Fund
Total Return Fund
Value Fund
ECLIPSE FUNDS Mid Cap Opportunity Fund
Small Cap Opportunity Fund
Balanced Fund
ECLIPSE FUNDS INC All Cap Growth Fund
All Cap Value Fund
Income Manager Fund
Cash Reserves Fund
Conservative Allocation Fund
Floating Rate Fund
Growth Allocation Fund
Indexed Bond Fund
Intermediate Term Bond Fund
Large Cap Opportunity Fund (as of July 29, 2005)
Moderate Allocation Fund
Moderate Growth Allocation Fund
S&P 500 Index Fund
Short Term Bond Fund
Power Equity fund
|
FUND PORTFOLIO
---- ---------
MAINSTAY VP SERIES FUND, INC. Balanced Portfolio
Basic Value Portfolio
Bond Portfolio
Capital Appreciation Portfolio
Cash Management Portfolio
Common Stock Portfolio
Convertible Portfolio
Developing Growth Portfolio
Floating Rate Portfolio
Government Portfolio
Growth Portfolio
High Yield Corporate Bond Portfolio
Income and Growth Portfolio
International Equity Portfolio
Mid Cap Core Portfolio
Mid Cap Growth Portfolio
Mid Cap Value Portfolio
S&P 500 Index Portfolio
Small Cap Growth Portfolio
Total Return Portfolio
Value Portfolio
MCMORGAN FUNDS Balanced Fund
Equity Investment Fund
Fixed Income Fund
High Yield Fund
Intermediate Fixed Income Fund
Principal Preservation Fund
|
APPENDIX B
TO THE
MASTER FUND SUB-ACCOUNTING AND SUB-ADMINISTRATION AGREEMENT
BY AND BETWEEN
NEW YORK LIFE INVESTMENT MANAGEMENT
AND
INVESTORS BANK & TRUST COMPANY
Summary of Fund Accounting Functions
- Maintain tax lots for investments.
- Maintain general ledger accounts.
- Calculate and accrue all expenses.
- Book purchases, redemptions and transfers of fund shares.
- Calculate gains and losses (security and currency).
- Determine fund's net income.
- Prepare and post statement of assets and liabilities & statement of operations.
- Compute market value of the fund using pre-approved pricing vendors.
- Calculate the fund's daily Net Asset Value.
- Forward reports to fund management daily, weekly or monthly.
- Prepare monthly proof packages.
- Assist independent auditors including provision of detailed account analysis and fiscal year summaries.
- Perform all necessary allocations for multi-tiered structures, if applicable.
Summary of Administration Functions
I. REPORTING & COMPLIANCE
A. Compliance
- Sec/Tax Compliance Monitor compliance with investment portfolio restrictions
- Develop a compliance responsibility matrix, consistent with prospectus and SAI
- Perform daily compliance testing
- Notify portfolio manager and compliance officer of any potential compliance violations and monitor resolution
- Provide a monthly compliance summary package
- Report to CCO/Board on compliance matters
Monitor compliance with fund procedures, including:
- Valuation
- Liquidity
- Redemptions in Kind
- Derivatives
- Asset Segregation
- Securities Lending
- Amortized Cost
- Correction of non-money market pricing errors
- Perform compliance testing to establish qualification as RIC
Perform asset diversification testing at quarter end Review qualifying income status on a quarterly basis
- Perform daily compliance testing and provide daily reporting of testing results
- Coordinate audits by internal auditors
B. Periodic Management Reporting
- Prepare quarterly financial information for inclusion in Board book Portfolio of investments Financial highlights Summary of reportable transactions (Rule 17a-7, Rule 17e-1, etc.) Report to Board on financial matters
C. Expense Administration
- Preparation and monitoring Prepare and monitor the fund's expense budget
- Review prior periods' history and current asset projections and develop an operating expense budget
- Calculate expense budgets based upon varying asset projections
- Notify fund accounting of changes in accrual rates
- Monitor fund expenses Calculate asset based fees/reimbursements consistent with payment cycles Review multiple class expense differentials Prepare detail fund expense analysis on a quarterly basis Update expense budget periodically during the year
- Payment Receive and coordinate payments of fund expenses
- Propose allocation of invoices among Funds
- Obtain authorized approval to process payment
- Coordinate payment with fund accounting
D. Performance Reporting
- Calculate Portfolio Performance Prepare total return, yield and other performance information for designated periods Prepare monthly report for review by management
E. Dividend Calculations
- Periodic dividends based on book income Calculate periodic dividends to be declared in accordance with management guidelines
- Calculate dividend projections, if applicable, in accordance with client methodology, including multiple class allocations
- Provide dividend calculation worksheets
- Coordinate notification with fund accounting and transfer agent
- Reconcile dividends declared with amount recorded
- Report dividend information to the Board of Directors
- Tax-adjusted dividends Maintain "book-to-tax" adjustment records
- Identify book-tax accounting differences
- Track required information related to accounting differences
- Consult and coordinate tax positions taken with auditors and management
Income tax distribution requirements
- Calculate spillback dividend requirements
60 day notice requirements
- Calculate and include in financial statements: dividend received
deduction, foreign tax credit, long term capital gain, exempt income
percentage and QDI
Excise tax distribution requirements
- Calculate required distributions to avoid imposition of excise tax
penalty
- Project ordinary income from calculated date to 12/31
- Ascertain dividend shares
F. Form N-SAR
- Coordinate the preparation and filing of Form N-SAR Prepare form for filing Obtain any necessary supporting documents Coordinate applicable responses from management and legal Coordinate EDGAR filing process
II.TAX
A. Tax Return Preparation
- Prepare income tax returns Calculate provisions Draft returns for auditor review and signature as paid preparer
- Prepare excise tax returns Calculate provisions Draft returns for auditor review
B. Year-End Shareholder Tax Reporting
- Tax year end reporting Dividends received deduction Foreign Tax Credit Tax-Exempt Income Coordinate with the transfer agent
Provide information to meet 60-day notice requirements
III. FINANCIAL REPORTING
A. Financial Reporting Preparation
- Coordinate audits by the Funds' independent public accountants
- Coordinate the preparation and printing of financial statements and notes Draft and manage production cycle Coordinate the creation of templates for style and content of statements and notes Prepare financial statements and notes Coordinate auditor, legal and management review Coordinate printing and distribution of reports to shareholders
- Coordinate the preparation and filing of Form N-CSR Prepare form for filing Obtain any necessary supporting documents Coordinate applicable responses from management and legal
- Coordinate EDGAR filing process
B. 24f-2 Notice
- Coordinate the preparation and filing of registration notice under Rule 24f-2
- Accumulate sales, redemption and other information
- Draft notice
- Coordinate payment with fund accounting
- Coordinate EDGAR filing process
IV.INFORMATION TECHNOLOGY
A. Develop and transmit daily files and/or feeds to NYLIM's in-house systems as identified in further due diligence and subsequent design sessions
V. BOARD BOOK SUPPORT
A. Prepare supporting material for inclusion in Board book
B. Summary of reportable transactions (Rule 17a-7, Rule 17e-1, 10f-3, 144A, etc.)
C. Graphs
D. Fund performance-charts/graphs
E. Brokerage commission analysis
F. Dividend summary
G. Prepare Forms 1099-Misc. for Board members
H. Calculate expense tables and provide other supporting financial information for post effective amendments
APPENDIX C
TO THE
MASTER FUND SUB-ACCOUNTING AND SUB-ADMINISTRATION AGREEMENT
BY AND BETWEEN
NEW YORK LIFE INVESTMENT MANAGEMENT
AND
INVESTORS BANK & TRUST COMPANY
SUMMARY OF ADMINISTRATION FUNCTIONS
SUGGESTED FUND AUDITOR (A)
FUNCTION INVESTORS BANK NYLIM OR FUND COUNSEL (C)
----------------------------------- --------------------------------- -------------------------------- ---------------------------
MANAGEMENT REPORTING &
TREASURY ADMINISTRATION
Monitor portfolio compliance in Perform tests of certain specific Continuously monitor portfolio A/C - Provide consultation
accordance with the current portfolio activity designed from activity and Fund operations in as needed on compliance
Prospectus, SAI, the 1940 Act, and provisions of the Fund's conjunction with the 1940 Act, issues.
any other applicable laws and Prospectus, SAI and other Prospectus, SAI and any other
regulations. applicable laws and regulations applicable laws and
as identified in Compliance regulations. Oversee
FREQUENCY: DAILY Testing Matrix. Timely report compliance program for the
potential violations to Adviser. Funds. Approve IBT Compliance
Follow-up on potential Testing Matrix. Monitor
violations. testing results and approve
resolutions of compliance
issues.
Provide compliance summary package. Provide a report of compliance Review report. A/C - Provide consultation
testing results. as needed.
FREQUENCY: MONTHLY
|
SUGGESTED FUND AUDITOR (A)
FUNCTION INVESTORS BANK NYLIM OR FUND COUNSEL (C)
----------------------------------- --------------------------------- -------------------------------- ---------------------------
Perform asset Diversification Perform asset diversification Review test results and take A - Provide consultation as
testing to Establish qualification tests at each tax quarter end. any necessary action. Approve needed in establishing
as a RIC. Timely report potential tax positions taken. positions to be taken in
violations to Fund Management. tax treatment of particular
FREQUENCY: QUARTERLY Follow-up on issues. issues. Review quarter end
tests on a current basis.
Perform qualifying income testing Perform qualifying income testing Review test results and take A - Consult as needed on
to establish qualification as a (on book basis income, unless any necessary action. Approve tax accounting positions to
RIC. material differences are tax positions taken. be taken. Review in
anticipated) on quarterly basis conjunction with year-end
FREQUENCY: QUARTERLY and as may otherwise be audit.
necessary. Timely report
potential violations to Fund
Management. Follow-up on issues.
Calculate total return information Provide total return Review total return information.
on Funds as defined in the current calculations. Provide after-tax
Prospectus and SAI. calculations in connection with
post-effective amendment filings.
FREQUENCY: MONTHLY
Prepare the Funds' annual expense Prepare preliminary expense Provide asset level
budget. Establish daily accruals. budget. Notify mutual fund projections. Approve expense
accounting of new accrual rates. budget.
FREQUENCY: ANNUALLY
|
SUGGESTED FUND AUDITOR (A)
FUNCTION INVESTORS BANK NYLIM OR FUND COUNSEL (C)
----------------------------------- --------------------------------- -------------------------------- ---------------------------
Monitor the Funds' expense budget. Monitor actual expenses updating Provide asset level projections A/C - Provide consultation
Review the Funds' multi-class budgets/expenses accruals. If quarterly. Provide vendor as requested.
expense differentials. applicable, review expense information as necessary.
differentials among classes to Review expense analysis and
FREQUENCY: MONTHLY ensure consistency with Rule approve budget revisions.
18f-3 or the Funds' exemptive
application and the Funds'
private letter ruling or
published ruling.
Receive and coordinate payment of Propose allocations of invoices Approve invoices and
Fund expenses. among Funds and obtain authorized allocations of payments. Send
approval to process payment. invoices to IBT in a timely
FREQUENCY: AS OFTEN AS NECESSARY manner.
Calculate periodic dividend rates Calculate amounts available for Establish and maintain dividend C - Review dividend
to be declared in accordance with distribution. Coordinate review and distribution policies. resolutions in conjunction
management guidelines. by Fund Management and/or Approve distribution rates per with Board approval.
auditors. Notify custody and share and aggregate amounts.
FREQUENCY: ACCORDING TO DIVIDEND transfer agent of authorized Obtain Board approval when A - Review and approve
POLICY dividend rates in accordance with required. dividend calculation
Board approved policy. Report methodology for multi-class
dividends to Board as required. funds. Provide consultation
Obtain Board approval when as requested.
required.
|
SUGGESTED FUND AUDITOR (A)
FUNCTION INVESTORS BANK NYLIM OR FUND COUNSEL (C)
----------------------------------- --------------------------------- -------------------------------- ---------------------------
Prepare Director and vendor Form Summarize amounts paid during the Provide social security numbers
1099-MISC, as needed. calendar year to Directors and and current mailing address for
vendors. Prepare and mail Form Directors.
FREQUENCY: ANNUALLY 1099-MISC. Obtain social
security numbers and current
mailing address for Directors.
Prepare selected information for Prepare selected information for Review information.
presentation to Fund Management and inclusion in board material.
Board of Directors as NYLIM may
reasonably request from time to
time.
FREQUENCY: QUARTERLY
Prepare and file Form N-SAR. Prepare form for filing. Obtain Provide appropriate responses. C - Review initial filing.
any necessary supporting Review and authorize filing.
FREQUENCY: SEMI-ANNUALLY documents. File with SEC via A - Provide annual audit
EDGAR. internal control letter to
accompany the annual
filing.
FINANCIAL REPORTING
|
SUGGESTED FUND AUDITOR (A)
FUNCTION INVESTORS BANK NYLIM OR FUND COUNSEL (C)
----------------------------------- --------------------------------- -------------------------------- ---------------------------
Coordinate the annual audit and Serve as project manager for Approve format and text as A - Perform audit and issue
semi-annual and quarterly creation, production and standard. Approve production opinion on annual financial
preparation and printing of dissemination of Funds' financial calendar and assist in managing statements.
financial statements and notes with statements. Acquire past to the schedule. Prepare
Fund Management, IBT mutual fund financial statements and other appropriate management letter. A/C - Review reports.
accounting and the Fund auditors. information required to create Review and approve entire
templates, including report style report. Make appropriate
FREQUENCY: SEMI-ANNUALLY and graphics. Draft and manage representations in conjunction
production calendar. Coordinate with audit.
with IBT fund accounting the
electronic receipt of portfolio
and general ledger information to
create financial statements.
Coordinate resolution of
accounting issues. Coordinate
typesetting of Management
Discussion and Analysis with rest
of financial statements. Using
templates, draft financial
statements, coordinate auditor
and management review, and clear
comments. Where applicable,
coordinate typesetting, printing
of reports and EDGAR conversion
with printer and filing with the
SEC via EDGAR.
|
SUGGESTED FUND AUDITOR (A)
FUNCTION INVESTORS BANK NYLIM OR FUND COUNSEL (C)
----------------------------------- --------------------------------- -------------------------------- ---------------------------
Coordinate the preparation and Draft Form N-CSR, Form N-Q and Review and approve Form N-CSR C - Review Form N-CSR and
filing of Form N-CSR and Form N-Q. certifications and coordinate and Form N-Q. Forward signed Form N-Q
management review. Coordinate Form N-CSR, Form N-Q and
FREQUENCY: SEMI-ANNUALLY Edgar conversion with outside certifications to IBT prior to
printer and filing with the SEC filing of report.
via Edgar.
TAX
Prepare income tax provisions. Calculate investment company Approve tax accounting A - Provide consultation as
taxable income, net tax exempt positions to be taken. Approve needed in establishing
FREQUENCY: ANNUALLY interest, net capital gain and provisions. Identify positions to be taken in
spillback dividend requirements. securities to be treated by the tax treatment of particular
Identify book-tax accounting Funds as PFICs. issues. Perform review in
differences. Track required conjunction with the
information relating to year-end audit.
accounting differences. Identify
lists of potential Passive
Foreign Investment Companies
(PFICs) based on published ICI
survey.
|
SUGGESTED FUND AUDITOR (A)
FUNCTION INVESTORS BANK NYLIM OR FUND COUNSEL (C)
----------------------------------- --------------------------------- -------------------------------- ---------------------------
Calculate excise tax distributions. Identify list of potential PFICs Approve tax accounting A - Provide consultation as
based on published ICI survey. positions to be taken. Review needed in establishing
FREQUENCY: ANNUALLY Calculate required distributions and approve all income and positions to be taken in
to avoid imposition of excise distribution calculations, tax treatment of particular
tax. Calculate capital gain net including projected income and issues. Review and concur
income and foreign currency dividend shares. Approve with proposed distributions
gain/loss through October 31. distribution rates per share per share.
Calculate ordinary income and and aggregate amounts. Obtain
distributions through a specified Board approval when required.
cut off date. Project ordinary Identify securities to be
income from cut off date to treated by the Funds as PFICs.
December 31. Ascertain dividend
shares. Identify book-tax
accounting differences. Track
required information relating to
accounting differences.
Coordinate review by Fund
Management and fund auditors.
Notify custody and transfer agent
of authorized dividend rates in
accordance with Board approved
policy. Report dividends to Board
as required.
Prepare tax returns Prepare excise and RIC tax Review and sign tax return. A - Review and sign tax
FREQUENCY: ANNUALLY returns. return as preparer.
|
SUGGESTED FUND AUDITOR (A)
FUNCTION INVESTORS BANK NYLIM OR FUND COUNSEL (C)
----------------------------------- --------------------------------- -------------------------------- ---------------------------
Prepare Form 1099-DIV Obtain yearly distribution Review and approve information
information. Calculate 1099-DIV provided.
FREQUENCY: ANNUALLY reclasses and coordinate with
transfer agent.
Prepare other year-end tax-related Obtain yearly income distribution Review and approve information
disclosures. information. Calculate provided.
disclosures (i.e. dividend
FREQUENCY: ANNUALLY received deductions, foreign tax
credits, tax-exempt income,
income by jurisdiction) and
coordinate with transfer agent.
|
(DECHERT LLP LOGO) EXHIBIT (I)(5)
April 7, 2006
The MainStay Funds
51 Madison Avenue
New York, NY 10010
Ladies and Gentlemen:
We have acted as counsel for The MainStay Funds (the "Trust") and its series, MainStay Large Cap Growth Fund, MainStay MAP Fund, MainStay Mid Cap Growth Fund and MainStay International Equity Fund (collectively, the "Funds"), and are familiar with the Trust's registration statement with respect to the Funds under the Investment Company Act of 1940, as amended, and with the registration statement relating to the offer and sale of its Class R3 shares of beneficial interest (the "Shares") under the Securities Act of 1933, as amended (the "Registration Statement"). The Trust is organized as a business trust under the laws of Massachusetts.
We have examined the Trust's Declaration of Trust, as amended, and other materials relating to the authorization and issuance of the Shares, Post-Effective Amendment No. 80 under the Securities Act of 1933, as amended, to the Registration Statement (the "Amendment"), and such other documents and matters as we have deemed necessary to enable us to give this opinion.
Based upon the foregoing, we are of the opinion that the Shares proposed to be sold pursuant to the Amendment, when it is made effective by the Securities and Exchange Commission (the "SEC"), will have been validly authorized and, when sold in accordance with the terms of the Amendment and the requirements of applicable federal and state law and delivered by the Trust against receipt of the net asset value of the Shares of the Funds, as described in the Amendment, will have been legally and validly issued and will be fully paid and non-assessable by the Trust.
U.S. Austin Boston Charlotte Harrisburg Hartford New York Newport Beach Palo Alto Philadelphia Princeton San Francisco Washington DC EUROPE Brussels Frankfurt London Luxembourg Munich Paris
(DECHERT LLP LOGO)
We hereby consent to the filing of this opinion as an exhibit to the Amendment, to be filed with the SEC in connection with the continuous offering of the Shares, as indicated above, and to references to our firm, as counsel to the Trust, in the Funds' prospectus and Statement of Additional Information to be included in the Amendment and in any revised or amended versions thereof, until such time as we revoke such consent.
Very truly yours,
/s/ Dechert LLP |
Exhibit (j)(1)
The Board of Trustees of The MainStay Funds:
We consent to the use of our reports dated December 23, 2005, with respect to the financial statements of the MainStay Capital Appreciation Fund, MainStay Common Stock Fund, MainStay Large Cap Growth Fund, MainStay MAP Fund, MainStay Mid Cap Growth Fund, MainStay Mid Cap Value Fund, MainStay Small Cap Growth Fund, MainStay Small Cap Value Fund, MainStay Value Fund, MainStay Diversified Income Fund, MainStay Government Fund, MainStay High Yield Corporate Bond Fund, MainStay Money Market Fund, MainStay Tax Free Bond Fund, MainStay Convertible Fund, MainStay Total Return Fund, MainStay Global High Income Fund, MainStay International Equity Fund and MainStay Equity Index Fund, the nineteen funds constituting The MainStay Funds as of October 31, 2005, incorporated herein by reference, and to the references to our firm under the heading "Financial Highlights" in the Prospectus and in the introduction to and under the headings "Disclosure of Portfolio Holdings" and "Independent Registered Public Accounting Firm" in the Statement of Additional Information in this Registration Statement.
/s/ KPMG LLP Philadelphia, Pennsylvania April 6, 2006 |
Exhibit m(1)
AMENDED AND RESTATED
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
FOR CLASS A SHARES
OF THE MAINSTAY FUNDS
WHEREAS, The MainStay Funds (the "Trust") engages in business as an open-end management investment company and is registered as such under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, shares of beneficial interest of the Trust are currently divided into a number of separate series (individually, a "Fund," and collectively, the "Funds") as set forth in Schedule A, as amended from time to time; and
WHEREAS, the Trust and NYLIFE Distributors Inc. ("NYLIFE Distributors") entered into a Plan of Distribution Pursuant to Rule 12b-1 (the "Plan") effective October 27, 1997, as revised from time to time; and
WHEREAS, the Trustees of the Trust determined that there is a reasonable likelihood that adoption of the Plan will benefit the Trust, each Fund and its respective shareholders; and
WHEREAS, the Trust employs NYLIFE Distributors as distributor of the securities of which it is the issuer, including Class A shares of each Fund; and
WHEREAS, the Trust and NYLIFE Distributors have entered into an Amended and Restated Master Distribution Agreement, dated August 1, 2002, pursuant to which the Trust employs NYLIFE Distributors in such capacity during the continuous offering of Class A shares of the Trust; and
WHEREAS, this Plan of Distribution pursuant to Rule 12b-1 amends and restates, in its entirety, the Plan of Distribution pursuant to Rule 12b-1 effective as of October 27, 1997, as revised from time to time, in order to reflect certain ministerial changes designed to facilitate the administration of the Plan;
NOW, THEREFORE, the Trust hereby adopts on behalf of each Fund, and NYLIFE Distributors hereby agrees to the terms of, this Plan of Distribution, in accordance with Rule 12b-1 under the Act on the following terms and conditions:
1. Each Fund shall pay to NYLIFE Distributors, as the distributor of securities of which the Fund is the issuer, a fee for distribution of Class A shares, and services to shareholders of the Class A shares of the Fund at the annual rate of 0.25% of the Fund's average daily net assets of the Fund's Class A shares. Such fee shall be calculated and accrued daily and paid monthly or at such other intervals as the Trustees shall determine, subject to any applicable restriction imposed by rules of the National Association of Securities Dealers, Inc. ("NASD"). If this Plan is terminated, a Fund will owe no payments to NYLIFE Distributors other than any portion of the distribution fee accrued through the effective date of termination but then unpaid.
2. The amount set forth in paragraph 1 of this Plan shall be paid for NYLIFE Distributors' services as distributor of the Class A shares of the Fund in connection with any activities or expenses primarily intended to result in the sale of Class A shares of the Fund, including, but not limited to, compensation to registered representatives or other employees of NYLIFE Distributors and to other broker-dealers that have entered into a Soliciting Dealer Agreement with NYLIFE Distributors, compensation to and expenses of employees of NYLIFE Distributors who engage in or support distribution of the Fund's Class A shares; telephone expenses; interest expense; printing of prospectuses and reports for other than existing shareholders; preparation, printing and distribution of sales literature and advertising materials; administrative services and expenses; and profit on the foregoing; provided, however, that such amount to be paid to NYLIFE Distributors may be paid to it as compensation for "service activities" (as defined below) rendered to Class A shareholders of the Fund. Such fee shall be calculated daily and paid monthly or at such other intervals as the Board shall determine. For purposes of this Plan, "service activities" shall mean activities in connection with the provision of personal, continuing services to investors in the Fund, excluding transfer agent and subtransfer agent services for beneficial owners of Fund Class A shares, aggregating and processing purchase and redemption orders, providing beneficial owners with share account statements, processing dividend payments, providing subaccounting services for Class A shares held beneficially, forwarding shareholder communications to beneficial owners and receiving, tabulating and transmitting proxies executed by beneficial owners; provided, however, that if the NASD adopts a definition of "service fee" for purposes of Section 26(d) of the Rules of Fair Practice of the NASD that differs from the definition of "service activities" hereunder, or if the NASD adopts a related definition intended to define the same concept, the definition of "service activities" in this Paragraph shall be automatically amended, without further action of the parties, to conform to such NASD definition. Overhead and other expenses of NYLIFE Distributors related to its "service activities," including telephone and other communications expenses, may be included in the information regarding amounts expended for such activities.
3. This Plan shall not take effect until it, together with any related agreements, has been approved by votes of a majority of both (a) the Trustees of the Trust and (b) those Trustees of the Trust who are not "interested persons" of the Trust (as defined in the Act) and who have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Rule 12b-1 Trustees"), cast in person at a meeting (or meetings) called for the purpose of voting on this Plan and such related agreements.
4. This Plan of Distribution shall continue in full force and effect as to a Fund for so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in paragraph 3.
5. NYLIFE Distributors shall provide to the Trustees of the Trust and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made.
6. This Plan may be terminated as to a Fund at any time, without payment of any penalty, by vote of a majority of the Rule 12b-1 Trustees, or by a vote of a majority of the outstanding voting securities of the Fund on not more than 30 days' written notice to any other party to this
Plan.
7. This Plan may not be amended to increase materially the amount of the compensation provided for in paragraph 1 hereof unless such amendment is approved in the manner provided for initial approval in paragraph 3 hereof, and no material amendment to this Plan shall be made unless approved in the manner provided for approval and annual renewal in paragraph 4 hereof.
8. While this Plan is in effect, the selection and nomination of Trustees who are not interested persons (as defined in the Act) of the Trust shall be committed to the discretion of the Trustees who are not such interested persons.
9. The Trust shall preserve copies of this Plan and any related agreements and all reports made pursuant to paragraph 6 hereof, for a period of not less than six years from the date of this Plan, any such agreement or any such report, as the case may be, the first two years in an easily accessible place.
10. The Trustees of the Trust and the shareholders of each Fund shall not be liable for any obligations of the Trust or the Fund under this Plan, and NYLIFE Distributors or any other person, in asserting any rights or claims under this Plan, shall look only to the assets and property of the Trust or the Fund in settlement of such right or claim, and not to such Trustees or shareholders.
IN WITNESS WHEREOF, the Trust, on behalf of each Fund, and NYLIFE Distributors have executed this amended and restated Plan of Distribution as of the 1st day of August, 2002, to be effective August 1, 2002.
THE MAINSTAY FUNDS
By: /s/ Stephen C. Roussin
--------------------------
Name: Stephen C. Roussin
Title: President and
Chief Executive Officer
|
NYLIFE DISTRIBUTORS INC.
By: /s/ Robert E. Brady
--------------------------
Name: Robert E. Brady
Title: Vice President
|
Exhibit m(1)
SCHEDULE A
(Amended and Restated as of June 28, 2005)
Capital Appreciation Fund
Common Stock Fund
Convertible Fund
Diversified Income Fund
Equity Index Fund
Global High Income Fund
Government Fund
High Yield Corporate Bond Fund
International Equity Fund
Large Cap Growth Fund
MAP Fund
Mid Cap Growth Fund
Mid Cap Value Fund
Small Cap Growth Fund
Small Cap Value Fund
Tax Free Bond Fund
Total Return Fund
Value Fund
Exhibit m(2)
AMENDED AND RESTATED
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
FOR CLASS B SHARES
OF THE MAINSTAY FUNDS
WHEREAS, The MainStay Funds (the "Trust") engages in business as an open-end management investment company and is registered as such under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, shares of beneficial interest of the Trust are currently divided into a number of separate series (individually, a "Fund," and collectively, the "Funds") as set forth in Schedule A, as amended from time to time; and
WHEREAS, the Trust and NYLIFE Distributors Inc. ("NYLIFE Distributors") entered into a Plan of Distribution pursuant to Rule 12b-1 (the "Plan") effective October 21, 1997, as revised from time to time; and
WHEREAS, the Trustees of the Trust determined that there is a reasonable likelihood that adoption of the Plan will benefit the Trust, each Fund and its respective shareholders; and
WHEREAS, the Trust employs NYLIFE Distributors as distributor of the securities of which it is the issuer, including Class B shares of each Fund; and
WHEREAS, the Trust and NYLIFE Distributors have entered into an Amended and Restated Master Distribution Agreement, dated August 1, 2002, pursuant to which the Trust employs NYLIFE Distributors in such capacity during the continuous offering of Class B shares of the Trust; and
WHEREAS, this Plan of Distribution pursuant to Rule 12b-1 amends and restates, in its entirety, the Plan of Distribution pursuant to Rule 12b-1 effective as of October 21, 1997, as revised from time to time, in order to reflect certain ministerial changes designed to facilitate the administration of the Plan;
NOW, THEREFORE, the Trust hereby adopts on behalf of each Fund, and NYLIFE Distributors hereby agrees to the terms of, this Plan of Distribution in accordance with Rule 12b-1 under the Act on the following terms and conditions:
1. Each Fund shall pay to NYLIFE Distributors, as the distributor of securities of which the Fund is the issuer, a fee for distribution of the Class B shares of the Fund at an annual rate, as set forth opposite each Fund's name on Schedule A, of the Fund's average daily net assets attributable to the Fund's Class B shares. Such fee shall be calculated and accrued daily and paid monthly or at such other intervals as the Trustees shall determine, subject to any applicable restriction imposed by rules of the National Association of Securities Dealers, Inc. ("NASD"). If this Plan is terminated, a Fund will owe no payments to NYLIFE Distributors other than any portion of the distribution fee accrued through the effective date of termination but then unpaid.
2. The amount set forth in paragraph 1 of this Plan shall be paid for NYLIFE Distributors' services as distributor of the Class B shares of each Fund in connection with any activities or expenses primarily intended to result in the sale of Class B shares of the Fund, including, but not limited to, compensation to registered representatives or other employees of NYLIFE Distributors and its affiliates, including NYLIFE Securities Inc., and to other broker-dealers that have entered into a Soliciting Dealer Agreement with NYLIFE Distributors, compensation to and expenses of employees of NYLIFE Distributors who engage in or support distribution of the Fund's Class B shares; telephone expenses; interest expense; printing of prospectuses and reports for other than existing shareholders; preparation, printing and distribution of sales literature and advertising materials; administrative services and expenses; and profit on the foregoing.
3. Each Fund will pay to NYLIFE Distributors, in addition to the distribution fee, a service fee at the rate of 0.25% on an annualized basis of the average daily net assets of the Class B shares of the Fund (the "Service Fee") as compensation for "service activities" (as defined below) rendered to shareholders of the Fund. Such Service Fee shall be calculated daily and paid monthly or at such other intervals as the Board shall determine.
For purposes of this Plan, "service activities" shall mean activities in connection with the provision of personal, continuing services to investors in a Fund, excluding transfer agent and subtransfer agent services for beneficial owners of Fund Class B shares, aggregating and processing purchase and redemption orders, providing beneficial owners with share account statements, processing dividend payments, providing subaccounting services for Class B shares held beneficially, forwarding shareholder communications to beneficial owners and receiving, tabulating and transmitting proxies executed by beneficial owners; provided, however, that if the NASD adopts a definition of "service activities" for purposes of Conduct Rule 2830 that differs from the definition of "service activities" hereunder, or if the NASD adopts a related definition intended to define the same concept, the definition of "service activities" in this Paragraph shall be automatically amended, without further action of the parties, to conform to such NASD definition. Overhead and other expenses of NYLIFE Distributors related to its "service activities," including telephone and other communications expenses, may be included in the amounts expended for such activities.
4. This Plan shall not take effect until it, together with any related agreements, has been approved by votes of a majority of both (a) the Trustees of the Trust and (b) those Trustees of the Trust who are not "interested persons" of the Trust (as defined in the Act) and who have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Rule 12b-1 Trustees"), cast in person at a meeting (or meetings) called for the purpose of voting on this Plan and such related agreements.
5. This Plan of Distribution shall continue in full force and effect as to a Fund for so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in paragraph 4.
6. NYLIFE Distributors shall provide to the Trustees of the Trust and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made.
7. This Plan may be terminated as to a Fund at any time, without payment of any penalty, by vote of a majority of the Rule 12b-1 Trustees, or by a vote of a majority of the outstanding voting securities of the Fund on not more than 30 days' written notice to any other party to this Plan.
8. This Plan may not be amended to increase materially the amount of compensation provided for herein unless such amendment is approved in the manner provided for initial approval in paragraph 4 hereof, and no material amendment to this Plan shall be made unless approved in the manner provided for approval and annual renewal in paragraph 5 hereof.
9. While this Plan is in effect, the selection and nomination of Trustees who are not interested persons (as defined in the Act) of the Trust shall be committed to the discretion of the Trustees who are not such interested persons.
10. The Trust shall preserve copies of this Plan and any related agreements and all reports made pursuant to paragraph 6 hereof, for a period of not less than six years from the date of this Plan, any such agreement or any such report, as the case may be, the first two years in an easily accessible place.
11. The Trustees of the Trust and the shareholders of each Fund shall not be liable for any obligations of the Trust or the Fund under this Plan, and NYLIFE Distributors or any other person, in asserting any rights or claims under this Plan, shall look only to the assets and property of the Trust or the Fund in settlement of such right or claim, and not to such Trustees or shareholders.
IN WITNESS WHEREOF, the Trust, on behalf of each Fund, and NYLIFE Distributors have executed this amended and restated Plan of Distribution as of the 1st day of August, 2002, to be effective August 1, 2002.
THE MAINSTAY FUNDS
By: /s/ Stephen C. Roussin
--------------------------
Name: Stephen C. Roussin
Title: President and
Chief Executive Officer
|
NYLIFE DISTRIBUTORS INC.
By: /s/ Robert E. Brady
--------------------------
Name: Robert E. Brady
Title: Vice President
|
SCHEDULE A
(Amended and Restated as of June 28, 2005)
FUND DISTRIBUTION FEE ---- ---------------- Capital Appreciation Fund .75% Common Stock Fund .75% Convertible Fund .75% Diversified Income Fund .75% Global High Income Fund .75% Government Fund .75% High Yield Corporate Bond Fund .75% International Equity Fund .75% Large Cap Growth Fund .75% MAP Fund .75% Mid Cap Growth Fund .75% Mid Cap Value Fund .75% Small Cap Growth Fund .75% Small Cap Value Fund .75% Tax Free Bond Fund .25% Total Return Fund .75% Value Fund .75% |
Exhibit m(3)
AMENDED AND RESTATED
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
FOR CLASS C SHARES
OF THE MAINSTAY FUNDS
WHEREAS, The MainStay Funds (the "Trust") engages in business as an open-end management investment company and is registered as such under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, shares of beneficial interest of the Trust are currently divided into a number of separate series (individually, a "Fund," and collectively, the "Funds") as set forth in Schedule A, as amended from time to time; and
WHEREAS, the Trust and NYLIFE Distributors Inc. ("NYLIFE Distributors") entered into a Plan of Distribution pursuant to Rule 12b-1 (the "Plan") effective September 1, 1998, as revised from time to time; and
WHEREAS, the Trustees of the Trust determined that there is a reasonable likelihood that adoption of the Plan will benefit the Trust, each Fund and its respective shareholders; and
WHEREAS, the Trust employs NYLIFE Distributors as distributor of the securities of which it is the issuer, including Class C shares of each Fund; and
WHEREAS, the Trust and NYLIFE Distributors have entered into an Amended and Restated Master Distribution Agreement, dated August 1, 2002, pursuant to which the Trust employs NYLIFE Distributors in such capacity during the continuous offering of Class C shares of the Trust; and
WHEREAS, this Plan of Distribution pursuant to Rule 12b-1 amends and restates, in its entirety, the Plan of Distribution pursuant to Rule 12b-1 effective as of September 1, 1998, as revised from time to time, in order to reflect certain ministerial changes designed to facilitate the administration of the Plan;
NOW, THEREFORE, the Trust hereby adopts on behalf of each Fund, and NYLIFE Distributors hereby agrees to the terms of, this Plan of Distribution in accordance with Rule 12b-1 under the Act on the following terms and conditions:
1. Each Fund shall pay to NYLIFE Distributors, as the distributor of securities of which the Fund is the issuer, a fee for distribution of the Class C shares of the Fund at an annual rate, as set forth opposite each Fund's name on Schedule A, of the Fund's average daily net assets attributable to the Fund's Class C shares. Such fee shall be calculated and accrued daily and paid monthly or at such other intervals as the Trustees shall determine, subject to any applicable restriction imposed by rules of the National Association of Securities Dealers, Inc. ("NASD"). If this Plan is terminated, a Fund will owe no payments to NYLIFE Distributors other than any portion of the distribution fee accrued through the effective date of termination but then unpaid.
2. The amount set forth in paragraph 1 of this Plan shall be paid for NYLIFE Distributors' services as distributor of the Class C shares of each Fund in connection with any activities or expenses primarily intended to result in the sale of Class C shares of the Fund, including, but not limited to, compensation to registered representatives or other employees of NYLIFE Distributors and its affiliates, including NYLIFE Securities Inc., and to other broker-dealers that have entered into a Soliciting Dealer Agreement with NYLIFE Distributors, compensation to and expenses of employees of NYLIFE Distributors who engage in or support distribution of the Fund's Class C shares; telephone expenses; interest expense; printing of prospectuses and reports for other than existing shareholders; preparation, printing and distribution of sales literature and advertising materials; administrative services and expenses; and profit on the foregoing.
3. Each Fund will pay to NYLIFE Distributors, in addition to the distribution fee, a service fee at the rate of 0.25% on an annualized basis of the average daily net assets of the Class C shares of the Fund (the "Service Fee") as compensation for "service activities" (as defined below) rendered to shareholders of the Fund. Such Service Fee shall be calculated daily and paid monthly or at such other intervals as the Board shall determine.
For purposes of this Plan, "service activities" shall mean activities in connection with the provision of personal, continuing services to investors in a Fund, excluding transfer agent and subtransfer agent services for beneficial owners of Fund Class C shares, aggregating and processing purchase and redemption orders, providing beneficial owners with share account statements, processing dividend payments, providing subaccounting services for Class C shares held beneficially, forwarding shareholder communications to beneficial owners and receiving, tabulating and transmitting proxies executed by beneficial owners; provided, however, that if the NASD adopts a definition of "service activities" for purposes of Conduct Rule 2830 that differs from the definition of "service activities" hereunder, or if the NASD adopts a related definition intended to define the same concept, the definition of "service activities" in this Paragraph shall be automatically amended, without further action of the parties, to conform to such NASD definition. Overhead and other expenses of NYLIFE Distributors related to its "service activities," including telephone and other communications expenses, may be included in the amounts expended for such activities.
4. This Plan shall not take effect until it, together with any related agreements, has been approved by votes of a majority of both (a) the Trustees of the Trust and (b) those Trustees of the Trust who are not "interested persons" of the Trust (as defined in the Act) and who have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Rule 12b-1 Trustees"), cast in person at a meeting (or meetings) called for the purpose of voting on this Plan and such related agreements.
5. This Plan of Distribution shall continue in full force and effect as to a Fund for so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in paragraph 4.
6. NYLIFE Distributors shall provide to the Trustees of the Trust and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made.
7. This Plan may be terminated as to a Fund at any time, without payment of any penalty, by vote of a majority of the Rule 12b-1 Trustees, or by a vote of a majority of the outstanding voting securities of the Fund on not more than 30 days' written notice to any other party to this Plan.
8. This Plan may not be amended to increase materially the amount of compensation provided for herein unless such amendment is approved in the manner provided for initial approval in paragraph 4 hereof, and no material amendment to this Plan shall be made unless approved in the manner provided for approval and annual renewal in paragraph 5 hereof.
9. While this Plan is in effect, the selection and nomination of Trustees who are not interested persons (as defined in the Act) of the Trust shall be committed to the discretion of the Trustees who are not such interested persons.
10. The Trust shall preserve copies of this Plan and any related agreements and all reports made pursuant to paragraph 6 hereof, for a period of not less than six years from the date of this Plan, any such agreement or any such report, as the case may be, the first two years in an easily accessible place.
11. The Trustees of the Trust and the shareholders of each Fund shall not be liable for any obligations of the Trust or the Fund under this Plan, and NYLIFE Distributors or any other person, in asserting any rights or claims under this Plan, shall look only to the assets and property of the Trust or the Fund in settlement of such right or claim, and not to such Trustees or shareholders.
IN WITNESS WHEREOF, the Trust, on behalf of each Fund, and NYLIFE Distributors have executed this amended and restated Plan of Distribution as of the 1st day of August 2002, to be effective August 1, 2002.
THE MAINSTAY FUNDS
By: /s/ Stephen C. Roussin
-----------------------------------
Name: Stephen C. Roussin
Title: President and
Chief Executive Officer
|
NYLIFE DISTRIBUTORS INC.
By: /s/ Robert E. Brady
-----------------------------------
Name: Robert E. Brady
Title: Vice President
|
SCHEDULE A
(Amended and Restated as of June 28, 2005)
FUND DISTRIBUTION FEE ---- ---------------- Capital Appreciation Fund .75% Common Stock Fund .75% Convertible Fund .75% Diversified Income Fund .75% Global High Income Fund .75% Government Fund .75% High Yield Corporate Bond Fund .75% International Equity Fund .75% Large Cap Growth Fund .75% MAP Fund .75% Mid Cap Growth Fund .75% Mid Cap Value Fund .75% Small Cap Growth Fund .75% Small Cap Value Fund .75% Tax Free Bond Fund .25% Total Return Fund .75% Value Fund .75% |
Exhibit m.(4)
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
FOR CLASS R2 SHARES
OF THE MAINSTAY FUNDS
WHEREAS, The MainStay Funds (the "Trust") engages in business as an open-end management investment company and is registered as such under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, shares of beneficial interest of the Trust currently are divided into a number of separate series (each individually, a "Fund," and collectively, the "Funds") as set forth in Schedule A, as amended from time to time; and
WHEREAS, the Board of Trustees of the Trust has determined that there is a reasonable likelihood that the adoption of this Plan of Distribution pursuant to Rule 12b-1 under the Act (the "Plan") will benefit the Trust, each Fund, and each Fund's shareholders; and
WHEREAS, the Trust and NYLIFE Distributors LLC ("NYLIFE Distributors") have entered into a Distribution Agreement, dated January 1, 1994 and as revised from time to time, pursuant to which NYLIFE Distributors serves as distributor during the continuous offering of the securities of which the Trust is the issuer, including Class R2 shares of the Funds.
NOW, THEREFORE, the Trust hereby adopts on behalf of each Fund, and NYLIFE Distributors hereby agrees to the terms of, this Plan in accordance with Rule 12b-1 under the Act on the following terms and conditions:
1. Each Fund shall pay to NYLIFE Distributors, as the distributor of securities of which the Fund is the issuer, a fee for distribution of Class R2 shares of the Fund and services to shareholders of Class R2 shares of the Fund at the annual rate of 0.25% of the Fund's average daily net assets of the Fund's Class R2 shares. Such fee shall be calculated and accrued daily and paid monthly or at such other intervals as the Trust's Board of Trustees shall determine, subject to any applicable restriction imposed by rules of the National Association of Securities Dealers, Inc. ("NASD"). If this Plan is terminated with respect to a Fund, the Fund will owe no payments to NYLIFE Distributors other than any portion of the distribution fee accrued through the effective date of termination but then unpaid.
2. The amount set forth in paragraph 1 of this Plan shall be paid for NYLIFE Distributors' services as distributor of the Class R2 shares of each Fund in connection with any activities or expenses primarily intended to result in the sale of Class R2 shares of the Fund, including, but not limited to: compensation to registered representatives or other employees of NYLIFE Distributors and its affiliates, including NYLIFE Securities Inc., and to other broker-dealers that
have entered into a Soliciting Dealer Agreement with NYLIFE Distributors, compensation to and expenses of employees of NYLIFE Distributors who engage in or support distribution of the Fund's Class R2 shares; telephone expenses; interest expense; printing of prospectuses and reports for other than existing shareholders; preparation, printing and distribution of sales literature and advertising materials; and profit and overhead on the foregoing. Provided, however, that such amounts to be paid to NYLIFE Distributors may be paid to it as compensation for "service activities" (as defined below) rendered to Class R2 shareholders of the Fund. Such fee shall be calculated daily and paid monthly or at such other intervals as the Trust's Board of Trustees shall determine.
For purposes of this Plan, "service activities" shall mean those activities for which a "service fee," as defined by the rules and policy statements of the NASD, maybe paid. Overhead and other expenses related to the "service activities," including telephone and other communications expenses, may be included in the information regarding amounts expended for such activities.
3. This Plan shall not take effect until it, together with any related agreements, has been approved by votes of a majority of both (a) the Board of Trustees of the Trust and (b) those Trustees of the Trust who are not "interested persons" of the Trust (as defined in the Act) and who have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Rule 12b-l Trustees"), cast in person at a meeting (or meetings) called for the purpose of voting on this Plan and such related agreements.
4. This Plan shall continue in full force and effect as to each Fund for so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in paragraph 3.
5. NYLIFE Distributors shall provide to the Board of Trustees of the Trust and the Board of Trustees of the Trust shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made.
6. This Plan may be terminated as to a Fund at any time, without payment of any penalty, by vote of a majority of the Rule 12b-l Trustees, or by a vote of a majority of the outstanding voting securities of the Fund on not more than 30 days' written notice to any other party to this Plan.
7. This Plan may not be amended to increase materially the amount of the compensation provided for herein with respect to a Fund unless such amendment is approved by at least a majority of the outstanding voting securities (as defined in the Act) of the Class R2 shares of such Fund, and no material amendment to this Plan shall be made unless approved in the manner provided for approval and annual renewal in paragraphs 3 and 4 hereof.
8. While this Plan is in effect, the selection and nomination of the members of the Trust's Board of Trustees who are not interested persons (as defined in the Act) shall be committed to the discretion of the members of the Board of Trustees who are not such interested persons.
9. The Trust shall preserve copies of this Plan and any related agreements and all reports made pursuant to paragraph 5 hereof, for a period of not less than six years from the date of this Plan, any such agreement or any such report, as the case may be, the first two years in an easily accessible place.
10. The Board of Trustees of the Trust and the shareholders of each Fund shall not be liable for any obligations of the Trust or the Fund under this Plan, and NYLIFE Distributors or any other person, in asserting any rights or claims under this Plan, shall look only to the assets and property of the Trust or the Fund in settlement of such right or claim, and not to such Trustees or shareholders.
11. The Trustees of the Trust and the shareholders of each Fund shall not be liable for any obligations of the Trust or the Fund under this Plan, and NYLIFE Distributors or any other person, in asserting any rights or claims under this Plan, shall look only to the assets and property of the Trust or the Fund in settlement of such right or claim, and not to such Trustees or shareholders.
IN WITNESS WHEREOF, the Trust, on behalf of each Fund, and NYLIFE Distributors have executed this Plan of Distribution as of the 8th day of December, 2003.
THE MAINSTAY FUNDS
By: /s/ Patrick J. Farrell
----------------------
Name: Patrick J. Farrell
Title: Vice President, Treasurer
and Chief Financial and
Accounting Officer
|
NYLIFE DISTRIBUTORS LLC
By: /s/ Stephen C. Roussin
----------------------
Name: Stephen C. Roussin
Title: Chairman and President
|
SCHEDULE A
(Amended and Restated as of June 28, 2005)
Capital Appreciation Fund
Common Stock Fund
Convertible Fund
Diversified Income Fund
Global High Income Fund
Government Fund
High Yield Corporate Bond Fund
International Equity Fund
Large Cap Growth Fund
Map Fund
Mid Cap Growth Fund
Mid Cap Value Fund
Money Market Fund
Small Cap Value Fund
Small Cap Growth Fund
Tax Free Bond Fund
Total Return Fund
Value Fund
EXHIBIT (m)(5)
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
FOR CLASS R3 SHARES
OF THE MAINSTAY FUNDS
WHEREAS, The MainStay Funds (the "Trust") engages in business as an open-end management investment company and is registered as such under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, shares of beneficial interest of the Trust currently are divided into a number of separate series (each individually, a "Fund," and collectively, the "Funds"), and those Funds Schedule A, as amended from time to time; and
WHEREAS, the Board of Trustees of the Trust has determined that there is a reasonable likelihood that the adoption of this Plan of Distribution pursuant to Rule 12b-1 under the Act (the "Plan") will benefit the Trust, each Fund, and each Fund's shareholders; and
WHEREAS, the Trust employs NYLIFE Distributors LLC ("NYLIFE Distributors") as distributor of the securities of which it is the issuer, including Class R3 shares of each Fund; and
WHEREAS, the Trust and NYLIFE Distributors have entered into an Amended and Restated Master Distribution Agreement, dated August 1, 2002, pursuant to which the Trust employs NYLIFE Distributors in such capacity during the continuous offering of Class R3 shares of the Trust; and
NOW, THEREFORE, the Trust hereby adopts on behalf of each Fund, and NYLIFE Distributors hereby agrees to the terms of, this Plan of Distribution in accordance with Rule 12b-1 under the Act on the following terms and conditions:
1. Each Fund shall pay to NYLIFE Distributors, as the distributor of securities of which the Fund is the issuer, a fee for distribution of the Class R3 shares of the Fund at an annual rate of 0.25% of the Fund's average daily net assets attributable to the Fund's Class R3 shares. Such fee shall be calculated and accrued daily and paid monthly or at such other intervals as the Trustees shall determine, subject to any applicable restriction imposed by rules of the NASD. If this Plan is terminated, a Fund will owe no payments to NYLIFE Distributors other than any portion of the distribution fee accrued through the effective date of termination but then unpaid.
2. The amount set forth in paragraph 1 of this Plan shall be paid for NYLIFE Distributors' services as distributor of the Class R3 shares of each Fund in connection with any activities or expenses primarily intended to result in the sale of Class R3 shares of the Fund, including, but not limited to, compensation to registered representatives or other employees of NYLIFE Distributors and its affiliates, including NYLIFE Securities Inc., and to other broker-dealers that have entered into a Soliciting Dealer Agreement with NYLIFE Distributors, compensation to and expenses of employees of NYLIFE Distributors who engage in or support distribution of the Fund's Class R3 shares; telephone expenses; interest expense; printing of prospectuses and
reports for other than existing shareholders; preparation, printing and distribution of sales literature and advertising materials; administrative services and expenses; and profit on the foregoing.
3. Each Fund will pay to NYLIFE Distributors, in addition to the distribution fee, a service fee at the rate of 0.25% on an annualized basis of the average daily net assets of the Class R3 shares of the Fund (the "Service Fee") as compensation for "service activities" (as defined below) rendered to shareholders of the Fund. Such Service Fee shall be calculated daily and paid monthly or at such other intervals as the Board shall determine.
For purposes of this Plan, "service activities" shall mean activities in connection with the provision of personal, continuing services to investors in a Fund, excluding transfer agent and subtransfer agent services for beneficial owners of Fund Class R3 shares, aggregating and processing purchase and redemption orders, providing beneficial owners with share account statements, processing dividend payments, providing subaccounting services for Class R3 shares held beneficially, forwarding shareholder communications to beneficial owners and receiving, tabulating and transmitting proxies executed by beneficial owners; provided, however, that if the NASD adopts a definition of "service activities" for purposes of Conduct Rule 2830 that differs from the definition of "service activities" hereunder, or if the NASD adopts a related definition intended to define the same concept, the definition of "service activities" in this Paragraph shall be automatically amended, without further action of the parties, to conform to such NASD definition. Overhead and other expenses of NYLIFE Distributors related to its "service activities," including telephone and other communications expenses, may be included in the amounts expended for such activities.
4. This Plan shall not take effect until it, together with any related agreements, has been approved by votes of a majority of both (a) the Trustees of the Trust and (b) those Trustees of the Trust who are not "interested persons" of the Trust (as defined in the Act) and who have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Rule 12b-l Trustees"), cast in person at a meeting (or meetings) called for the purpose of voting on this Plan and such related agreements.
5. This Plan of Distribution shall continue in full force and effect as to a Fund for so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in paragraph 4.
6. NYLIFE Distributors shall provide to the Trustees of the Trust and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made.
7. This Plan may be terminated as to a Fund at any time, without payment of any penalty, by vote of a majority of the Rule 12b-l Trustees, or by a vote of a majority of the outstanding voting securities of the Fund on not more than 30 days' written notice to any other party to this Plan.
8. This Plan may not be amended to increase materially the amount of compensation provided for herein unless such amendment is approved in the manner provided for initial approval in paragraph 4 hereof, and no material amendment to this Plan shall be made unless approved in the manner provided for approval and annual renewal in paragraph 5 hereof.
9. While this Plan is in effect, the Trust shall comply at all times with the fund governance rules set forth in Rule 0-1(a)(7) under the Investment Company Act of 1940, as amended, that are in effect.
10. The Trust shall preserve copies of this Plan and any related agreements and all reports made pursuant to paragraph 6 hereof, for a period of not less than six years from the date of this Plan, any such agreement or any such report, as the case may be, the first two years in an easily accessible place.
11 The Trustees of the Trust and the shareholders of each Fund shall not be liable for any obligations of the Trust or the Fund under this Plan, and NYLIFE Distributors or any other person, in asserting any rights or claims under this Plan, shall look only to the assets and property of the Trust or the Fund in settlement of such right or claim, and not to such Trustees or shareholders.
IN WITNESS WHEREOF, the Trust, on behalf of each Fund, and NYLIFE Distributors have executed this amended and restated Plan of Distribution as of the 17th day of March, 2006.
THE MAINSTAY FUNDS
By: /s/ Christopher O. Blunt --------------------------------------- Name: Christopher O. Blunt Title: President |
NYLIFE DISTRIBUTORS LLC
By: /s/ Robert E. Brady --------------------------------------- Name: Robert E. Brady Title: Managing Director, Operations |
SCHEDULE A
(As of January 1, 2006)
CAPITAL APPRECIATION FUND
COMMON STOCK FUND
CONVERTIBLE FUND
DIVERSIFIED INCOME FUND
GLOBAL HIGH INCOME FUND
GOVERNMENT FUND
HIGH YIELD CORPORATE BOND FUND
INTERNATIONAL EQUITY FUND
LARGE CAP GROWTH FUND
MAP FUND
MID CAP GROWTH FUND
MID CAP VALUE FUND
MONEY MARKET FUND
SMALL CAP GROWTH FUND
SMALL CAP VALUE FUND
TAX FREE BOND FUND
TOTAL RETURN FUND
VALUE FUND
EXHIBIT (n)
AMENDED AND RESTATED
MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3
FOR
THE MAINSTAY FUNDS
WHEREAS, The MainStay Funds (the "Trust"), on behalf of the separate series of the Trust, engages in business as an open-end management investment company and is registered as such under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, shares of beneficial interest of the Trust are currently divided into a number of separate series listed on Exhibit A (each a "Fund"); and
WHEREAS, the Trust, on behalf of each Fund, previously adopted an Amended and Restated Combined Multiple Class Plan dated December 8, 2003, pursuant to Rule 18f-3 under the Act (the "Plan") pursuant to which shares of each Fund may be issued in one or more of six classes, designated as "Class A," "Class B," "Class C," "Class I," "Class R1" and "Class R2" shares; and
WHEREAS, the Trust desires to further amend the Plan to provide for the issuance of an additional class, designated as "Class R3" shares of the Funds, on the terms and conditions set forth herein; and
WHEREAS, pursuant to an Amended and Restated Management Agreement dated August 1, 2002, the Trust employs New York Life Investment Management LLC ("NYLIM") as manager for the Funds; and
WHEREAS, pursuant to an Amended and Restated Master Distribution Agreement dated August 1, 2002, the Trust employs NYLIFE Distributors LLC ("NYLIFE Distributors" or the "Distributor") as distributor of the securities of which the Trust is the issuer;
NOW, THEREFORE, the Trust hereby amends and restates, on behalf of the Funds, the Plan, in accordance with Rule 18f-3 under the Act, subject to the following terms and conditions:
1. FEATURES OF THE CLASSES. Each of the Funds, except the MainStay Large Cap Growth Fund, MainStay Mid Cap Growth Fund, MainStay MAP Fund, MainStay International Equity Fund and MainStay Equity Index Fund, are authorized to issue its shares of beneficial interest in the following six classes: "Class A" shares, "Class B" shares, "Class C" shares, "Class I" shares, "Class R1" shares and "Class R2" shares. The MainStay Large Cap Growth Fund, MainStay Mid Cap Growth Fund, MainStay MAP Fund, and MainStay International Equity Fund each issue their shares of beneficial interest in the following seven classes: "Class A" shares, "Class B" shares, "Class C" shares, "Class I" shares, "Class R1" shares, "Class R2" and "Class
R3" shares. The Equity Index Fund issues only shares denominated as "Class A" shares. Shares of each class of a Fund shall represent an equal pro rata interest in such Fund and, generally, shall have identical voting, dividend, liquidation, and other rights, preferences, powers, restrictions, limitations, qualifications, and terms and conditions, except that: (a) each class of shares shall have a different designation; (b) each class of shares shall bear any Class Expenses, as defined in Section 4 below; and (c) each class of shares shall have exclusive voting rights on any matter submitted to shareholders that relates solely to its distribution and/or service arrangement and each class of shares shall have separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests of any other class. In addition, the Class A, Class B, Class C, Class I, Class R1, Class R2, and Class R3 Shares shall have the features described in Sections 2, 3, 5 and 6 below.
2. SALES CHARGE STRUCTURE.
a. Class A Shares. Class A shares of a Fund, other than the Money Market Fund, shall be offered at the then-current net asset value plus a front-end sales charge. The front-end sales charge shall be in such amount as is disclosed in a Fund's current prospectus or prospectus supplement and shall be subject to such reductions for larger purchasers and such waivers or reductions as are disclosed in a Fund's current prospectus or prospectus supplement. Class A shares of the Money Market Fund shall be offered at net asset value without the imposition of a front-end sales charge. Class A shares generally shall not be subject to a contingent deferred sales charge provided, however, that such a charge may be imposed in such other cases as is disclosed in a Fund's current prospectus or supplement.
b. Class B Shares. Class B shares of a Fund, other than the Money Market Fund, shall be offered at the then-current net asset value without the imposition of a front-end sales charge. A contingent deferred sales charge in such amount as is described in a Fund's current prospectus or prospectus supplement shall be imposed on Class B shares, subject to such waivers or reductions as are disclosed in a Fund's current prospectus or prospectus supplement. Class B shares of the Money Market Fund shall not, generally, be subject to a contingent deferred sales charge upon redemption.
c. Class C Shares. Class C shares of a Fund, other than the Money Market Fund, shall be offered at the then-current net asset value without the imposition of a front-end sales charge. A contingent deferred sales charge of 1% shall be imposed on redemptions of Class C shares effected within one year of purchase as disclosed in a Fund's current prospectus or prospectus supplement and shall be subject to such waivers or reductions as are disclosed in a Fund's current prospectus or prospectus supplement. Class C shares of the Money Market Fund shall not, generally, be subject to a contingent deferred sales charge upon redemption.
d. Class I Shares. Class I shares of a Fund shall be offered to eligible purchasers, as defined in a Fund's current prospectus, at the then-current net asset value without the imposition of a front-end sales charge or a contingent deferred sales charge.
e. Class R1 Shares. Class R1 shares of a Fund shall be offered to eligible purchasers, as defined in a Fund's current prospectus, at the then-current net asset value without the imposition of a front-end sales charge or contingent deferred sales charge.
f. Class R2 Shares. Class R2 shares of a Fund shall be offered to eligible purchasers, as defined in a Fund's current prospectus, at the then-current net asset value without the imposition of a front-end sales charge or contingent deferred sales charge.
g. Class R3 Shares. Class R3 shares of a Fund shall be offered to eligible purchasers, as defined in a Fund's current prospectus, at the then-current net asset value without the imposition of a front-end sales charge or contingent deferred sales charge.
3. SERVICE AND DISTRIBUTION PLANS. Each Fund, other than the Money Market Fund, on behalf of each of the Class A, Class B, Class C, Class R2 and Class R3 shares of the Funds, has adopted a Plan of Distribution pursuant to Rule 12b-1 of the Act (each a "Rule 12b-1 Plan"). Each Fund, on behalf of each of the Class R1, Class R2 and Class R3 shares, has adopted a Shareholder Services Plan (each a "Services Plan"). Each Fund, on behalf of the Class I shares, has adopted neither a Services Plan nor a Rule 12b-1 Plan.
a. Class A Shares. Class A shares of each Fund, other than the Money Market Fund, pay NYLIFE Distributors monthly a fee at an annual rate of 0.25% of the average daily net assets of the Fund's Class A shares for "distribution-related services" or "service activities" (each as defined in paragraph (h), below), as designated by the NYLIFE Distributors.
b. Class B Shares. Class B shares of each Fund, other than the Money Market Fund, pay the Distributor monthly a fee, for "distribution-related services" (as defined in paragraph (h), below) at the annual rate of 0.75% (0.25% in the case of the Tax Free Bond Fund) of the average daily net assets of the Fund's Class B shares. Class B shares of each Fund, other than the Money Market Fund, also pay NYLIFE Distributors monthly a fee at the annual rate of 0.25% of the average daily net assets of the Fund's Class B shares for "service activities" (as defined in paragraph (h), below) rendered to Class B shareholders.
c. Class C Shares. Class C shares of each Fund, other than the Money Market Fund, pay the Distributor monthly a fee, for "distribution-related services" (as defined in paragraph (h), below) at the annual rate of 0.75% (0.25% in the case of the Tax Free Bond Fund) of the average daily net assets of the Fund's Class C shares. Class C shares of each Fund, other than the Money Market Fund, also pay NYLIFE Distributors monthly a fee at the annual rate of 0.25% of the average daily net assets of the Fund's Class C shares for "service activities" (as defined in paragraph (h), below) rendered to Class C shareholders.
d. Class I shares. Class I Shares do not pay a fee for "distribution-related services" or a fee for "service activities" (each as defined in paragraph (h), below).
e. Class R1 Shares. Class R1 shares of each Fund are authorized to pay NYLIM monthly a fee at the annual rate of 0.10% of the average daily net assets of the Fund's Class R1
shares for "service activities" (as defined below in paragraph (h) below) rendered to Class R1 shareholders.
f. Class R2 Shares. Class R2 shares of each Fund pay the Distributor monthly a fee, for "distribution-related services" (as defined in paragraph (h), below) at the annual rate of 0.25% of the average daily net assets of the Fund's Class R2 shares. Class R2 shares of each Fund also pay NYLIM monthly a fee at the annual rate of 0.10% of the average daily net assets of the Fund's Class R2 shares for "service activities" (as defined in paragraph (h), below) rendered to Class R2 shareholders.
g. Class R3 Shares. Class R3 shares of each Fund pay the Distributor monthly a fee, for "distribution-related services" or "service activities" (as defined in paragraph (h), below) at the annual rate of 0.50% of the average daily net assets of the Fund's Class R3 shares. Class R3 shares of each Fund also pay NYLIM monthly a fee at the annual rate of 0.10% of the average daily net assets of the Fund's Class R3 shares for "service activities" (as defined in paragraph (h), below) rendered to Class R3 shareholders.
h. Distribution-Related Services and Service Activities.
(1) For purposes of the Rule 12b-1 Plans, "distribution-related services" shall include services rendered by NYLIFE Distributors as distributor of the shares of a Fund in connection with any activities or expenses primarily intended to result in the sale of shares of a Fund, including, but not limited to, compensation to registered representatives or other employees of NYLIFE Distributors and to other broker-dealers that have entered into a Soliciting Dealer Agreement with NYLIFE Distributors, compensation to and expenses of employees of NYLIFE Distributors who engage in or support distribution of the Funds' shares; telephone expenses; interest expense; printing of prospectuses and reports for other than existing shareholders; preparation, printing and distribution of sales literature and advertising materials; and profit and overhead on the foregoing. "Service activities" shall mean those activities for which a "service fee," as defined in the rules and policy statements of the NASD, may be paid. Overhead and other expenses related to the "service activities," including telephone and other communications expenses, may be included in the information regarding amounts expended for such activities.
(2) For purposes of the Services Plans, "service activities" shall include any personal services or account maintenance services, which may include but are not limited to activities in connection with the provision of personal, continuing services to investors in each Fund; transfer agent and subtransfer agent services for beneficial owners of Fund shares; receiving, aggregating and processing purchase and redemption orders; providing and maintaining retirement plan records; communicating periodically with shareholders and answering questions and handling correspondence from shareholders about their accounts; acting as the sole shareholder of record and nominee for shareholders; maintaining account records and providing beneficial owners with account statements; processing dividend payments; issuing shareholder reports and transaction confirmations; providing subaccounting services for Fund shares held beneficially; forwarding
shareholder communications to beneficial owners; receiving, tabulating and transmitting proxies executed by beneficial owners; performing daily investment ("sweep") functions for shareholders; providing investment advisory services; and general account administration activities. Overhead and other expenses related to "service activities," including telephone and other communications expenses, may be included in the information regarding amounts expended for such activities.
4. ALLOCATION OF INCOME AND EXPENSES.
a. The gross income of each Fund shall, generally, be allocated to each class on the basis of net assets. To the extent practicable, certain expenses (other than Class Expenses, as defined below, which shall be allocated more specifically) shall be subtracted from the gross income on the basis of the net assets of each class of the Fund. These expenses include:
(1) Expenses incurred by the Trust (for example, fees of the Trust's Board of Trustees ("Trustees"), auditors and legal counsel) not attributable to a particular Fund or to a particular class of shares of a Fund ("Corporate Level Expenses"); and
(2) Expenses incurred by a Fund not attributable to any particular class of the Fund's shares (for example, advisory fees, custodial fees, or other expenses relating to the management of the Fund's assets) ("Fund Expenses").
b. Certain expenses are attributable to a particular class of shares ("Class Expenses"). Class Expenses are charged directly to the net assets of the particular class and, thus, are borne on a pro rata basis by the outstanding shares of that class. Fees and expenses that are not Class Expenses are allocated among the classes on the basis of their respective net asset values.
(1) Payments of distribution and service fees made pursuant to Rule 12b-1 Plans or Services Plans are Class Expenses and must be allocated to the class for which such expenses are incurred.
(2) Class Expenses may also include:
(a) transfer agent fees identified as being attributable to a specific class of shares;
(b) stationery, printing, postage and delivery expenses related to preparing and distributing materials such as shareholder reports, prospectuses and proxy statements to current shareholders of a specific class of shares;
(c) Blue Sky fees incurred by a specific class of shares;
(d) SEC registration fees incurred by a specific class of shares;
(e) Trustees' fees or expenses incurred as a result of issues relating to a specific class of shares;
(f) accounting expenses relating solely to a specific class of shares;
(g) auditors' fees, litigation expenses and legal fees and expenses relating to a specific class of shares;
(h) expenses incurred in connection with shareholders' meetings as a result of issues relating to a specific class of shares;
(i) expenses incurred in connection with organizing and offering to investors a new class of shares; and
(j) other expenses incurred attributable to a specific class of shares.
5. EXCHANGE PRIVILEGES. To the extent permitted by the Trustees, shareholders may exchange shares of one class of the Trust for shares of an identical class of any other Fund, based upon each Fund's relative net asset value per share. Only Class A shares of a MainStay Fund may be exchanged for shares of MainStay Equity Index Fund, and shares of MainStay Equity Index Fund may only be exchanged for Class A Shares of another MainStay Fund. Shareholders may also exchange shares of one class of a Fund for shares of the same class of any fund that is a series of Eclipse Funds Inc. or Eclipse Funds (such funds, together with the Funds, each a "MainStay Fund"), based upon the MainStay Funds' relative net asset value per share.
Generally, shareholders may exchange their Class A shares of a MainStay Fund for Class A shares of another MainStay Fund without the imposition of a sales charge. Any such exchanges will be based upon each MainStay Fund's net asset value per share next computed. Where, however, a shareholder seeks to exchange Class A shares of any MainStay Fund that is a money market fund ("Money Market Fund") for Class A shares of another MainStay Fund subject to a front-end sales charge, the applicable sales charge shall be imposed on the exchange, unless the shareholder has previously paid a sales charge with respect to such shares.
Class B or Class C shares of a MainStay Fund may be exchanged for the same class of shares of another MainStay Fund at the net asset value next computed without the imposition of a contingent deferred sales charge; the sales charge will be assessed, if applicable, when the shareholder redeems his shares or has them repurchased without a corresponding purchase of shares of another MainStay Fund. Where, however, a shareholder previously exchanged his shares into a Money Market Fund from another MainStay Fund, the applicable contingent deferred sales charge, if any, shall be assessed when the shares are redeemed from a Money Market Fund, or from a succeeding MainStay Fund in the event that the shareholder exchanges his or her Class B or Class C Money Market Fund shares for shares of another MainStay Fund. The amount of the contingent deferred sales charge shall be determined based on the length of time that the shareholder maintained his or her investment in Class B or Class C shares of any MainStay Fund.
Equally, where a shareholder purchases Class B or Class C shares of a Money Market Fund through an initial investment in the Money Market Fund and, later, exchanges his or her Class B or Class C Money Market Fund shares for the same Class of shares of another MainStay Fund (which normally assesses a contingent deferred sales charge) and then redeems such investment, the applicable contingent deferred sales charge, if any, shall be assessed upon such redemption. The amount of the contingent deferred sales charge shall be determined based on the length of time that the shareholder maintained his or her investment in Class B or Class C shares of any MainStay Fund.
6. CONVERSION FEATURES. Class B shares will be automatically converted to Class A shares at the end of the calendar quarter occurring eight years after the date a shareholder purchases his Class B shares, except that, if immediately after the conversion of fully-aged Class B shares of a Fund held in a shareholder's account, the aggregate value of any remaining Class B shares of that Fund is determined to be of de minimis value by the Fund, such remaining Class B shares may be automatically converted to Class A shares in the same manner as the fully aged Class B shares of the Fund. It is the Trust's intention that all share conversions be made on a tax-free basis, and if this cannot be reasonably assured, the Trustees may modify or eliminate this share class conversion feature. No conversion from Class A, Class C, Class I, Class R1, Class R2, or Class R3 shares is offered.
7. ACCOUNTING METHODOLOGY. The following procedures shall be implemented in order to meet the objective of properly allocating income and expenses among the Funds:
a. On a daily basis, a fund accountant shall calculate the fees to be charged to each class of shares as described in this Plan by calculating the average daily net asset value of such shares outstanding and applying the fee rate to the result of that calculation.
b. The fund accountant will allocate designated Class Expenses, if any, to the respective classes.
c. The fund accountant will allocate income and Corporate Level and Fund Expenses among the respective classes of shares based on the net asset value of each class in relation to the net asset value of a Fund for Fund Expenses, and in relation to the net asset value of the Trust for Corporate Level Expenses. These calculations shall be based on net asset values at the beginning of the day for non-money market funds, and based on the relative value of settled shares at the beginning of the day for any money market funds.
d. The fund accountant shall then complete a worksheet using the allocated income and expense calculations from paragraph (c) above, and the additional fees calculated from paragraphs (a) and (b) above. The fund accountant may make non-material changes to the form of the worksheet as it deems appropriate.
e. The fund accountant shall develop and use appropriate internal control procedures to assure the accuracy of its calculations and appropriate allocation of income and expenses in accordance with this Plan.
8. WAIVER OR REIMBURSEMENT OF EXPENSES. Expenses may be voluntarily waived or reimbursed by any manager or sub-adviser to the Trust, by the Trust's underwriter or any other provider of services to the Trust without the prior approval of the Trustees.
9. EFFECTIVENESS OF PLAN. This Plan shall not take effect until it has
been approved by votes of a majority of both (a) the Trustees of the Trust and
(b) those Trustees of the Trust who are not "interested persons" of the Trust
(as defined in the Act) and who have no direct or indirect interest in the
operation of the Plan, cast in person at a meeting (or meetings) called for the
purpose of voting on this Plan.
10. MATERIAL MODIFICATION. This Plan may not be amended to modify materially its terms unless such amendment is approved in the manner provided for initial approval in Section 9 hereof.
11. LIMITATION OF LIABILITY. The Trustees of the Trust and the shareholders of each Fund shall not be liable for any obligations of the Trust or any Fund under this Plan, and NYLIFE Distributors or any other person, in asserting any rights or claims under this Plan, shall look only to the assets and property of the Trust or such Funds in settlement of such right or claim, and not to such Trustees or shareholders.
IN WITNESS WHEREOF, the Trust, on behalf of the Funds, has adopted this Multiple Class Plan as of the 24th day of April, 1995, to be effective May 1, 1995, and has amended this Plan the 27th day of April, 1998, the 27th day of July, 1998, the 15th day of March, 1999, the 13th day of September, 1999, the 11th day of December, 2000, the 10th day of December, 2001, the 10th day of March, 2003, the 8th day of December, 2003 and the 17th day of March, 2006.
EXHIBIT A
(As of January 2, 2006)
CAPITAL APPRECIATION FUND
COMMON STOCK FUND
CONVERTIBLE FUND
DIVERSIFIED INCOME FUND
GLOBAL HIGH INCOME FUND
GOVERNMENT FUND
HIGH YIELD CORPORATE BOND FUND
INTERNATIONAL EQUITY FUND
LARGE CAP GROWTH FUND
MAP FUND
MID CAP GROWTH FUND
MID CAP VALUE FUND
MONEY MARKET FUND
SMALL CAP GROWTH FUND
SMALL CAP VALUE FUND
TAX FREE BOND FUND
TOTAL RETURN FUND
VALUE FUND
Exhibit p(1)
(NEW YORK LIFE LOGO)
THE MAINSTAY FUNDS
ECLIPSE FUNDS INC. / ECLIPSE FUNDS
MAINSTAY VP SERIES FUND, INC.
CODE OF ETHICS
TABLE OF CONTENTS
SECTION PAGE
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SECTION 1. INTRODUCTION AND APPLICATION 1
SECTION 2. DEFINITIONS 5
SECTION 3. PERSONAL INVESTING ACTIVITIES - RESTRICTIONS AND MONITORING
PROCEDURES 9
SECTION 4. RECORDKEEPING AND REPORTING 14
SECTION 5. ADMINISTRATION 15
EXHIBITS
ACKNOWLEDGEMENT OF RECEIPT OF THE CODE OF ETHICS AND RELATED EXHIBIT A
POLICIES
ANNUAL CERTIFICATION OF COMPLIANCE WITH THE EXHIBIT B
NYLIM HOLDINGS LLC CODE OF ETHICS
PERSONAL SECURITIES TRADING PRECLEARANCE REQUEST FORM EXHIBIT C
ACCESS PERSON INITIAL/ANNUAL SECURITIES HOLDINGS REPORT AND EXHIBIT D
CERTIFICATION
QUARTERLY TRANSACTIONS REPORT EXHIBIT E
COMPLIANCE ADDRESSES FOR DUPLICATE CONFIRMATIONS EXHIBIT F
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SECTION 1. INTRODUCTION AND APPLICATION
1.1 GENERAL STATEMENT
The Mainstay Funds, Eclipse Funds inc. / Eclipse Funds, and Mainstay VP Series Fund, Inc. (each a "Company") recognize the importance of high ethical standards in the conduct of their business and require that this code of ethics (the "Code" or the "NYLIM Fund Code") be observed by their respective Access Persons (defined below in Section 2), each Company's Board of Directors/Trustees ("Board"), including a majority of its independent directors/trustees (defined below in Section 2), has approved this Code as compliant with rule 17j-1 of the Investment Company Act of 1940, as amended ("Investment Company Act"), and has also approved the code of ethics of each investment adviser and subadviser to the respective Company and of the respective company's principal underwriter. Access persons of an entity whose code of ethics has been approved by the boards of directors/trustees and who are subject to that code may comply with that code instead of the Company's Code. This code applies to each company as a separate entity (referred to as "the Company").
Prior to any Investment Adviser or Subadviser (each, an "Adviser") or principal underwriter entering into an agreement to provide services to the Company, such Adviser or principal underwriter shall have adopted its own code of ethics that complies with Rule 17j-1, which code of ethics shall have been approved by the Board in accordance with Rule 17j-1.
Any material change to the Code or to the code of any Adviser or principal underwriter to the Company must be approved by the Board within six months of the adoption of such material change. Accordingly, an Adviser or principal underwriter must notify the Company Compliance Officer (as defined herein) as soon as is practicable following any such material change.
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 Compliance Officer.
Each Access Person is under a duty to exercise his or her authority and responsibility for the benefit of the Company 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 Company and its shareholders. Each such person must avoid any circumstances that might adversely affect or appear to affect his or her duty of complete loyalty to the Company and its shareholders in the discharge of his or her responsibilities, including the protection of confidential information and corporate integrity. Each Access Person must abstain from participation (or any other involvement) in "insider trading" in contravention of any applicable law or regulation. The reputation of the Company and its affiliates for trustworthy financial services is a valuable asset that all Access Persons are expected to preserve and protect.
All personal securities transactions must be conducted consistent with the Code and in such a manner as to avoid any actual or potential conflict of interest or any abuse of an individual's position of trust and responsibility. All persons must abide by the fundamental standard that personnel of the Company, its Advisers and principal underwriter should not take inappropriate advantage of their positions.
This Code has been adopted by the Board in accordance with Rule 17j-1. Rule 17j-1 (the "Rule") generally prohibits fraudulent or manipulative practices with respect to purchases or sales of securities held or to be acquired by investment companies, if effected by persons associated with such companies. The Rule requires organizations subject to it to adopt a code of ethics designed to prevent Access Persons from engaging in fraud, and requires the organization to use reasonable diligence and institute procedures reasonably necessary to prevent violations of its code of ethics. The Rule also requires each Access
Person to report personal securities transactions on at least a quarterly basis, and to report securities holdings upon becoming an Access Person, and annually thereafter. The purpose of this Code is to provide regulations and procedures consistent with the 1940 Act and Rule 17j-1.
1.2 PRINCIPALS AND STANDARDS OF BUSINESS CONDUCT
The following general fiduciary standards and standards of business conduct shall govern personal investment activities and the interpretation and administration of this Code:
- The interests of the Company must be placed first at all times;
- All personal securities transactions must be conducted consistent with this Code and in such a manner as to avoid any actual or potential conflict of interest or any abuse of an individual's position of trust and responsibility;
- Access Persons should not take inappropriate advantage of their positions; and
- Access Persons must comply with applicable federal securities laws.
In accordance with Rule 17j-1(b), it shall be a violation of this Code for any affiliated person or principal underwriter for the Company, or any affiliated person of an Adviser to or the principal underwriter of the Company, in connection with the purchase or sale, directly or indirectly, of any security held or to be acquired by the Company.
- to employ any device, scheme or artifice to defraud the Company ;
- to make to the Company any untrue statement of a material fact necessary or to omit to state to the Company a material fact necessary in order to make the statements made, in light of the circumstances under which they are made not misleading;
- to engage in any act, practice or course of business that operates or would operate as a fraud or deceit upon the Company; or
- to engage in any manipulative practice with respect to the Company.
This Code does not attempt to identify all possible conflicts of interest, and literal compliance with each of its specific provisions will not shield Access Persons from liability for personal trading or other conduct that violates a fiduciary duty to the Company.
1.3 CONFLICTS OF INTEREST
As part of this ongoing responsibility, each Access Person has the duty to disclose to the Company 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 Company and that does business with the Company or that otherwise presents a possible conflict of interest as described herein. Disclosure should be timely so that Company or as applicable the Adviser may take action concerning any possible conflict, as it deems appropriate.
1.4 BOARD MEMBERSHIP
Access Persons may not serve as directors, officers, general partners, consultants, agents, representatives or employees of any other business, other than New York Life Insurance Company or an affiliated company, unless prior authorization is obtained from the Compliance Officer. Such authorization will be
based on a determination that the business of such corporation does not conflict with the interests of the Company, and that such service would be consistent with the best interests of the Company and its shareholders, and that such service is not prohibited by law. If such service is authorized, procedures must be in place to isolate Access Persons serving as directors, officers, general partners, consultants, agents, representatives or employees of outside entities from Investment Personnel making investment decisions on behalf of the Company. In addition, if approval is given, the Compliance Officer shall immediately determine whether the business in question is to be placed on the Company's Restricted List.
1.5 "OTHER" BUSINESS INTERESTS
Except as described in Section 1.6 herein, it is considered generally incompatible with the duties of an Access Person (other than an Independent Director) to act as an officer, general partner, consultant, agent, representative or employee of any other 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 and the person must receive the approval of their supervisor. Any Employee who is Director or above must also receive the approval of the CCO prior to accepting any such position. In the event that approval is given, the CCO and the Employee's supervisor shall immediately determine whether the business in question is to be placed on the Company's Restricted List.
1.6 PERMISSIBLE OUTSIDE ACTIVITIES
Access Persons who, in the regular course of their duties relating to the Company's 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 their department head after consultation with the CCO. Similar positions with public companies may interfere with the Company's advisory activities. Consequently, it is not expected that such positions will be assumed absent unusual circumstances that will benefit the Company. In the event that such unusual circumstances are present, the department head and the CCO shall collectively decide whether the assumption of the position is in the best interest of the Company's clients.
1.7 INSIDER TRADING
Access Persons may not trade on inside information (i.e., material non-public information(1)) or communicate such information to others. An Access Person who believes that he or she is in possession of inside information should contact the CCO or LCO immediately. Please refer to the New York Life LLC Inside Information Policy and Procedures (the "NYLIM Inside Information Policies and Procedures") and the New York Life Investment Management LLC Information Barrier Policy and Procedures (the "NYLIM Information Barrier Policy") for specific guidelines governing inside information.
1.10 PORTFOLIO HOLDINGS DISCLOSURE
It is NYLIM's policy to protect the confidentiality of Fund holdings and to prevent the selective disclosure of non-public information concerning the NYLIM Funds. All portfolio information regarding the Funds is subject to the NYLIM LLC Policy and Procedures Concerning Selective Disclosure of Mutual Fund Portfolio Holdings ("NYLIM LLC Selective Disclosure Policy"). Annually, all Employees must acknowledge that they have read this Policy and that they have not disclosed portfolio holdings in any manner prohibited by the Policy. Please refer to the Policy for specific guidelines governing portfolio holdings information. A violation of the Policy on selective disclosure is considered a violation of this Code.
1.11 EXCESSIVE TRADING
Employees are prohibited from short-term trading or excessive trading of mutual funds advised or subadvised by NYLIM ("NYLIM Funds"), other than those that permit such trading, and must comply with any trading restrictions established by the Company to prevent market timing of these funds. Please refer to Section 3 for specific guidelines governing NYLIM Funds.
SECTION 2 DEFINITIONS
"ACCESS PERSON" - shall have the same meaning as set forth in Rule 17j-1 under the Investment Company Act and as set forth in Rule 204A-1 of the Advisers Act and shall include:
- an officer or director of the Company or NYLIM;
- any "Supervised Person" of NYLIM who has access to non-public information regarding any clients' purchase or sale of securities, or information regarding the portfolio holdings of any NYLIM Fund, or who is involved in making securities recommendations to clients, or who has access to such recommendations that are non-public.
"AFFILIATE" - any person directly or indirectly controlling, controlled by or under common control with such other group.
"AUTOMATIC INVESTMENT PLAN" - a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An automatic investment plan includes dividend reinvestment plans ("DRIPs") and Employee Stock Purchase Plans ("ESPPs").
"BENEFICIAL OWNERSHIP" - shall be interpreted in the same manner as it would be
under Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 in determining
whether a person is the beneficial owner of a security for purposes of the
Securities Exchange Act of 1934 and the rules and regulations thereunder. A
beneficial owner is any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise, has or shares a
direct or indirect pecuniary interest in the securities. A pecuniary interest in
securities means the opportunity, directly or indirectly, to profit or share in
any profit derived from a transaction in those securities. A person is presumed
to have an indirect pecuniary interest in securities held by members of a
person's Immediate Family who either reside with, or are financially dependent
upon, or whose investments are controlled by, that person. A person also has a
beneficial interest in securities held: (i) by a trust in which he or she is a
Trustee, has a Beneficial Interest or is the settlor with a power to revoke;
(ii) by another person and he or she has a contract or an understanding with
such person that the securities held in that person's name are for his or her
benefit; (iii) in the form of a right to acquisition of such security through
the exercise of warrants, options, rights, or conversion rights; (iv) by a
partnership of which he or she is a member; (v) by a corporation that he or she
uses as a personal trading medium; or (vi) by a holding company that he or she
controls.
"CASHLESS EXERCISE" - Transactions executed when exercising employee stock options. Essentially, the money is borrowed to exercise the option to purchase shares, the option is exercised and simultaneously the shares are sold to pay for the purchase, taxes, and broker commissions.
"CHIEF COMPLIANCE OFFICER" OR "CCO" - the Company's Chief Compliance Officer.
"CLIENT" - any client of the Company, including a registered investment company (mutual fund) or other person or entity.
"CODE" - means this Code of Ethics.
"COVERED SECURITY" - any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation on any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust
certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
"DISCRETIONARY MANAGED ACCOUNT" - an account managed on a discretionary basis by a person other than such Employee over which an Employee certifies that he or she has no direct or indirect influence or control over the selection or disposition of securities and no knowledge of transactions therein and documentation describing that relationship has been submitted to and approved by the CCO.
"DIVIDEND REINVESTMENT PLAN" - a stock purchase plan offered by a corporation whereby shareholders purchase stock directly from the company (usually through a transfer agent) and allow investors to reinvest their cash dividends by purchasing additional shares or fractional shares.
"EMPLOYEE" - any person employed by NYLIM or any person who for value received, provides services to or on behalf of the Company, including, but not limited to, consultants, and any person who is an Access Person of the Company as defined in herein.
"EMPLOYMENT DATE" - the date on which the Employee commenced working for the Company.
"EXCEPTED SECURITIES" - Securities not covered by this Code include the following:
- direct obligations of the U.S. Government;
- bankers' acceptances;
- bank certificates of deposit;
- commercial paper;
- high quality short-term debt instruments, including repurchase agreements;
- shares issued by open-end mutual funds not advised or subadvised by NYLIM; and
- interests in qualified state college tuition programs ("529 Plans").
"EMPLOYEE STOCK OPTION PLAN" - Contracts between a company and its employees that give employees the right to buy a specific number of the company's shares at a fixed price within a certain period of time.
"EMPLOYEE STOCK PURCHASE PLAN" - An organized plan for employees to buy shares of their company's stock.
"EXCHANGE TRADED FUND" - An exchange-traded fund, or ETF, represents shares of ownership in either fund, unit investment trust, or depository receipts that hold portfolios of common stocks that are included in a selected index, either broad market, sector or international. ETFs trade throughout the day on an exchange.
"FEDERAL SECURITIES LAWS" - the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Investment Company Act of 1940, the Investment Advisers Act of 1940, Title V of the Gramm-Leach-Bliley Act, any rules adopted by the Commission under any of these statutes, the Bank Secrecy Act as it applies to funds and investment advisers, and any rules adopted thereunder by the Commission or the Department of the Treasury.
"FRONT RUNNING" - the buying or selling of a security by a person, with the intent of taking advantage of the market impact of a client's transaction in the underlying security by or on behalf of the Client.
"INDEPENDENT DIRECTOR" - directors that would not be deemed interested persons, as defined in Section 2(a)(19)(B) of the Investment Company Act.
"IMMEDIATE FAMILY" - any of the following relatives: child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, including adoptive relationships sharing the same household. The term also includes any related or unrelated individual who resides with, or is financially dependent upon, or whose investments are controlled by, or whose financial support is materially contributed to by, the employee, such as a "significant other."
"INITIAL PUBLIC OFFERING" - an offering of securities registered under the Securities Act of 1933, the issuer of which immediately before registration was not subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934.
"INSIDER TRADING" - the purchase or sale of securities of a public company while in possession of material, non-public information or communicating such information to others.
"INVESTMENT COMPANY ACT" - the Investment Company Act of 1940, as amended.
"INVESTMENT CLUB" - a group of two or more people, each of whom contributes monies to an investment pool and participates in the investment making decision process and shares in the investment returns.
"INVESTMENT PERSONNEL" - Employees who, in connection with their regular functions or duties, make or participate in making recommendations regarding the purchase or sale of securities for Client Accounts (i.e., analysts and portfolio managers).
"LOCAL COMPLIANCE OFFICER" OR "LCO" - the applicable designee of the Company's Chief Compliance Officer .
"NYLIM" - New York Life Investment Management Holdings LLC and its subsidiaries, excluding McKay Shields and McMorgan.
"PENDING BUY OR SELL ORDER" - both an order placed with a broker to buy or sell a security or an internal decision by a Company Employee to buy or sell a security.
"PRIVATE PLACEMENT" - an offering that is exempt from registration under the Securities Act of 1933, as amended, under Sections 4(2) or 4(6), or Rules 504, 505 or 506 thereunder.
"RESTRICTED LIST" - a listing of securities maintained by the CCO or LCO in which trading by Access Persons is generally prohibited.
"REGISTERED REPRESENTATIVE" - an Employee who is registered as such with a member firm of the National Association of Securities Dealers Regulation, Inc.
"SCALPING" - buying and selling a security on the same day as a Client and includes, among other transactions, the buying of a security when a client is selling that security, or selling a security when a Client is buying that security, with the intention of taking advantage of the market impact of the Client's trades.
SECTION 3. PERSONAL INVESTING ACTIVITIES - RESTRICTIONS AND MONITORING PROCEDURES
3.1 PRECLEARANCE GENERALLY
Preclearance of personal securities transactions allows NYLIM to prevent certain trades that may conflict with client trading activities. To help prevent Front Running, Scalping, and other trading abuses and actual or potential conflicts of interest, no Employee of NYLIM (or account in which an Employee has any direct or indirect Beneficial Ownership interest) may purchase or sell, directly or indirectly, Covered Securities without prior approval of the CCO or LCO (except pursuant to the exceptions in Section 3.2 below). Accordingly, each Employee must submit their request to purchase or sell Covered Securities through the Employee Personal Securities Transaction Preclearance System (the "EPSTP System") via the NYLIM Intranet. Automated feedback will be provided to the Employee as to whether the request is approved or denied.
In the event that the EPSTP System is unavailable, Access Persons must file a request with the CCO or LCO (in writing, preferably via electronic mail), in substantially the form of Exhibit C ("Preclearance Form") before completing any transaction in Covered Securities. The final determination shall be noted by the CCO or LCO on the Request Form and dated and communicated to the Employee who submitted the request.
The authorization given through the EPSTP System or by the CCO or LCO is effective, unless revoked, only for the calendar day that the request was submitted and ultimately approved. If the transaction is not executed on that same day, a new request must be filed and another authorization must be obtained.
3.2 EXCEPTIONS TO PRE-CLEARANCE REQUIREMENTS
3.2.1 Pre-clearance is not required with respect to any transaction:
a. in Discretionary Managed Accounts;
b. by employees of the New York Life Insurance Company who are directors or officers of NYLIM, who do not have access to information about NYLIM's purchases and sales of securities;
c. that is non-volitional in nature: e.g. stock splits, stock dividends, exchanges and conversions, mandatory tenders, pro rata distributions to all holders of a class of securities, gifts, inheritances, margin/maintenance calls (where the securities to be sold are not directed by the covered person), and sales pursuant to regulated tender offers; or
d. automatic purchases under DRIPs or ESPPs; or
e. any transactions in Exchange Traded Funds ("ETFs") representing shares of a market index and which consists of a minimum of 30 securities; or
f. in securities that are Excepted Securities.
3.2.2 In addition, authorization given for initial and subsequent purchases or sales of DRIPS or ESPP will not be subject to the one day authorization provision since transactions in these programs usually take place on a periodic pre-determined basis.
3.2.3 An Independent Director/Trustee need only obtain prior approval from the CCO or LCO before directly or indirectly acquiring or disposing of beneficial ownership in a Covered Security if he or she knew or, in the ordinary course of fulfilling his or her official duties as a Director/Trustee should have known, that during the 15-day period immediately before or after the Director/Trustee's transaction in that security, the Company, or any Fund thereof, purchased or sold that security on behalf of the Company, or any Fund thereof, or any Adviser considered purchasing or selling the security. A security is "being considered for purchase or sale" when a recommendation to purchase or sell a security has been made and communicated to an Access Person or, with respect to the person making the recommendation, when such person considers making such a recommendation.
3.3 RESTRICTED LIST
No Access Person may acquire or dispose of any direct or indirect Beneficial Ownership in securities of an issuer listed on the Company's Restricted List. Although transactions in securities of an issuer listed on the Restricted List are generally prohibited, case-by-case exceptions may be granted by the CCO.
3.4 FRONT RUNNING AND SCALPING
Notwithstanding anything expressly stated in the Policy, no Covered Securities may be purchased or sold by any Access Person if such purchase or sale is effected with a view to making a profit from a change in the price of such security resulting from anticipated transactions by or for the Company.
3.5 MAXIMUM TRADES AND TRADE REQUESTS PER QUARTER
While there is no maximum limitation on the number of trades that an Access Person may execute per quarter or trade requests that an Access Person may submit per quarter, the Code grants the CCO or LCO the power to impose such a limitation on any Access Person if it is believed to be in the best interest of the Company.
3.6 TRADING / BLACK-OUT PERIODS
3.6.1 No Access Person may acquire or dispose of beneficial ownership in
Covered Securities (other than Excepted Securities) that NYLIM is
purchasing or selling for the Company where such transaction would in
any way conflict with or be detrimental to (or appear to conflict with
or be detrimental to) the interest of the Company;
3.6.2 No Access Person may acquire or dispose of beneficial ownership in a
Covered Security (other than an Excepted Security) on a day when there
is a Pending Buy or Sell Order for the Company until such order is
executed or withdrawn.
3.6.3 No Investment Personnel may acquire or dispose of beneficial ownership
in a Covered Security (other than an Excepted Security) if any purchase
or sale of such securities has been made for the Company in the prior
seven calendar days or can reasonably be anticipated for the Company in
the next seven calendar days.
3.7 EXCEPTIONS TO TRADING/BLACKOUT PERIODS
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Exceptions may be granted to the black-out period set forth in paragraph 3.6.2
(ii) above in the event that the contemplated transaction involves (i) 500
shares or less in the aggregate and the issuer has market capitalization
(outstanding shares multiplied by the current market price per share) greater
than $5 billion; or (ii) the smaller of 500 shares or less in the aggregate or
less than .001% of the issuer's market
capitalization, if the issuer has market capitalization (outstanding shares multiplied by the current market price per share) less than $5 billion; or (iii) investment grade debt instruments of less than $100,000 par value.
3.8 USE OF BROKERAGE FOR PERSONAL OR FAMILY BENEFIT
No securities trades in which the Employee has a direct or indirect Beneficial Ownership interest may be effected through NYLIM's traders. Employees must effect such trades through their personal broker-dealers. In addition, no Employee may, for direct or indirect personal or a family member's benefit, execute a trade with a broker-dealer by using the influence (implied or stated) of NYLIM or any Employee's influence (implied or stated) with NYLIM.
3.9 INITIAL PUBLIC OFFERINGS
No Access Person may directly or indirectly acquire Beneficial Ownership in any securities in an Initial Public Offering of securities except with the express written prior approval of the CCO.
3.10 PRIVATE PLACEMENTS
No Access Person may directly or indirectly acquire Beneficial Ownership in an offering of securities in a Private Placement except with the express written prior approval of the CCO. (Note that pre-approval will generally not be granted if the Private Placement involves a private investment company (e.g., a "hedge fund") that invests in open-end investment companies other than money market funds or equivalents). All Access Persons who have obtained prior approval and made an investment in a Private Placement must disclose that investment if that Access Person plays a part in any subsequent consideration of an investment in the issuer on behalf of the Company. Under such circumstances, NYLIM's decision to purchase securities of the Private Placement issuer will be subject to an independent review by investment personnel with no investment in the issuer.
3.11 OPTIONS
It shall be prohibited for an Investment Personnel to trade in options with respect to securities covered under this Code. Transactions in index options effected on a broad-based index are permitted.
3.12 SHORT-TERM TRADING/SIXTY DAY HOLDING PERIOD
No Access Person may profit from the purchase and sale or sale and purchase of the same (or equivalent) Covered Security within sixty calendar days. Violations will result in disgorgement of the profit to the Company or to a charity of the Company's choice. Exceptions may be made by the CCO or LCO to accommodate special circumstances.
Notwithstanding the above, an Access person who receives a grant of options through an Employee Stock Option, who chooses to exercise those options in a Cashless Exercise, will be allowed an exception from the sixty-day holding period, so long as such transactions are precleared as required under Section 3.1.
3.13 INVESTMENT CLUBS
Access Persons and members of their immediate family may not participate in Investment Clubs. In certain limited instances, exceptions may be granted on a case-by-case basis, e.g., where the person was a member of the Club prior to the adoption of this Policy or was a member of the Club for at least six months before his or her Employment Date. If an exception is granted, Access Persons or their
immediate family members who are granted an exception must directs that all confirmations and account statements relating to investments recommended or made by the Investment Club be promptly submitted to the CCO or LCO, at the addresses provided in Exhibit F hereto. Investment Club transactions will be monitored by the CCO or LCO, and may be subject to the pre-clearance requirements of Section 3.1 above, if necessary to prevent abuses of the Code or this Policy.
3.14 OTHER EXCEPTIONS
The restrictions with respect to: Section 3.3 Restricted List, Sections 3.6 Trading/Black-out Periods, Section 3.12 Short-term trading, and Section 3.13. Investment Clubs do not apply to transactions:
- in Discretionary Managed Accounts;
- by employees of the New York Life Insurance Company who are directors of NYLIM, who do not have access to information about NYLIM's purchases and sales of securities.
- non-volitional in nature: e.g. stock splits, stock dividends, exchanges and conversions, mandatory tenders, pro-rata distributions to all holders of a class of securities, gifts, inheritances, margin/maintenance calls (where the securities to be sold are not directed by the covered person), and sales pursuant to regulated tender offers; or
- DRIPs or ESPPs; or
- any transactions in Exchange Traded Funds ("ETFs") representing shares of a broad based market index; or
- in securities that are Excepted Securities.
3.15 NYLIM FUND SHARES
The following provisions apply to all NYLIM Fund Shares held by an Employee, including, but not limited to, shares owned through a 401(K) plan or similar account, or through a variable insurance product.
No Employee shall purchase and sell (or exchange), or sell and purchase (or exchange), shares of the same NYLIM Fund (of which such Employee has a beneficial ownership interest) within 60 days. The 60-day holding period is measured from the time of the most recent purchase of shares of the relevant NYLIM Fund by the Employee. Waivers of this requirement may be granted in cases of death, disability, or other special circumstances by the CCO and in accordance with the Fund's Policy and Procedures to Detect and Prevent Market Timing. Violations will result in disgorgement of the profit to the relevant NYLIM Fund.
None of the above-specified restrictions on short-term trading in NYLIM Fund shares shall apply to the following transactions:
- Purchases or sales effected in any account over which the Employee has no direct or indirect influence or control (for example, blind trusts or discretionary accounts where the Employee and the investment advisor agree in writing to abide by these restrictions in a manner approved by the CCO or LCO;
- Purchases or sales that are non-volitional on the part of the Employee;
- Purchases that are effected as part of an automatic dividend reinvestment plan, an automatic investment plan, a payroll deduction plan or program (including, but not limited to, automatic payroll deduction plans or programs and 401(k) plans or programs (both employee initiated and/or employer matching)), an employee stock purchase plan or program, or other automatic stock purchase plans or programs;
- Sales that are part of an automatic withdrawal plan or program, including loans, withdrawals and distributions from 401(k) plans or programs; or
- Purchases or sales with respect to NYLIM Fund Shares of a taxable or tax-exempt money market fund.
SECTION 4. RECORDKEEPING AND REPORTING REQUIREMENTS
4.1 PRIVACY STATEMENT
NYLIM recognizes the sensitivity and personal nature of information collected under the Code, and the interests of Access Persons in maintaining their privacy regarding this information. NYLIM's Compliance personnel will take all necessary steps designed to ensure that all reports disclosing personal securities holdings, requests for preclearance of transactions and other information filed by Access Persons under the Code will be treated as confidential, subject only to the review provided in the Code or forms thereunder and review by the Securities and Exchange Commission and other regulators.
4.2 INITIAL HOLDINGS AND ACCOUNT REPORTS
Within 10 days of becoming an Access Person, a report in substantially the form of Exhibit D ("Employee Initial/Annual Securities Holdings Report and Certification"), disclosing every Covered Security in which that Access Person has a direct or indirect Beneficial Ownership interest. The holdings information must be current as of a date no more than 45 days. Access Persons must also disclose all broker, dealer or bank accounts in which any securities (whether or not they are Covered Securities) as to which the Access Person has any Beneficial Ownership interest are held. Additionally, each new Access Person shall file a report in substantially the form of Exhibit A, ("Acknowledgement of Receipt of the Code of Ethics and Related Policies"), indicating that the Access Person has received, read, understood and will comply with the Code, the NYLIM Inside Information Policy, the NYLIM Information Barrier Policy, the NYLIM Holdings LLC Gift & Entertainment Policy and the NYLIM LLC Selective Disclosure Policy.
4.3 QUARTERLY REPORTING AND ACCOUNT REPORTS
Every Access Person shall file with the CCO or LCO a report within 30 calendar days following the end of each calendar quarter reflecting all transactions in any Covered Security in which an Access Person has, or by reason of such transaction acquires or disposes of, any Beneficial Ownership interest, or, alternatively, must confirm that there were no such transactions in the applicable calendar quarter. Access Persons must complete this requirement electronically through the EPSTP System via the NYLIM Intranet.
In the event that the EPSTP System is unavailable, Access Persons shall file with the CCO or LCO a report substantially the form of Exhibit E ("Quarterly Transactions Report").
Failure to complete the quarterly certification will be considered a violation of the Code.
4.4 ANNUAL REPORTING
At the end of each calendar year, but in no case later than January 30th of the following year, every Access Person shall submit to the CCO or LCO, a report disclosing every Covered Security in which that Access Person has a direct or indirect Beneficial Ownership interest as of year-end. Access Persons must also disclose all broker, dealer or bank accounts in which any securities (whether or not they are Covered Securities ) as to which the Access Person has any Beneficial Ownership interest are held.
In addition, each Access Person shall file annually a certification indicating that the Access Person has received, read, understood and complied with the Code, the NYLIM Inside Information Policy, the
NYLIM Information Barrier Policy, the NYLIM Holdings LLC Gift & Entertainment Policy and the NYLIM LLC Selective Disclosure Policy for the calendar year. Access Persons must complete these requirements electronically through the EPSTP System via the NYLIM Intranet.
In the event that the EPSTP System is unavailable, Access Persons shall file with the CCO or LCO a report substantially the form of Exhibit D ("Initial/Annual Securities Holdings Report and Certification") and Exhibit B ("Annual Certification of Compliance").
4.5 DUPLICATE CONFIRMATIONS
Each Access Person shall provide the Compliance Department with sufficient information (as outlined in Exhibit D, ("Initial/Annual Securities Holdings Report and Certification") so that Compliance can arrange for prompt filing by the broker, dealer and bank (where the bank account is used as a brokerage account) with the CCO or LCO of duplicate confirmations of all trades of Covered Securities and quarterly account statements. The duplicates shall be mailed to NYLIM at the applicable address listed in Exhibit F hereto.
4.6 NEW ACCOUNTS
Each Access Person shall promptly notify the CCO or LCO of any new account opened with a broker, dealer or bank (where the bank account is used as a brokerage account). Such notification shall be mailed to NYLIM at the applicable address listed in Exhibit F hereto.
4.7 REPORTING OF CODE VIOLATIONS
Each Access Person shall promptly notify the CCO or LCO of any violation of the Code.
4.8 NYLIM RECORD-KEEPING
NYLIM is required under the Investment Advisers Act of 1940, as amended, and the Investment Company Act to keep records of certain transactions in which its Access Persons have direct or indirect Beneficial Ownership.
The CCO or the LCO must maintain all records relating to compliance with the Code, such as preclearance requests, exception reports, other internal memoranda relating to non-compliant transactions, and preclearance records, records of violations and any actions taken as a result thereof, written acknowledgements, and the names of Access Persons for a minimum period of five years. Acknowledgements of the Code will be maintained for five years after the individual ceases to be an Access Person.
4.9 PERSONAL RECORD KEEPING
Each Access Person of NYLIM is to maintain records adequate to establish that the individual's personal investment decisions did not involve a conflict with the requirements of the Code. Generally, such records would include copies of the Access Person's pre-clearance authorizations, brokerage confirms and brokerage statements, if any. If there is any question as to whether a proposed transaction might involve a possible violation of the Code, the transaction should be discussed in advance with the CCO or LCO.
4.10 APPLICATION TO INDEPENDENT DIRECTORS
An Independent Director/Trustee of the Company who would be required to make a report solely by reason of being a Fund director/trustee, need not make:
- an initial holdings report under Section 4.2 and an annual holdings report under Section 4.4; and
- A quarterly transaction report under Section 4.3, unless the director/trustee knew or, in the ordinary course of fulfilling his or her official duties as a Fund director, should have known that during the 15-day period immediately before or after the director's transaction in a Covered Security, the Fund purchased or sold the Covered Security, or the Fund or its investment adviser considered purchasing or selling the Covered Security.
SECTION 5. ADMINISTRATION
5.1 GENERAL
Subject to Rule 204A-1 under the Investment Advisers Act, each adviser and subadviser to the Funds administers its own Code of Ethics. These codes have been determined to (i) be consistent with Rule 17j-1 of the Investment Company Act; (ii) have been designed to prevent Access Persons from engaging in fraud; and (iii) require each organization to institute procedures reasonably necessary to prevent violations of its own Code of Ethics. It has been determined that each Access Person's compliance with these codes will also satisfy the requirements of the Fund's Code.
5.2 SANCTIONS AND REVIEW
Upon discovering a violation of the Code, the Company, or as applicable, the Adviser shall take whatever remedial steps it deems necessary and available to correct an actual or apparent conflict (e.g., trade reversal etc.). Following those corrective efforts, the CCO may impose sanctions if, based upon all of the facts and circumstances considered, such action is deemed appropriate. The magnitude of these penalties varies with the severity of the violation, although repeat offenders will likely be subjected to harsher punishment. These sanctions may include, among others, the reversal of trades, disgorgement of profits, payment of fines, suspension of trading privileges or, in more serious cases, suspension or termination of employment. It is important to note that violations of the Code may occur without employee fault (e.g., despite preclearance). In those cases, punitive action may not be warranted, although remedial steps may still be necessary.
5.3 REVIEW BY CCO
The CCO will provide to the Board of each Company, on a quarterly basis, a written report describing issues arising under the Code since its last report, including but not limited to information about material violations of the Code by Access Persons and sanctions imposed in response to such violations.
5.4 MONITORING
The Company has delegated administration and enforcement of this Code to NYLIM Compliance. NYLIM Compliance, utilizing the EPSTP System and other methods, conducts reviews of all personal securities transactions and holdings reports with a view towards determining whether Employees have complied with all provisions of the Code. NYLIM Compliance is responsible for developing and maintaining more detailed standard operating procedures around daily monitoring to detect and prevent violations of this Code.
5.5 EXCEPTIONS
The CCO may grant written exceptions to provisions of the Code in circumstances which present special hardship. The exceptions may be granted to individuals or classes of individuals with respect to particular transactions, classes of transactions or all transactions. Exceptions shall be structured to be as narrow as is reasonably practicable with appropriate safeguards designed to prevent abuse of the exception. Notwithstanding the foregoing, however, no exception to a provision of the Code shall be granted where such exception would result in a violation of Rule 17j-1 or Rule 204A-1. Each exception shall be reported to the Board of the Company at the next regularly scheduled meeting of the mutual fund's Board.
EXHIBIT A
ACKNOWLEDGEMENT OF RECEIPT OF THE CODE OF ETHICS AND RELATED POLICIES
NYLIM FUNDS LLC CODE OF ETHICS
NYLIM LLC INSIDE INFORMATION POLICY AND PROCEDURES
NYLIM LLC INFORMATION BARRIER POLICY AND PROCEDURES
NYLIM HOLDINGS LLC GIFT & ENTERTAINMENT POLICY
I hereby certify that I have received a copy of the NYLIM Funds Code of Ethics and other policies listed above, have read and am subject to the Code and these other policies, and understand the relevant requirements.
Name and Title
EXHIBIT B
ANNUAL CERTIFICATION OF COMPLIANCE WITH THE
NYLIM FUNDS CODE OF ETHICS
NYLIM LLC INSIDE INFORMATION POLICY AND PROCEDURES
NYLIM LLC INFORMATION BARRIER POLICY AND PROCEDURES
I hereby certify that I have received read and understood the Code and policies listed above. I further certify that I have complied with and will continue to comply with each of the provisions of the Code and policies to which I am subject.
Name and Title
EXHIBIT C
NEW YORK LIFE INVESTMENT MANAGEMENT HOLDINGS LLC
PERSONAL SECURITIES TRADING PRECLEARANCE REQUEST FORM
EMPLOYEE NAME: _______________________________________________________
Broker Brokerage Account Number _______________________________________ Received By (name/title) _______________________________________ Date Received _______________________________________ |
TRADES MUST BE MADE ON THE SAME DAY THAT APPROVAL IS RECEIVED.
DIRECT
OWNERSHIP
# OF SHRS, SEC. (D) APPROVED/
PRINCIPAL AMOUNT, SYMBOL OR MKT. FAMILY (F) DENIED
DATE NAME OF SECURITY ETC. APPROX PRICE CUSIP # CAP. PURCHASE/SALE CONTROL (C)
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THE PERSON INDICATED ABOVE HAS STATED AND REPRESENTS THAT:
(a) he/she has no inside information (including information relating to planned securities transactions by NYLIM) relating to the above referenced issuer(s);
(b) there is no conflict of interest in these transactions with respect to Company portfolios (IF A CONFLICT OF INTEREST EXISTS, PLEASE CONTACT THE COMPLIANCE DEPARTMENT IMMEDIATELY); and
(c) these securities are not initial public offerings or private placements.
EXHIBIT D
ACCESS PERSON INITIAL/ANNUAL SECURITIES HOLDINGS REPORT AND CERTIFICATION
Statement to New York Life Investment Management LLC by (Please print your full name)*
As of the date appearing above, the following are each and every Covered Security and securities account in which I have a direct or indirect "Beneficial Ownership" interest (Covered Securities do not include bank certificates of deposit, open-end mutual fund shares and U.S. Government obligations). For purposes of this report, the term Beneficial Ownership is very broad and includes, but is not limited to, ownership of securities or securities accounts by or for the benefit of a person, or such person's "immediate family" sharing the same household, including any account in which the Access Person or family member of that person holds a direct or indirect beneficial interest, retains discretionary investment authority or exercises a power of attorney. The term "immediate family" means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law and also includes adoptive relationships. FOR A MORE COMPLETE DEFINITION OF THESE TERMS, PLEASE CONSULT THE NYLIM HOLDINGS LLC CODE OF ETHICS
This report need not disclose Covered Securities held in any account over which the Access Person has no direct or indirect influence or control.
NATURE OF INTEREST
EXCHANGE TICKER SYMBOL BROKER, DEALER OR BANK NO. OF SHARES (DIRECT OWNERSHIP,
NAME OF SECURITY OR CUSIP WHERE SECURITY HELD AND PRINCIPAL AMOUNT FAMILY MEMBER, CONTROL, ETC.)
---------------- -------- ------------------- -------------------- -----------------------------
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NOTE: IN LIEU OF AN ACCESS PERSON LISTING ON THIS FORM EACH SECURITY HELD AS OF
YEAR-END, HE/SHE MAY ATTACH AS AN EXHIBIT TO THIS DOCUMENT, AN ANNUAL
STATEMENT(S) FOR EVERY BANK OR BROKERAGE ACCOUNT AS TO WHICH THE ACCESS
PERSON HAS A BENEFICIAL OWNERSHIP INTEREST IN SECURITIES. NOTWITHSTANDING
THIS ACCOMMODATION, IT IS THE ACCESS PERSON'S SOLE RESPONSIBILITY TO
ENSURE THAT THE INFORMATION REFLECTED IN THAT STATEMENT(S) IS ACCURATE AND
COMPLETELY DISCLOSES ALL RELEVANT SECURITIES HOLDINGS.
* This report will not be construed as an admission that the person making the report has any direct or indirect beneficial ownership in any security to which the report relates.
** Please see the definition of Access Person in the NYLIM Holdings LLC Code.
Name of any broker, dealer or bank with which I maintain an account in which any securities (including securities that are not Covered Securities) are held for my direct or indirect benefit ("Securities Account") as of the date appearing above:
NAME OF BROKER, DEALER OR BANK WITH WHICH
ACCOUNT IS HELD DATE ACCOUNT ESTABLISHED ACCOUNT NUMBER
--------------- ------------------------ --------------
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I CERTIFY THAT THE SECURITIES LISTED ABOVE ARE THE ONLY COVERED SECURITIES IN WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL OWNERSHIP INTEREST.
I FURTHER CERTIFY THAT THE ACCOUNTS LISTED ABOVE ARE THE ONLY SECURITIES ACCOUNTS IN WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL OWNERSHIP INTEREST.
I ALSO CONSENT TO THE RELEASE OF CERTAIN PERSONAL INFORMATION (NAME, HOME ADDRESS, SOCIAL SECURITY NUMBER AND SPOUSE'S FIRST INITIAL) BY NEW YORK LIFE INVESTMENT MANAGEMENT LLC TO A BROKERAGE SERVICES COMPANY TO BE NAMED BY THE COMPLIANCE OFFICER (THE "COMPANY"), WHO WILL PROVIDE THE NYLIM COMPLIANCE DEPARTMENT WITH A REPORT OF ALL KNOWN BROKERAGE ACCOUNTS HELD BY ME OR MY SPOUSE, IF APPLICABLE. DURING THIS TIME, THE COMPANY WILL AGREE THAT ALL PERSONAL INFORMATION SHALL BE HELD IN STRICT CONFIDENCE AND SHALL NOT BE REVEALED TO ANY PERSON, CORPORATION OR ENTITY (THIRD PARTIES) WITHOUT PRIOR WRITTEN CONSENT OF NYLIM AND THE EMPLOYEE. NOTWITHSTANDING THE FOREGOING, I UNDERSTAND HOWEVER THAT THE COMPANY IS AUTHORIZED TO DISCLOSE TO ITS OTHER CUSTOMERS, SHOULD THEY INQUIRE, THAT I AM CURRENTLY (OR HAVE BEEN) EMPLOYED IN SOME CAPACITY IN THE SECURITIES RELATED/FINANCIAL SERVICES INDUSTRY WITHOUT IDENTIFYING NYLIM (OR ITS AFFILIATES) AS THE EMPLOYER. SUCH DISCLOSURE WOULD GENERALLY TAKE PLACE IF I OPENED A SECURITIES ACCOUNT WITH A CLIENT OF THE COMPANY. THESE STEPS ARE BEING TAKEN BY NYLIM IN ITS COMMITMENT TO ENSURE COMPLIANCE WITH FEDERAL SECURITIES LAWS.
Access Person Signature:______________ Date of Submission:___________________ Received By (Name/Title):_____________ Reviewed By (Name/Title):______________ Signature:____________________________ Signature:_____________________________ Date Received:________________________ Date Reviewed:_________________________ |
EXHIBIT E
QUARTERLY TRANSACTIONS REPORT
Statement to New York Life Investment Management Holdings LLC by ____________________(Please print your full name)*
For the Calendar quarter ended _________________________
As of the date appearing above, the following are each and every transaction in a Covered Security in which I have a direct or indirect "Beneficial Ownership" interest (Covered Securities do not include bank certificates of deposit, open-end mutual fund shares and U.S. Government obligations). For purposes of this report, the term Beneficial Ownership is very broad and includes, but is not limited to, ownership of securities or securities accounts by or for the benefit of a person, or such person's "immediate family" sharing the same house-hold, including any account in which the Access Person or family member of that person holds a direct or indirect beneficial interest, retains discretionary investment authority or exercises a power of attorney. The term "immediate family" means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law and also includes adoptive relationships. FOR A MORE COMPLETE DEFINITION OF THESE TERMS, PLEASE CONSULT THE NYLIM LLC CODE OF ETHICS.
This report need not disclose transactions in Covered Securities in any account over which the Access Person** has no direct influence or control.
Interest Nature of
Amount (No. Exchange Rate/ Nature of Interest Firm Through
of Shares or Ticker Maturity Transaction (Direct Ownership, Which
Principal Symbol or Date (if Trade (Purchase, Spouse, Control, Transaction
Name of Security Amount) CUSIP applicable) Date Sale, Etc.) Price Etc.) Was Effected
---------------- ------- --------- ----------- ---- ----------- ----- ----- ------------
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If no transactions in Covered Securities occurred, please insert "NONE" here:
In connection with any purchases or sales of securities for Clients during the quarter, I disclosed to New York Life Investment Management LLC any material interests in my Covered Securities which might reasonably have been expected to involve a conflict with the interests of the Company. Also, I have disclosed all my Covered Securities to the Company. The names and affiliations of family members (see above) who are
* This report will not be construed as an admission that the person making the report has any direct or indirect beneficial ownership in any security to which the report relates.
** Please see the definition of Access Person in the NYLIM Code.
employed in the securities or commodities industries and who might be in a position to benefit directly or indirectly from the activities of NYLIM personnel in the discharge of their duties are as follows:
Names Affiliations
Date of Submission:_____________________________
Access Person Signature: _______________________
EXHIBIT F
ADDRESS(ES) TO WHICH ACCESS PERSON'S DUPLICATE BROKER CONFIRMATIONS/STATEMENTS
SHOULD BE SENT BASED ON GEOGRAPHIC LOCATION.
NYLIM - PARSIPPANY, RETIREMENT PLAN SERVICES (WESTWOOD) AND NYLIM FIELD OFFICES:
New York Life Investment Management LLC
169 Lackawanna Avenue
PO Box 424
Parsippany, New Jersey, 07054-0424
Attn: NYLIM Compliance Department
NYLIM - NEW YORK HOME OFFICE, 51 MADISON AVE., EQUITY INVESTORS GROUP AND REAL ESTATE FIELD OFFICES
NYLIM Compliance Department
Madison Square Station
P.O. Box 729
New York, New York 10010
Attn: Scott Russell
Exhibit (p)(3)
MACKAY SHIELDS LLC
CODE OF ETHICS
TABLE OF CONTENTS
Code of Ethics
Exhibit A - Conflict of Interest Questionnaire
Exhibit B - CFA Institute Code of Ethics for Chartered Financial Analysts
Exhibit C - Acknowledgement of Receipt of Code and Amendments
Exhibit D - Annual Certification of Compliance with Code
Personal Investment Policy
Exhibit E - Initial Holdings and Accounts Report
Exhibit F - Quarterly Transactions and Accounts Report
Exhibit G - Annual Holdings, Transactions and Accounts Report
Exhibit H - Acknowledgement of Receipt of Personal Investment Policy
Exhibit I - Personal Securities Trading Preclearance Request Form
Insider Trading Policy & Procedures
Exhibit J - Acknowledgement and Representation
Restricted List Policy
Watch List Policies and Procedures
Selective Mutual Fund Holdings Disclosure Policies
MacKay Shields LLC
New York Life Investment Management LLC (and supplemental memo)
Information Security & Privacy Policy
Attachment K - Acknowledgement
Attachment L - Policy for MacKay Shields Affiliated Hedge Funds
Gift and Entertainment Policy
Exhibit M - Report of Gifts and Entertainment
Exhibit N - Quarterly Report of Gifts and Entertainment
Exhibit O - Summary
(NEW YORK LIFE LOGO)
Exhibit p (4)
NEW YORK LIFE INVESTMENT MANAGEMENT HOLDINGS LLC
CODE OF ETHICS
ALL RECIPIENTS OF THE CODE SHOULD READ IT CAREFULLY, RETAIN IT FOR FUTURE REFERENCE AND ABIDE BY ITS REQUIREMENTS. SHOULD YOU HAVE A QUESTION AS TO YOUR STATUS UNDER THE CODE, CONTACT COMPLIANCE IMMEDIATELY.
TABLE OF CONTENTS
SECTION PAGE
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SECTION 1. STATEMENT OF GENERAL FIDUCIARY PRINCIPALS 1
SECTION 2. DEFINITIONS 5
SECTION 3. PERSONAL INVESTMENT ACTIVITIES -
RESTRICTIONS AND MONITORING PROCEDURES 9
SECTION 4. RECORDKEEPING AND REPORTING 14
SECTION 5. ADMINISTRATION 17
EXHIBITS
IDENTIFICATION OF ACCESS PERSON CATEGORIES EXHIBIT A
LIST OF NYLIM FUND SHARES EXHIBIT B
ACKNOWLEDGEMENT OF RECEIPT OF THE CODE OF EXHIBIT C
ETHICS AND RELATED POLICIES
ANNUAL CERTIFICATION OF COMPLIANCE WITH THE EXHIBIT D
NYLIM HOLDINGS LLC CODE OF ETHICS
PERSONAL SECURITIES TRADING PRECLEARANCE EXHIBIT E
REQUEST FORM
EMPLOYEE INITIAL/ANNUAL SECURITIES HOLDINGS EXHIBIT F
REPORT AND CERTIFICATION
QUARTERLY TRANSACTIONS REPORT EXHIBIT G
COMPLIANCE ADDRESSES FOR DUPLICATE CONFIRMATIONS EXHIBIT H
CONFLICTS OF INTERESTS QUESTIONNAIRE EXHIBIT I
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SECTION 1. STATEMENT OF GENERAL FIDUCIARY PRINCIPALS AND STANDARDS OF BUSINESS CONDUCT
1.1 GENERAL STATEMENT
This Code of Ethics ("Code") has been issued by New York Life Investment Management Holdings LLC ("NYLIM Holdings") in order to set forth guidelines and procedures that promote ethical practices and conduct by all Employees of NYLIM Holdings and its divisions and subsidiaries (collectively, "NYLIM" or the "Company")(1). It is also intended to ensure that all Employees of NYLIM comply with Federal Securities Laws. The Code provides each Employee with specific guidance concerning personal security investments and the responsibilities associated with that activity. Some provisions of the Code, particularly with respect to personal trading, only apply to Access Persons, as defined herein and do not apply to all Employees of NYLIM. Status as an Access Person will depend on a person's specific title, functions, duties, activities, and access to information. Exhibit A to this Code includes a list of certain categories of Employees and departments whose Employees will be considered Access Persons.
NYLIM requires that all Employees observe the applicable standards of duty and care set forth herein. An Employee may not evade the provisions of the Code by acting through another person, including a friend, relative or other, to act in a manner which is prohibited.
NYLIM Management believes that NYLIM's own mutual funds provide a broad range of investment options to meet employee investment needs. We encourage NYLIM employees to use these vehicles for their personal investments. We do not encourage active trading by our employees. We recognize, however, that individual needs differ and that there are other attractive investment opportunities. As a result, this Code is intended to give you and your family flexibility to invest, without jeopardizing relationships with our clients.
NYLIM is entrusted with the assets of our Clients for investment purposes. This fiduciary relationship requires NYLIM personnel to place the interests of our clients before their own and to avoid even the appearance of a conflict of interest. Persons subject to this Code must adhere to this general overriding principle as well as comply with the Code's specific provisions. This is how we earn and keep our Clients' trust.
As a fundamental requirement, NYLIM demands the highest standards of ethical conduct on the part of all its Employees. All Employees must abide by this basic standard and never take inappropriate advantage of their position with the Company.
1.2 PRINCIPALS AND STANDARDS OF BUSINESS CONDUCT
The following general fiduciary standards and standards of business conduct shall govern personal investment activities and the interpretation and administration of this Code:
- The interests of Clients must be placed first at all times;
(1) For purposes of this Code, NYLIM includes the following NYLIM Holdings entities: Madison Capital Funding LLC, NYLIM Service Company LLC, NYLIFE Distributors Inc., NYLCAP Manager LLC, and New York Life Investment Management LLC. MacKay Shields LLC and McMorgan & Co. LLC, directly owned subsidiaries of NYLIM Holdings, administer their own Codes of Ethics, as well as the following New York Life Insurance Company subsidiaries: New York Life Trust Co. FSB and New York Life Trust Company.
- All personal securities transactions must be conducted consistent with this Code and in such a manner as to avoid any actual or potential conflict of interest or any abuse of an individual's position of trust and responsibility;
- Access Persons should not take inappropriate advantage of their positions; and
- Access Persons must comply with applicable federal securities laws.
It shall be a violation of this Code and its procedures, for any Employee of the Company, in connection with the purchase or sale, directly or indirectly, of any security held or to be acquired by any client including a registered investment company or other entity (collectively a "Client"):
- to employ any device, scheme or artifice to defraud any Client for which the Company serves as an investment adviser or sub-adviser;
- to make to the Client any untrue statement of a material fact necessary or to omit to state to the Client a material fact necessary in order to make the statements made, in light of the circumstances under which they are made not misleading;
- to engage in any act, practice or course of business that operates or would operate as a fraud or deceit upon the Client; or
- to engage in any manipulative practice with respect to the Client.
This Code does not attempt to identify all possible conflicts of interest, and literal compliance with each of its specific provisions will not shield Employees from liability for personal trading or other conduct that violates a fiduciary duty to Clients.
1.3 CONFLICTS OF INTEREST
As part of this ongoing responsibility, each Employee has the duty to disclose to NYLIM 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 NYLIM or its Affiliates and that does business with NYLIM or that otherwise presents a possible conflict of interest as described herein. Disclosure should be timely so that NYLIM may take action concerning any possible conflict, as it deems appropriate. It is recognized, however, that NYLIM has or 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.
1.4 BOARD MEMBERSHIP
Except as described in Section 1.6 hereof, it is considered generally incompatible with the duties of an Employee of NYLIM for that Employee to assume the position of director of a corporation not affiliated with the Company. A report should be made by an Employee to the CCO and the Employee's supervisor of any invitation to serve as a director of a corporation that is not an Affiliate and the person must receive the approval of their supervisor and the CCO prior to accepting any such directorship. In the event that approval is given, the CCO shall immediately determine whether the corporation in question is to be placed on the Company's Restricted List.
1.5 "OTHER" BUSINESS INTERESTS
Except as described in Section 1.6 herein, it is considered generally incompatible with the duties of an Employee of NYLIM to act as an officer, general partner, consultant, agent, representative or employee of
any other 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 and the person must receive the approval of their supervisor. Any Employee who is Director or above must also receive the approval of the CCO prior to accepting any such position. In the event that approval is given, the CCO and the Employee's supervisor shall immediately determine whether the business in question is to be placed on the Company's Restricted List.
1.6 PERMISSIBLE OUTSIDE ACTIVITIES
Employees who, in the regular course of their duties relating to the Company's 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 their department head after consultation with the CCO. Similar positions with public companies may interfere with the Company's advisory activities. Consequently, it is not expected that such positions will be assumed absent unusual circumstances that will benefit Clients. In the event that such unusual circumstances are present, the department head and the CCO shall collectively decide whether the assumption of the position is in the best interest of the Company's clients.
1.7 CONFLICTS OF INTEREST QUESTIONNAIRE
Initially and annually thereafter, a "Questionnaire on Conflicts of Interest," in substantially the form attached as Exhibit I hereto, shall be distributed to each Employee for completion and filing with the CCO or his or her designee. Each Employee shall promptly supplement the annual questionnaire as necessary to reflect any material changes between annual filings.
1.8 GIFTS AND ENTERTAINMENT
Employees are subject to the NYLIM Holdings LLC Gift and Entertainment Policy and should refer to that Policy for guidance with respect to the limits on giving and receiving gifts or entertainment to or from third parties that do business with NYLIM, its Affiliates, or its Clients. Employees who are Registered Representatives are also subject to limitations on giving or receiving gifts that are imposed by the Rules of Conduct of the National Association of Securities Dealers.
1.9 INSIDER TRADING
Employees may not trade on inside information (i.e., material non-public information(2)) or communicate such information to others. An Employee who believes that he or she is in possession of inside information should contact the CCO or LCO immediately. Please refer to the New York Life LLC Inside Information Policy and Procedures (the "NYLIM Inside Information Policies and Procedures") and the New York Life Investment Management LLC Information Barrier Policy and Procedures (the "NYLIM Information Barrier Policy") for specific guidelines governing inside information.
1.10 PORTFOLIO HOLDINGS DISCLOSURE
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(2) Material information generally is that which a reasonable investor would
consider significant in making an investment decision. Nonpublic
information is any information which has not been disclosed to the general
public. Information is considered public when it is widely disseminated;
e.g. disclosure in the news media or company filings.
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It is NYLIM's policy to protect the confidentiality of Fund holdings and to prevent the selective disclosure of non-public information concerning the NYLIM Funds. All portfolio information regarding the Funds is subject to the NYLIM LLC Policy and Procedures Concerning Selective Disclosure of Mutual Fund Portfolio Holdings ("NYLIM LLC Selective Disclosure Policy"). Annually, all Employees must acknowledge that they have read this Policy and that they have not disclosed portfolio holdings in any manner prohibited by the Policy. Please refer to the Policy for specific guidelines governing portfolio holdings information. A violation of the Policy on selective disclosure is considered a violation of this Code.
1.11 EXCESSIVE TRADING
Employees are prohibited from short-term trading or excessive trading of mutual funds advised or subadvised by NYLIM ("NYLIM Funds"), other than those that permit such trading, and must comply with any trading restrictions established by the Company to prevent market timing of these funds. Please refer to Section 3 for specific guidelines governing NYLIM Funds.
SECTION 2 DEFINITIONS
"ACCESS PERSON" - shall have the same meaning as set forth in Rule 17j-1 under the Investment Company Act and as set forth in Rule 204A-1 of the Advisers Act and shall include:
- an officer(2) or director of NYLIM;
- any "Supervised Person" of NYLIM who has access to non-public information regarding any clients' purchase or sale of securities, or information regarding the portfolio holdings of any NYLIM Fund, or who is involved in making securities recommendations to clients, or who has access to such recommendations that are non-public.
"AFFILIATE" - any person directly or indirectly controlling, controlled by or under common control with such other group.
"AUTOMATIC INVESTMENT PLAN" - a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An automatic investment plan includes dividend reinvestment plans ("DRIPs") and Employee Stock Purchase Plans ("ESPPs").
"BENEFICIAL OWNERSHIP" - shall be interpreted in the same manner as it would be
under Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 in determining
whether a person is the beneficial owner of a security for purposes of the
Securities Exchange Act of 1934 and the rules and regulations thereunder. A
beneficial owner is any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise, has or shares a
direct or indirect pecuniary interest in the securities. A pecuniary interest in
securities means the opportunity, directly or indirectly, to profit or share in
any profit derived from a transaction in those securities. A person is presumed
to have an indirect pecuniary interest in securities held by members of a
person's Immediate Family who either reside with, or are financially dependent
upon, or whose investments are controlled by, that person. A person also has a
beneficial interest in securities held: (i) by a trust in which he or she is a
Trustee, has a Beneficial Interest or is the settlor with a power to revoke;
(ii) by another person and he or she has a contract or an understanding with
such person that the securities held in that person's name are for his or her
benefit; (iii) in the form of a right to acquisition of such security through
the exercise of warrants, options, rights, or conversion rights; (iv) by a
partnership of which he or she is a member; (v) by a corporation that he or she
uses as a personal trading medium; or (vi) by a holding company that he or she
controls.
"CASHLESS EXERCISE" - Transactions executed when exercising employee stock options. Essentially, the money is borrowed to exercise the option to purchase shares, the option is exercised and simultaneously the shares are sold to pay for the purchase, taxes, and broker commissions.
"CHIEF COMPLIANCE OFFICER" OR "CCO" - the Company's Chief Compliance Officer.
"CLIENT" - any client of the Company, including a registered investment company (mutual fund) or other person or entity.
(2) "Officer" for the purposes of the Code encompasses all NYLIM Executive Employees, (i.e. Director or higher), the Secretary, Controller, and any other NYLIM officer who performs policy-making functions.
"CODE" - means this Code of Ethics.
"COVERED SECURITY" - any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation on any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
"DISCRETIONARY MANAGED ACCOUNT" - an account managed on a discretionary basis by a person other than such Employee over which an Employee certifies that he or she has no direct or indirect influence or control over the selection or disposition of securities and no knowledge of transactions therein and documentation describing that relationship has been submitted to and approved by the CCO.
"DIVIDEND REINVESTMENT PLAN" - a stock purchase plan offered by a corporation whereby shareholders purchase stock directly from the company (usually through a transfer agent) and allow investors to reinvest their cash dividends by purchasing additional shares or fractional shares.
"EMPLOYEE" - any person employed by NYLIM or any person who for value received, provides services to or on behalf of the Company, including, but not limited to, consultants, and any person who is an Access Person of the Company as defined in herein.
"EMPLOYMENT DATE" - the date on which the Employee commenced working for the Company.
"EMPLOYEE STOCK OPTION PLAN" - Contracts between a company and its employees that give employees the right to buy a specific number of the company's shares at a fixed price within a certain period of time.
"EMPLOYEE STOCK PURCHASE PLAN" - An organized plan for employees to buy shares of their company's stock.
"EXCEPTED SECURITIES" - Securities not covered by this Code include the following:
- direct obligations of the U.S. Government;
- bankers' acceptances;
- bank certificates of deposit;
- commercial paper;
- high quality short-term debt instruments, including repurchase agreements;
- shares issued by open-end mutual funds not advised or subadvised by NYLIM; and
- interests in qualified state college tuition programs ("529 Plans").
"EXCHANGE TRADED FUND" - An exchange-traded fund, or ETF, represents shares of ownership in either fund, unit investment trust, or depository receipts that hold portfolios of common stocks that are included in a selected index, either broad market, sector or international. ETFs trade throughout the day on an exchange.
"FEDERAL SECURITIES LAWS" - the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Investment Company Act of 1940, the Investment Advisers Act of 1940, Title V of the Gramm-Leach-Bliley Act, any rules adopted by the Commission under any of these statutes, the Bank Secrecy Act as it applies to funds and investment advisers, and any rules adopted thereunder by the Commission or the Department of the Treasury.
"FRONT RUNNING" - the buying or selling of a security by a person, with the intent of taking advantage of the market impact of a client's transaction in the underlying security by or on behalf of the Client.
"IMMEDIATE FAMILY" - any of the following relatives: child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, including adoptive relationships sharing the same household. The term also includes any related or unrelated individual who resides with, or is financially dependent upon, or whose investments are controlled by, or whose financial support is materially contributed to by, the employee, such as a "significant other."
"INITIAL PUBLIC OFFERING" - an offering of securities registered under the Securities Act of 1933, the issuer of which immediately before registration was not subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934.
"INSIDER TRADING" - the purchase or sale of securities of a public company while in possession of material, non-public information or communicating such information to others.
"INVESTMENT COMPANY ACT" - the Investment Company Act of 1940, as amended.
"INVESTMENT CLUB" - a group of two or more people, each of whom contributes monies to an investment pool and participates in the investment making decision process and shares in the investment returns.
"INVESTMENT PERSONNEL" - Employees who, in connection with their regular functions or duties, make or participate in making recommendations regarding the purchase or sale of securities for Client Accounts (i.e., portfolio managers, traders and analysts).
"LOCAL COMPLIANCE OFFICER" OR "LCO" - the applicable designee of the Company's Chief Compliance Officer .
"NYLIM" - includes the following NYLIM Holdings entities: Madison Capital Funding LLC, NYLIM Service Company LLC, NYLIFE Distributors Inc., NYLCAP Manager LLC, and New York Life Investment Management LLC. as well as the following New York Life Insurance Company subsidiaries: New York Life Trust Co. FSB and New York Life Trust Company.
"NYLIM FUND" - an investment company advised or subadvised by NYLIM and any investment company whose investment adviser or principal underwriter is controlled by or under common control with NYLIM.
"NYLIM FUND SHARES" - shares of a NYLIM Fund.
"PENDING BUY OR SELL ORDER" - both an order placed with a broker to buy or sell a security or an internal decision by a Company Employee to buy or sell a security.
"PRIVATE PLACEMENT" - an offering that is exempt from registration under the Securities Act of 1933, as amended, under Sections 4(2) or 4(6), or Rules 504, 505 or 506 thereunder.
"RESTRICTED LIST" - a listing of securities maintained by the CCO or LCO in which trading by Employees is generally prohibited.
"REGISTERED REPRESENTATIVE" - an Employee who is registered as such with a member firm of the National Association of Securities Dealers Regulation, Inc.
"SCALPING" - buying and selling a security on the same day as a Client and includes, among other transactions, the buying of a security when a client is selling that security, or selling a security when a Client is buying that security, with the intention of taking advantage of the market impact of the Client's trades.
"SUPERVISED PERSON" - An adviser's supervised persons are its partners, officers, directors (or other persons occupying a similar status or performing similar functions) and employees, as well as any other persons who provide advice on behalf of the adviser and are subject to the adviser's supervision and control.
SECTION 3. PERSONAL INVESTING ACTIVITIES - RESTRICTIONS AND MONITORING PROCEDURES
3.1 PRECLEARANCE GENERALLY
Preclearance of personal securities transactions allows NYLIM to prevent certain trades that may conflict with client trading activities. To help prevent Front Running, Scalping, and other trading abuses and actual or potential conflicts of interest, no Employee of NYLIM (or account in which an Employee has any direct or indirect Beneficial Ownership interest) may purchase or sell, directly or indirectly, Covered Securities without prior approval of the CCO or LCO (except pursuant to the exceptions in Section 3.2 below). Accordingly, each Employee must submit their request to purchase or sell Covered Securities through the Employee Personal Securities Transaction Preclearance System (the "EPSTP System") via the NYLIM Intranet. Automated feedback will be provided to the Employee as to whether the request is approved or denied.
In the event that the EPSTP System is unavailable, Employees must file a request with the CCO or LCO (in writing, preferably via electronic mail), in substantially the form of Exhibit E ("Preclearance Form") before completing any transaction in Covered Securities. The final determination shall be noted by the CCO or LCO on the Request Form and dated and communicated to the Employee who submitted the request.
The authorization given through the EPSTP System or by the CCO or LCO is effective, unless revoked, only for the calendar day that the request was submitted and ultimately approved. If the transaction is not executed on that same day, a new request must be filed and another authorization must be obtained.
3.2 EXCEPTIONS TO PRE-CLEARANCE REQUIREMENTS
3.2.1 Pre-clearance is not required with respect to any transaction:
a. in Discretionary Managed Accounts;
b. by employees of the New York Life Insurance Company who are directors or officers of NYLIM, who do not have access to information about NYLIM's purchases and sales of securities;
c. that is non-volitional in nature: e.g. stock splits, stock dividends, exchanges and conversions, mandatory tenders, pro rata distributions to all holders of a class of securities, gifts, inheritances, margin/maintenance calls (where the securities to be sold are not directed by the covered person), and sales pursuant to regulated tender offers; or
d. automatic purchases under DRIPs or ESPPs; or
e. any transactions in Exchange Traded Funds ("ETFs") representing shares of a market index and which consists of a minimum of 30 securities; or
f. in securities that are Excepted Securities.
3.2.2 In addition, authorization given for initial and subsequent purchases or sales of DRIPS or ESPP will not be subject to the one day authorization provision since transactions in these programs usually take place on a periodic pre-determined basis.
3.3 RESTRICTED LIST
No Employee may acquire or dispose of any direct or indirect Beneficial Ownership in securities of an issuer listed on the Company's Restricted List. Although transactions in securities of an issuer listed on the Restricted List are generally prohibited, case-by-case exceptions may be granted by the CCO.
3.4 FRONT RUNNING AND SCALPING
Notwithstanding anything expressly stated in the Policy, no Covered Securities may be purchased or sold by any Employee if such purchase or sale is effected with a view to making a profit from a change in the price of such security resulting from anticipated transactions by or for a NYLIM Client.
3.5 MAXIMUM TRADES AND TRADE REQUESTS PER QUARTER
While there is no maximum limitation on the number of trades that an Employee may execute per quarter or trade requests that an Employee may submit per quarter, the Code grants the CCO or LCO the power to impose such a limitation on any Employee if it is believed to be in the best interest of the Company or its Clients.
3.6 TRADING / BLACK-OUT PERIODS
3.6.1 No Access Person may acquire or dispose of beneficial ownership in Covered Securities (other than Excepted Securities) that NYLIM is purchasing or selling for any Client or proposes to purchase or sell for any Client where such transaction would in any way conflict with or be detrimental to (or appear to conflict with or be detrimental to) the interest of the Client;
3.6.2 No Access Person may acquire or dispose of beneficial ownership in a Covered Security (other than an Excepted Security) on a day when there is a Pending Buy or Sell Order for a Client of NYLIM until such order is executed or withdrawn.
3.6.3 No Investment Personnel may acquire or dispose of beneficial ownership in a Covered Security (other than an Excepted Security) if any purchase or sale of such securities has been made for a NYLIM Client account in the prior seven calendar days or can reasonably be anticipated for a NYLIM Client account in the next seven calendar days.
3.7 EXCEPTIONS TO TRADING/BLACKOUT PERIOD
Exceptions may be granted to the black-out period set forth in paragraph 3.6.3 above in the event that the contemplated transaction involves (i) 500 shares or less in the aggregate and the issuer has market capitalization (outstanding shares multiplied by the current market price per share) greater than $5 billion; or (ii) the smaller of 500 shares or less in the aggregate or less than .001% of the issuer's market capitalization, if the issuer has market capitalization (outstanding shares multiplied by the current market price per share) less than $5 billion; or (iii) investment grade debt instruments of less than $100,000 par value.
3.8 USE OF BROKERAGE FOR PERSONAL OR FAMILY BENEFIT
No securities trades in which the Employee has a direct or indirect Beneficial Ownership interest may be effected through NYLIM's traders. Employees must effect such trades through their personal broker-dealers. In addition, no Employee may, for direct or indirect personal or a family member's benefit, execute a trade with a broker-dealer by using the influence (implied or stated) of NYLIM or any Employee's influence (implied or stated) with NYLIM.
3.9 INITIAL PUBLIC OFFERINGS
No Access Person (or Employees who are Registered Representatives) may directly or indirectly acquire Beneficial Ownership in any securities in an Initial Public Offering of securities except with the express written prior approval of the CCO.
3.10 PRIVATE PLACEMENTS
No Access Person may directly or indirectly acquire Beneficial Ownership in an offering of securities in a Private Placement except with the express written prior approval of the CCO. (Note that pre-approval will generally not be granted if the Private Placement involves a private investment company (e.g., a "hedge fund") that invests in open-end investment companies other than money market funds or equivalents). All Access Persons who have obtained prior approval and made an investment in a Private Placement must disclose that investment if that Access Person plays a part in any subsequent consideration of an investment in the issuer on behalf of Client accounts. Under such circumstances, NYLIM's decision to purchase securities of the Private Placement issuer will be subject to an independent review by investment personnel with no investment in the issuer.
3.11 OPTIONS
It shall be prohibited for Investment Personnel to trade in options with respect to individual securities covered under this Code. Transactions in index options effected on a broad-based index are permitted.
3.12 SHORT-TERM TRADING/SIXTY DAY HOLDING PERIOD
No Access Person may profit from the purchase and sale or sale and purchase of the same (or equivalent) Covered Security within sixty calendar days. Violations will result in disgorgement of the profit to the Client or to a charity of the Company's choice. Exceptions may be made by the CCO or LCO to accommodate special circumstances.
Notwithstanding the above, an Access person who receives a grant of options through an Employee Stock Option, who chooses to exercise those options in a Cashless Exercise, will be allowed an exception from the sixty-day holding period, so long as such transactions are precleared as required under Section 3.1.
3.13 INVESTMENT CLUBS
Access Persons and members of their immediate family may not participate in Investment Clubs. In certain limited instances, exceptions may be granted on a case-by-case basis, e.g., where the person was a member of the Club prior to the adoption of this Policy or was a member of the Club for at least six months before his or her Employment Date. If an exception is granted, Access Persons or their immediate family members who are granted an exception must directs that all confirmations and account statements relating to investments recommended or made by the Investment Club be promptly submitted to the CCO or LCO, at the addresses provided in Exhibit H hereto. Investment Club transactions will be
monitored by the CCO or LCO, and may be subject to the pre-clearance requirements of Section 3.1 above, if necessary to prevent abuses of the Code or this Policy.
Employees who are not Access Persons and their family members may participate in an Investment Club provided (i) the employee promptly discloses the membership to the CCO, ii.) the employee provides sufficient information about the investment club as requested and (ii) directs that all confirmations and account statements relating to investments recommended or made by the Investment Club be promptly submitted to the CCO or LCO, at the addresses provided in Exhibit H hereto.
3.14 OTHER EXCEPTIONS
The restrictions with respect to: Section 3.3 Restricted List, Sections 3.6 Trading/Black-out Periods, Section 3.12 Short-term trading, and Section 3.13. Investment Clubs do not apply to transactions:
- in Discretionary Managed Accounts;
- by employees of the New York Life Insurance Company who are directors of NYLIM, who do not have access to information about NYLIM's purchases and sales of securities.
- non-volitional in nature: e.g. stock splits, stock dividends, exchanges and conversions, mandatory tenders, pro-rata distributions to all holders of a class of securities, gifts, inheritances, margin/maintenance calls (where the securities to be sold are not directed by the covered person), and sales pursuant to regulated tender offers; or
- DRIPs or ESPPs; or
- any transactions in Exchange Traded Funds ("ETFs") representing shares of a broad based market index; or
- in securities that are Excepted Securities.
3.15 NYLIM FUND SHARES
The following provisions apply to all NYLIM Fund Shares held by an Employee, including, but not limited to, shares owned through a 401(K) plan or similar account, or through a variable insurance product.
No Employee shall purchase and sell (or exchange), or sell and purchase (or exchange), shares of the same NYLIM Fund (of which such Employee has a beneficial ownership interest) within 60 days. The 60-day holding period is measured from the time of the most recent purchase of shares of the relevant NYLIM Fund by the Employee. Waivers of this requirement may be granted in cases of death, disability, or other special circumstances by the CCO and in accordance with the Fund's Policy and Procedures to Detect and Prevent Market Timing. Violations will result in disgorgement of the profit to the relevant NYLIM Fund.
None of the above-specified restrictions on short-term trading in NYLIM Fund shares shall apply to the following transactions:
- Purchases or sales effected in any account over which the Employee has no direct or indirect influence or control (for example, blind trusts or discretionary accounts where the Employee and the investment advisor agree in writing to abide by these restrictions in a manner approved by the CCO or LCO;
- Purchases or sales that are non-volitional on the part of the Employee;
- Purchases that are effected as part of an automatic dividend reinvestment plan, an automatic investment plan, a payroll deduction plan or program (including, but not limited to, automatic payroll deduction plans or programs and 401(k) plans or programs (both employee initiated and/or employer matching)), an employee stock purchase plan or program, or other automatic stock purchase plans or programs;
- Sales that are part of an automatic withdrawal plan or program, including loans, withdrawals and distributions from 401(k) plans or programs; or
- Purchases or sales with respect to NYLIM Fund Shares of a taxable or tax-exempt money market fund.
SECTION 4. RECORDKEEPING AND REPORTING REQUIREMENTS
4.1 PRIVACY STATEMENT
NYLIM recognizes the sensitivity and personal nature of information collected under the Code, and the interests of Employees in maintaining their privacy regarding this information. NYLIM's Compliance personnel will take all necessary steps designed to ensure that all reports disclosing personal securities holdings, requests for preclearance of transactions and other information filed by Employees under the Code will be treated as confidential, subject only to the review provided in the Code or forms thereunder and review by the Securities and Exchange Commission and other regulators.
4.2 INITIAL HOLDINGS AND ACCOUNT REPORTS
At the time of becoming an Employee, but in no case later than 10 days from the Employment Date (30 days for Employees who are not Access Persons), every new Employee shall submit to the CCO or LCO, a report in substantially the form of Exhibit F ("Employee Initial/Annual Securities Holdings Report and Certification"), disclosing every Covered Security and NYLIM Fund in which that Employee has a direct or indirect Beneficial Ownership interest as of the Employment Date. The holdings information must be current as of a date no more than 45 days prior to the employment date. Employees must also disclose all broker, dealer or bank accounts in which any securities (whether or not they are Covered Securities or NYLIM Fund Shares) as to which the Employee has any Beneficial Ownership interest are held. Additionally, each new Employee shall file a report in substantially the form of Exhibit C, ("Acknowledgement of Receipt of the Code of Ethics and Related Policies"), indicating that the Employee has received, read, understood and will comply with the Code, the NYLIM Inside Information Policy, the NYLIM Information Barrier Policy, the NYLIM Holdings LLC Gift & Entertainment Policy and the NYLIM LLC Selective Disclosure Policy.
4.3 QUARTERLY REPORTING AND ACCOUNT REPORTS
Every Access Person shall file with the CCO or LCO a report within 30 calendar days following the end of each calendar quarter reflecting all transactions in any Covered Security and NYLIM Fund(3) in which an Access Person has, or by reason of such transaction acquires or disposes of, any Beneficial Ownership interest, or, alternatively, must confirm that there were no such transactions in the applicable calendar quarter. Employees must complete this requirement electronically through the EPSTP System via the NYLIM Intranet.
In the event that the EPSTP System is unavailable, Access Persons shall file with the CCO or LCO a report substantially the form of Exhibit G ("Quarterly Transactions Report").
Failure to complete the quarterly certification will be considered a violation of the Code.
4.4 ANNUAL REPORTING
At the end of each calendar year, but in no case later than January 30th of the following year, every Employee shall submit to the CCO or LCO, a report disclosing every Covered Security and NYLIM Fund
(3) NYLIM Compliance receives information on holdings and transactions in NYLIM
Fund Shares held through the 401(k) plan directly from the Company's 401
(k) plan sponsors. Therefore, reporting relating to these holdings and
transactions need not be provided directly from the Employee.
in which that Employee has a direct or indirect Beneficial Ownership interest as of year-end. Employees must also disclose all broker, dealer or bank accounts in which any securities (whether or not they are Covered Securities or NYLIM Fund Shares) as to which the Employee has any Beneficial Ownership interest are held.
In addition, each Employee shall file annually a certification indicating that the Employee has received, read, understood and complied with the Code, the NYLIM Inside Information Policy, the NYLIM Information Barrier Policy, the NYLIM Holdings LLC Gift & Entertainment Policy and the NYLIM LLC Selective Disclosure Policy for the calendar year. Employees must complete these requirements electronically through the EPSTP System via the NYLIM Intranet.
In the event that the EPSTP System is unavailable, Employees shall file with the CCO or LCO a report substantially the form of Exhibit F ("Employee Initial/Annual Securities Holdings Report and Certification") and Exhibit D ("Annual Certification of Compliance").
4.5 DUPLICATE CONFIRMATIONS
Each Employee shall provide the Compliance Department with sufficient information (as outlined in Exhibit F, ("Employee Initial/Annual Securities Holdings Report and Certification") so that Compliance can arrange for prompt filing by the broker, dealer and bank (where the bank account is used as a brokerage account) with the CCO or LCO of duplicate confirmations of all trades of Covered Securities and quarterly account statements. The duplicates shall be mailed to NYLIM at the applicable address listed in Exhibit H hereto.
4.6 NEW ACCOUNTS
Each Employee shall promptly notify the CCO or LCO of any new account opened with a broker, dealer or bank (where the bank account is used as a brokerage account). Such notification shall be mailed to NYLIM at the applicable address listed in Exhibit H hereto.
4.7 REPORTING OF CODE VIOLATIONS
Each Employee shall promptly notify the CCO or LCO of any violation of the Code.
4.8 NYLIM RECORD-KEEPING
NYLIM is required under the Investment Advisers Act of 1940, as amended, and the Investment Company Act to keep records of certain transactions in which its Employees have direct or indirect Beneficial Ownership.
The CCO or the LCO must maintain all records relating to compliance with the Code, such as preclearance requests, exception reports, other internal memoranda relating to non-compliant transactions, and preclearance records, records of violations and any actions taken as a result thereof, written acknowledgements, and the names of Access Persons for a minimum period of five years. Acknowledgements of the Code will be maintained for five years after the individual ceases to be an Employee.
4.9 PERSONAL RECORD KEEPING
Each Employee of NYLIM is to maintain records adequate to establish that the individual's personal investment decisions did not involve a conflict with the requirements of the Code. Generally, such
records would include copies of the Employee's pre-clearance authorizations, brokerage confirms and brokerage statements, if any. If there is any question as to whether a proposed transaction might involve a possible violation of the Code, the transaction should be discussed in advance with the CCO or LCO.
SECTION 5. ADMINISTRATION
5.1 MUTUAL FUND CODE OF ETHICS
Certain NYLIM Employees may owe a specific duty of care to each mutual fund Client based on the Employee's status as an Access Person of that mutual fund. It has been determined that each Employee's compliance with the Company's Code will also satisfy the requirements of Rule 17j-1 of the Investment Company Act as well as any mutual fund that the Company presently advises or sub-advises.
5.2 SANCTIONS AND REVIEW
Upon discovering a violation of the Code, NYLIM shall take whatever remedial steps it deems necessary and available to correct an actual or apparent conflict (e.g., trade reversal etc.). Following those corrective efforts, the CCO may impose sanctions if, based upon all of the facts and circumstances considered, such action is deemed appropriate. The magnitude of these penalties varies with the severity of the violation, although repeat offenders will likely be subjected to harsher punishment. These sanctions may include, among others, the reversal of trades, disgorgement of profits, payment of fines, suspension of trading privileges or, in more serious cases, suspension or termination of employment. It is important to note that violations of the Code may occur without employee fault (e.g., despite preclearance). In those cases, punitive action may not be warranted, although remedial steps may still be necessary.
5.3 REVIEW BY CCO
The CCO will provide to the Board of each mutual fund Client, on a quarterly basis, a written report describing issues arising under the Code since its last report, including but not limited to information about material violations of the Code by Access Persons and sanctions imposed in response to such violations.
5.4 MONITORING
NYLIM has delegated administration and enforcement of this Code to NYLIM Compliance. NYLIM Compliance, utilizing the EPSTP System and other methods, conducts reviews of all personal securities transactions and holdings reports with a view towards determining whether Employees have complied with all provisions of the Code. NYLIM Compliance is responsible for developing and maintaining more detailed standard operating procedures around daily monitoring to detect and prevent violations of this Code.
5.5 ACKNOWLEDGMENT AND TRAINING
Each Employee must certify at the time of becoming an Employee and annually thereafter, in substantially the form of Exhibit D hereto, that he or she has read and understood, is subject to and has complied with the Code and its related polices. Each Employee must attend a Code of Ethics training session conducted by NYLIM Compliance within a reasonable time period upon becoming an Employee. NYLIM Compliance is available to all Employees at all times for questions as to the application of this Code.
5.6 EXCEPTIONS
The CCO may grant written exceptions to provisions of the Code in circumstances which present special hardship. The exceptions may be granted to individuals or classes of individuals with respect to particular transactions, classes of transactions or all transactions. Exceptions shall be structured to be as narrow as is reasonably practicable with appropriate safeguards designed to prevent abuse of the exception. Notwithstanding the foregoing, however, no exception to a provision of the Code shall be granted where such exception would result in a violation of Rule 17j-1 or Rule 204A-1. . To the extent any such exception relates to an Employee who is an Access Person of a mutual fund Client, such exception shall be reported to the Board of such mutual fund Client at the next regularly scheduled meeting of the mutual fund's Board.
EXHIBIT A
CATEGORIES OF EMPLOYEES AND DEPARTMENTS
WHOSE EMPLOYEES WILL BE CONSIDERED ACCESS PERSONS
All NYLIM Holdings Directors Financial Management
All NYLIM Officers (Director and above) Real Estate
Compliance Securities Investment Group
Office of General Counsel Equity Investors Group
Fund Accounting Oversight Group New York Life Capital Partners
Information Technology Investment Consulting Group
New York Life Trust Co. FSB and New York Certain departments of New York Life Life Insurance
Trust Co.(1) Company - Treasury,Corporate Financial, Corporate
Information (CAMRA team only),Compliance (Examiner
Users Only)
Institutional Sales Managed Accounts
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DEPARTMENTS WHOSE EMPLOYEES GENERALLY WILL NOT BE
CONSIDERED ACCESS PERSONS(2)
Guaranteed Products NYLIM Finance New York Life Retirement Plan Retail Investments Services-Westwood Retirement Services - Parsippany Building Services NYLIM Service Company Communications Human Resources Marketing/Product Development Madison Capital Funding -------- |
(1) Although these entities are direct subsidiaries of New York Life Insurance Company, they are operated by employees of NYLIM LLC and are therefore covered under this Code.
(2) An individual's status as an Access Person will depend on that person's specific title, functions, duties, activities, and access to information.
EXHIBIT B
LIST OF NYLIM FUNDS AS OF JULY 2005
NYLIM Fund means an investment company advised or sub-advised by NYLIM LLC, currently:
- The MainStay Funds
- MainStay VP Series Funds
- McMorgan Funds
- Van Eck Mid Cap Fund
- Sierra Club Equity Income Fund
- Sierra Club Stock Fund
- Atlas Balanced Fund
EXHIBIT C
ACKNOWLEDGEMENT OF RECEIPT OF THE CODE OF ETHICS AND RELATED POLICIES
NYLIM HOLDINGS LLC CODE OF ETHICS NYLIM LLC INSIDE INFORMATION POLICY AND PROCEDURES NYLIM LLC INFORMATION BARRIER POLICY AND PROCEDURES NYLIM HOLDINGS LLC GIFT & ENTERTAINMENT POLICY NYLIM LLC POLICY AND PROCEDURES CONCERNING SELECTIVE DISCLOSURE OF MUTUAL FUND PORTFOLIO HOLDINGS
I hereby certify that I have received a copy of the New York Life Investment Management LLC Code of Ethics and other policies listed above, have read and am subject to the Code and these other policies, and understand the relevant requirements.
Name and Title
Received By:
Name and Title
EXHIBIT D
ANNUAL CERTIFICATION OF COMPLIANCE WITH THE
NYLIM HOLDINGS LLC CODE OF ETHICS
NYLIM LLC INSIDE INFORMATION POLICY AND PROCEDURES NYLIM LLC INFORMATION BARRIER POLICY AND PROCEDURES NYLIM HOLDINGS LLC GIFT & ENTERTAINMENT POLICY NYLIM LLC POLICY AND PROCEDURES CONCERNING SELECTIVE DISCLOSURE OF MUTUAL FUND PORTFOLIO
I hereby certify that I have received read and understood the Code and policies listed above. I further certify that I have complied with and will continue to comply with each of the provisions of the Code and policies to which I am subject.
Name and Title
Received By:
Name and Title
EXHIBIT E
NEW YORK LIFE INVESTMENT MANAGEMENT HOLDINGS LLC
PERSONAL SECURITIES TRADING PRECLEARANCE REQUEST FORM
EMPLOYEE NAME: ______________________
Broker _____________________________
Brokerage Account Number _____________________________
Received By (name/title) _____________________________
Date Received _____________________________
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TRADES MUST BE MADE ON THE SAME DAY THAT APPROVAL IS RECEIVED.
DIRECT
# OF SHRS, SYMBOL SEC. OWNERSHIP (D) APPROVED/
NAME OF PRINCIPAL APPROX OR MKT. PURCHASE/ FAMILY (F) DENIED
DATE SECURITY AMOUNT, ETC. PRICE CUSIP # CAP. SALE CONTROL (C)
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THE PERSON INDICATED ABOVE HAS STATED AND REPRESENTS THAT:
(a) he/she has no inside information (including information relating to planned securities transactions by NYLIM) relating to the above referenced issuer(s);
(b) there is no conflict of interest in these transactions with respect to Client portfolios (IF A CONFLICT OF INTEREST EXISTS, PLEASE CONTACT THE COMPLIANCE DEPARTMENT IMMEDIATELY); and
(c) these securities are not initial public offerings or private placements.
EXHIBIT F
EMPLOYEE INITIAL/ANNUAL SECURITIES HOLDINGS REPORT AND CERTIFICATION
Statement to New York Life Investment Management LLC by ________________________ ______________________________________(Please print your full name)*
Date of Becoming an Employee:** _________________ (Initial Report) December 31, 200___ (Annual Report)
As of the date appearing above, the following are each and every Covered Security and NYLIM Fund and securities account in which I have a direct or indirect "Beneficial Ownership" interest (Covered Securities do not include bank certificates of deposit, open-end mutual fund shares and U.S. Government obligations). For purposes of this report, the term Beneficial Ownership is very broad and includes, but is not limited to, ownership of securities or securities accounts by or for the benefit of a person, or such person's "immediate family" sharing the same household, including any account in which the Employee or family member of that person holds a direct or indirect beneficial interest, retains discretionary investment authority or exercises a power of attorney. The term "immediate family" means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law and also includes adoptive relationships. FOR A MORE COMPLETE DEFINITION OF THESE TERMS, PLEASE CONSULT THE NYLIM HOLDINGS LLC CODE OF ETHICS
This report need not disclose Covered Securities held in any account over which the Employee has no direct or indirect influence or control.
NATURE OF INTEREST
EXCHANGE TICKER BROKER, DEALER OR NO. OF SHARES (DIRECT OWNERSHIP,
NAME OF SECURITY/ SYMBOL BANK AND PRINCIPAL FAMILY MEMBER, CONTROL, ETC.)
NYLIM FUND OR CUSIP WHERE SECURITY HELD AMOUNT
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NOTE: IN LIEU OF AN EMPLOYEE LISTING ON THIS FORM EACH SECURITY HELD AS OF
YEAR-END, HE/SHE MAY ATTACH AS AN EXHIBIT TO THIS DOCUMENT, AN ANNUAL
STATEMENT(S) FOR EVERY BANK OR BROKERAGE ACCOUNT AS TO WHICH THE EMPLOYEE
HAS A BENEFICIAL OWNERSHIP INTEREST IN SECURITIES. NOTWITHSTANDING THIS
ACCOMMODATION, IT IS THE EMPLOYEE'S SOLE RESPONSIBILITY TO ENSURE THAT THE
INFORMATION REFLECTED IN THAT STATEMENT(S) IS ACCURATE AND COMPLETELY
DISCLOSES ALL RELEVANT SECURITIES HOLDINGS.
* This report will not be construed as an admission that the person making the report has any direct or indirect beneficial ownership in any security to which the report relates.
** Please see the definition of Employee in the NYLIM Code.
Name of any broker, dealer or bank with which I maintain an account in which any securities (including securities that are not Covered Securities) are held for my direct or indirect benefit ("Securities Account") as of the date appearing above:
NAME OF BROKER, DEALER OR BANK WITH
WHICH ACCOUNT IS HELD DATE ACCOUNT ESTABLISHED ACCOUNT NUMBER
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I CERTIFY THAT THE SECURITIES LISTED ABOVE ARE THE ONLY COVERED SECURITIES AND NYLIM FUNDS IN WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL OWNERSHIP INTEREST.
I FURTHER CERTIFY THAT THE ACCOUNTS LISTED ABOVE ARE THE ONLY SECURITIES ACCOUNTS IN WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL OWNERSHIP INTEREST.
I ALSO CONSENT TO THE RELEASE OF CERTAIN PERSONAL INFORMATION (NAME, HOME ADDRESS, SOCIAL SECURITY NUMBER AND SPOUSE'S FIRST INITIAL) BY NEW YORK LIFE INVESTMENT MANAGEMENT LLC TO A BROKERAGE SERVICES COMPANY TO BE NAMED BY THE COMPLIANCE OFFICER (THE "COMPANY"), WHO WILL PROVIDE THE NYLIM COMPLIANCE DEPARTMENT WITH A REPORT OF ALL KNOWN BROKERAGE ACCOUNTS HELD BY ME OR MY SPOUSE, IF APPLICABLE. DURING THIS TIME, THE COMPANY WILL AGREE THAT ALL PERSONAL INFORMATION SHALL BE HELD IN STRICT CONFIDENCE AND SHALL NOT BE REVEALED TO ANY PERSON, CORPORATION OR ENTITY (THIRD PARTIES) WITHOUT PRIOR WRITTEN CONSENT OF NYLIM AND THE EMPLOYEE. NOTWITHSTANDING THE FOREGOING, I UNDERSTAND HOWEVER THAT THE COMPANY IS AUTHORIZED TO DISCLOSE TO ITS OTHER CUSTOMERS, SHOULD THEY INQUIRE, THAT I AM CURRENTLY (OR HAVE BEEN) EMPLOYED IN SOME CAPACITY IN THE SECURITIES RELATED/FINANCIAL SERVICES INDUSTRY WITHOUT IDENTIFYING NYLIM (OR ITS AFFILIATES) AS THE EMPLOYER. SUCH DISCLOSURE WOULD GENERALLY TAKE PLACE IF I OPENED A SECURITIES ACCOUNT WITH A CLIENT OF THE COMPANY. THESE STEPS ARE BEING TAKEN BY NYLIM IN ITS COMMITMENT TO ENSURE COMPLIANCE WITH FEDERAL SECURITIES LAWS.
Employee Signature:_______________________ Date of Submission:_______________________
Received By (Name/Title):______________ Reviewed By (Name/Title):_____________ Signature:_____________________________ Signature:____________________________ Date Received:_________________________ Date Reviewed:________________________ |
EXHIBIT G
QUARTERLY TRANSACTIONS REPORT
Statement to New York Life Investment Management Holdings LLC by ____________________(Please print your full name)*
For the Calendar quarter ended _________________________
As of the date appearing above, the following are each and every transaction in a Covered Security and NYLIM Fund in which I have a direct or indirect "Beneficial Ownership" interest (Covered Securities do not include bank certificates of deposit, open-end mutual fund shares and U.S. Government obligations). For purposes of this report, the term Beneficial Ownership is very broad and includes, but is not limited to, ownership of securities or securities accounts by or for the benefit of a person, or such person's "immediate family" sharing the same house-hold, including any account in which the Employee or family member of that person holds a direct or indirect beneficial interest, retains discretionary investment authority or exercises a power of attorney. The term "immediate family" means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law and also includes adoptive relationships. FOR A MORE COMPLETE DEFINITION OF THESE TERMS, PLEASE CONSULT THE NYLIM LLC CODE OF ETHICS.
This report need not disclose transactions in Covered Securities and NYLIM Fund Shares in any account over which the Employee** has no direct influence or control.
Amount Nature of
(No. of Interest Interest
Shares Exchange Rate/ Nature of (Direct Firm Through
Name of or Ticker Maturity Transaction Ownership, Which
Security/NYLIM Principal Symbol or Date (if Trade (Purchase, Spouse, Transaction
Fund Amount) CUSIP applicable) Date Sale, Etc.) Price Control, Etc.) Was Effected
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If no transactions in Covered Securities and NYLIM Fund Shares occurred, please insert "NONE" here:
* This report will not be construed as an admission that the person making the report has any direct or indirect beneficial ownership in any security to which the report relates.
** Please see the definition of Employee in the NYLIM Holdings LLC Code.
In connection with any purchases or sales of securities for Clients during the quarter, I disclosed to New York Life Investment Management LLC any material interests in my Covered Securities and NYLIM Fund Shares which might reasonably have been expected to involve a conflict with the interests of Clients. Also, I have disclosed all my Covered Securities and NYLIM Fund Shares holdings to New York Life Investment Management LLC.
The names and affiliations of family members (see above) who are employed in the securities or commodities industries and who might be in a position to benefit directly or indirectly from the activities of NYLIM personnel in the discharge of their duties are as follows:
Names Affiliations ----- ------------ |
Date of Submission:___________________________________________
Employee Signature: _____________________
EXHIBIT H
ADDRESS(ES) TO WHICH EMPLOYEE'S DUPLICATE BROKER CONFIRMATIONS/STATEMENTS SHOULD
BE SENT BASED ON GEOGRAPHIC LOCATION.
NYLIM - PARSIPPANY, RETIREMENT PLAN SERVICES (WESTWOOD) AND NYLIM FIELD OFFICES:
New York Life Investment Management LLC
169 Lackawanna Avenue
PO Box 424
Parsippany, New Jersey, 07054-0424
Attn: NYLIM Compliance Department
NYLIM - NEW YORK HOME OFFICE, 51 MADISON AVE., EQUITY INVESTORS GROUP AND REAL ESTATE FIELD OFFICES
NYLIM Compliance Department
Madison Square Station
P.O. Box 729
New York, New York 10010
Attn: Scott Russell
EXHIBIT I
NEW YORK LIFE INVESTMENT MANAGEMENT HOLDINGS LLC CODE OF ETHICS
CONFLICTS OF INTEREST QUESTIONNAIRE
Title:
Department:
(Please provide complete details of any "yes" answer)
AFFILIATIONS WITH OUTSIDE BUSINESS ENTITIES _ EXCLUDE AFFILIATIONS WITH NEW YORK LIFE SUBSIDIARIES.
1. Are you affiliated with any enterprise as an, in any Yes No
capacity in which you had the responsibility or ability to
influence the management of such enterprise? Such capacities
include, but are not limited to, officer, director, trustee,
partner, employee, independent contractor or sole proprietor?
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NAME OF ENTITY:
NATURE OF BUSINESS:
POSITION HELD:
PERIOD POSITION
HELD:
IS THE ORGANIZATION FOR PROFIT? YES_____ NO______
OR FOR NON-PROFIT? YES_____ NO_____
FINANCIAL INTERESTS IN OUTSIDE BUSINESS ENTITIES - EXCLUDE AFFILIATIONS WITH NEW YORK LIFE SUBSIDIARIES.
2. To the best of your knowledge, are you or, any member of your family(1) employed by or serve on the board of directors of, or own, directly or indirectly, a material beneficial financial interest (that is, to your knowledge an ownership interest equal to or greater than 1% of such entity or 10% of your total net worth, whichever is less) in any of the following:
(1) "Family" means an employee's spouse, child or other relative, whether related by blood, marriage or otherwise. The term also includes any related or unrelated individual who resides with, or is financially dependent upon, or whose investments are controlled by, or whose financial support is materially contributed to by, the employee, such as a "significant other."
a. a provider of goods and/or services to the Yes No
Company (e.g., PricewaterhouseCoopers or
Staples?)
b. an entity which engages in commercial Yes No
transactions with the Company other than as a
provider as disclosed in 2a?
c. a business entity in which the Company also Yes No
holds a financial interest?
d. a company whose principal business is the issue Yes No
and sale of life insurance, annuities or
long-term care insurance?
e. an insurance agency, brokerage or insurance Yes No
consulting firm?
f. a mortgage banking concern or mortgage loan Yes No
correspondent of the Company?
g. an investment bank, investment company, Yes No
investment advisor, broker-dealer or other firm
engaged in the business of buying and selling
securities or providing investment advice?
h. an organization that provides legal, Yes No
accounting, consulting, training or management
services to the financial services industry?
i. a business that has property which is subject Yes No
to a real estate mortgage held by the Company?
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(Please provide complete details for any "yes" answer including persons and/or entities involved, dates, and the nature of the relationship or transaction)
(Please provide complete details for any "yes" answer)
COMPLIANCE WITH DOMESTIC AND FOREIGN LAWS, RULES AND REGULATIONS
4. a. Have you, directly or indirectly, been involved in any of the
following within the past five years:
i. Anti-trust, copyright, or patent litigation? Yes No
ii. Civil or criminal action or administrative Yes No
proceeding charging a violation of a federal or
state securities law or regulation?
iii.Any other criminal action or investigation? Yes No
iv. Representative actions, class actions, or Yes No
derivative suits?
v. A formal administrative or regulatory action by Yes No
any regulatory agency or self-regulatory
organization?
b. Have any punitive, exemplary or extra- contractual Yes No
compensatory damages been sought, awarded, paid or
part of a settlement agreement that has been
entered into within the past five years in
connection with any business activity in which you
were involved?
c. Have you, or an organization over which you
exercised control, at any time in the past:
i. Been convicted of or plead guilty or nolo Yes No
contendere ("no contest") in a domestic, foreign
or military court to: (a) any felony (or its
equivalent offense) or (b) any misdemeanor (or
its equivalent offense) involving insurance,
securities, commodities, banking, real estate or
any other investment-related business or activity
(collectively, referred to as "investment-related
activity"); fraud, false statements or omissions;
wrongful taking of property; bribery; perjury;
forgery; counterfeiting; extortion; or a
conspiracy to commit any of these offenses?
ii. Been charged with any felony or with any Yes No
misdemeanor specified above in question 11 c.
i.?
iii. Been found by any domestic or foreign court in a Yes No
civil action or alternative dispute resolution
proceeding, or by any state or federal
governmental authority or agency,
self-regulatory organization, or any foreign
financial regulatory authority to have violated,
or been involved in a violation of, any law,
rule or regulation involving any
investment-related activity, fraud, false
statements or omissions, wrongful taking of
property or unethical behavior?
iv. Been permanently or temporarily enjoined by any Yes No
domestic or foreign court, state or federal
governmental authority or agency, or
self-regulatory organization from engaging in any
type of business practice or activity (including,
but not limited to, any investment-related
activity)?
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v. Had an action dismissed pursuant to a consent Yes No
order or decree, or entered into a settlement
agreement, in any domestic or foreign criminal,
civil, administrative or regulatory or
alternative dispute resolution proceeding brought
against you, or an entity over which you
exercised control, which was associated with any
type of business practice or business activity
(including, but not limited to, any
investment-related activity)?
d. Are you, or based upon the activities that Yes No
occurred while you exercised control over it is any
entity, currently the subject of a pending criminal
or regulatory proceeding, which has not been
disclosed to the Office of the General Counsel?
e. Has any state or federal governmental authority or Yes No
agency, or self-regulatory organization (including,
but not limited to, the Securities & Exchange
Commission, the Commodity Futures Trading
Commission, the NASD Regulation, Inc.), or any
foreign financial regulatory authority (including,
but not limited to the SEC, the Commodity Futures
Trading Commission, the NASD Regulation, Inc.) ever:
i. Found you to have been involved in a Yes No
violation of its rules or a cause of an
investment related business having its
authorization to do business denied,
suspended or restricted?
ii. Imposed a civil money penalty on you, or Yes No
ordered you to cease and desist from any
activity?
iii. Disciplined you by expelling or suspending Yes No
you from membership, barring or suspending
you from association with other members, or
otherwise restricting your activities?
iv. Denied, suspended, or revoked your Yes No
registration or license or otherwise
prevented you, by order, from associating
with an investment-related business or
restricted your activity?
f. Have you, prior to, or in connection with, the Yes No
purchase or sale of securities for your own account,
or for an account over which you had beneficial
control, come into possession of and traded on
material, non-public information or disclosed such
information to any other person for other than a
legitimate business purpose?
g. Has an authorization to act as an attorney, Yes No
accountant, or federal contractor granted to you
or any advisory affiliate ever been revoked or
suspended?
h. Are you now the subject of any civil proceeding Yes No
formal administrative or civil action initiated by
a governmental agency, self-regulatory
organization or foreign financial regulatory
authority, or a criminal information or indictment
that could result in a "yes" answer to any part of
this Question 11?
(Please provide complete details for any "yes" answer)
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I hereby certify that, to the best of my knowledge and belief, the foregoing answers, including the details of any affirmative responses made herein, are true and complete and that I shall update these answers promptly with an amended written response as circumstances change during the year.
Signature: _______________________ Date: _______________________
Ex (p)(5)
JENNISON ASSOCIATES LLC
CODE OF ETHICS,
POLICY ON INSIDER TRADING
AND
PERSONAL TRADING POLICY
AS AMENDED OCTOBER 5, 2005
Table of Contents
SECTION I: CODE OF ETHICS
1. STANDARDS OF PROFESSIONAL BUSINESS CONDUCT............................................................................1
2. CONFIDENTIAL INFORMATION..............................................................................................3
A. PERSONAL USE ...................................................................................................3
B. RELEASE OF CLIENT INFORMATION...................................................................................3
3. CONFLICTS OF INTEREST.................................................................................................4
A-G. HOW TO AVIOD POTENTIAL CONFLICTS OF INTEREST..................................................................4
4. OTHER BUSINESS ACTIVITIES.............................................................................................5
A. ISSUES REGARDING THE RETENTION OF SUPPLIERS.....................................................................5
B. GIFTS ..........................................................................................................5
C. IMPROPER PAYMENTS...............................................................................................6
D. BOOKS, RECORDS AND ACCOUNTS.....................................................................................6
E. LAWS AND REGULATIONS............................................................................................6
F. OUTSIDE ACTIVITIES & POLITICAL AFFILIATIONS.....................................................................7
5 COMPLIANCE WITH THE CODE & CONSEQUENCES IF VIOLATION OCCURS............................................................7
6.DISCLOSURE REQUIREMENTS................................................................................................8
SECTION II: INSIDER TRADING
1. POLICY STATEMENT AGAINST INSIDER TRADING..............................................................................9
2. EXPLANATION OF RELEVANT TERMS AND CONCEPTS............................................................................10
A. WHO IS AN INSIDER..............................................................................................10
B. WHAT IS MATERIAL INFORMATION...................................................................................10
C. WHAT IS NON-PUBLIC INFORMATION.................................................................................11
D. MISAPPROPRIATION THEORY........................................................................................11
E. WHO IS A CONTROLLING PERSON....................................................................................11
F. HOW IS NON-PUBLIC INFORMATION MONITORED........................................................................11
3. PENALTIES FOR INSIDER TRADING VIOLATIONS.............................................................................12
A-G TYPES OF PENALTIES............................................................................................12
SECTION III: IMPLEMENTATION PROCEDURES & POLICY
1. IDENTIFYING INSIDE INFORMATION.......................................................................................13
A. IS THE INFORMATION MATERIAL....................................................................................13
B. IS THE INFORMATION NON-PUBLIC..................................................................................13
2. RESTRICTING ACCESS TO MATERIAL NON-PUBLIC INFORMATION................................................................14
3. ALLOCATION OF BROKERAGE..............................................................................................14
4. RESOLVING ISSUES CONCERNING INSIDER TRADING..........................................................................14
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SECTION IV: GENERAL POLICY AND PROCEDURES
1. GENERAL POLICY AND PROCEDURES........................................................................................16
2. PERSONAL TRANSACTION REPORTING REQUIREMENTS..........................................................................17
A. JENNISON EMPLOYEES.............................................................................................18
1. INITIAL HOLDING REPORTS..................................................................................18
2. QUARTERLY REPORTS .......................................................................................18
3. ANNUAL HOLDINGS REPORTS..................................................................................20
B. OTHER PERSONS DEFINED BY JENNISON ACCESS PERSONS...............................................................20
3. PRE-CLEARANCE PROCEDURES.............................................................................................21
4. PERSONAL TRADING POLICY..............................................................................................22
A. BLACKOUT PERIODS ..............................................................................................22
B. SHORT-TERM TRADING PROFITS ....................................................................................23
C-K PROHIBITION ON SHORT TERM TRADING PROFITS.....................................................................24
L. DESIGNATION PERSONS: REQUIREMENTS FOR TRANSACTIONS IN SECURITIES ISSUED BY PRUDENTIAL..........................26
M. JENNISON EMPLOYEE PARTICIPATION IN MANAGED STRATEGIES..........................................................26
N. EXCEPTIONS TO THE PERSONAL TRADING POLICY......................................................................27
5. MONITORING/ADMINISTRATION............................................................................................28
6. PENALTIES FOR VIOLATIONS OF JENNISON'S PERSONAL TRADING POLICY.......................................................28
7. TYPE OF VIOLATION....................................................................................................29
A. PENALTIES FOR FAILURE TO SUCURE PRE-APPROVAL...................................................................29
1. FAILURE TO PRE-CLEAR ....................................................................................29
2. FAILURE TO PRE-CLEAR SALES IN LONG TERM CAPITAL GAINS....................................................29
3. FAILURE TO PRE-CLEAR SALES THAT RESULT IN SHORT-TERM CAPITAL GAINS.......................................30
4. ADDITIONAL CASH PENALTIES ...............................................................................30
B. FAILURE TO COMPLY WITH REPORTING REQUIREMENTS..................................................................31
C. PENALTY FOR VIOLATION OF SHORT TERM TRADING PROFIT RULE........................................................31
D. OTHER POLICY INFRINGEMENTS DEALT WITH ON A CASE BY CASE BASIS..................................................31
E. DISGORGED PROFITS..............................................................................................32
8. MISCELLANEOUS........................................................................................................32
A. POLICIES AND PROCEDURES REVISIONS..............................................................................32
B. COMPLIANCE ....................................................................................................32
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SECTION I
CODE OF ETHICS
FOR
JENNISON ASSOCIATES LLC
This Code of Ethics ("Code"), as well as Section II, III and IV that follow, sets forth rules, regulations and standards of professional conduct for the employees of Jennison Associates LLC (hereinafter referred to as "Jennison or the Company"). Jennison expects that all employees will adhere to this code without exception.
The Code incorporates aspects of ethics policies of Prudential Financial Inc. ("Prudential"), as well as additional policies specific to Jennison Associates LLC. Although not part of this Code, all Jennison employees are also subject to Prudential's "Making the Right Choices" and "Statement of Policy Restricting Communication and the Use of Issuer-Related Information By Prudential Investment Associates' ("Chinese Wall Policy") policies and procedures. These policies can also be found by clicking on Jennison's Compliance intranet website (http://buzz/jennonline/DesktopDefault.aspx).
1. STANDARDS OF PROFESSIONAL CONDUCT POLICY STATEMENT
It is Jennison's policy that its employees must adhere to the highest ethical standards when discharging their investment advisory duties to our clients or in conducting general business activity on behalf of Jennison in every possible capacity, such as investment management, administrative, dealings with vendors, confidentiality of information, financial matters of every kind, etc. Jennison, operating in its capacity as a federally registered investment adviser, has a fiduciary responsibility to render professional, continuous, and unbiased investment advice to its clients. Furthermore, ERISA and the federal securities laws define an investment advisor as a fiduciary who owes their clients a duty of undivided loyalty, who shall not engage in any activity in conflict with the interests of the client. As a fiduciary, our personal and corporate ethics must be above reproach. Actions, which expose any of us or the organization to even the appearance of an impropriety, must not occur. Fiduciaries owe their clients a duty of honesty, good faith, and fair dealing when discharging their investment management responsibilities. It is a fundamental principle of this firm to ensure that the interests of our clients come before those of Jennison or any of its employees. Therefore, as an employee
of Jennison, we expect you to uphold these standards of professional conduct by not taking inappropriate advantage of your position, such as using information obtained as a Jennison employee to benefit yourself or anyone else in any way. It is particularly important to adhere to these standards when engaging in personal securities transactions and maintaining the confidentiality of information concerning the identity of security holdings and the financial circumstances of our clients. Any investment advice provided must be unbiased, independent and confidential. It is extremely important to not violate the trust that Jennison and its clients have placed in its employees.
The prescribed guidelines and principles, as set forth in the policies that follow, are designed to reasonably assure that these high ethical standards long maintained by Jennison continue to be applied and to protect Jennison's clients by deterring misconduct by its employees. The rules prohibit certain activities and personal financial interests as well as require disclosure of personal investments and related business activities of all supervised persons, includes directors, officers and employees, and others who provide advice to and are subject to the supervision and control of Jennison. The procedures that follow will assist in reasonably ensuring that our clients are protected from employee misconduct and that our employees do not violate federal securities laws. All employees of Jennison are expected to follow these procedures so as to ensure that these ethical standards, as set forth herein, are maintained and followed without exception. These guidelines and procedures are intended to maintain the excellent name of our firm, which is a direct reflection of the conduct of each of us in everything we do.
Jennison's continued success depends on each one of us meeting our
obligation to perform in an ethical manner and to use good judgment at all
times. All employees have an obligation and a responsibility to conduct business
in a manner that maintains the trust and respect of fellow Jennison employees,
our customers, shareholders, business colleagues, and the general public. You
are required to bring any knowledge of possible or actual unethical conduct to
the attention of management. Confidentiality will be protected insofar as
possible, with the assurance that there will be no adverse consequences as a
result of reporting any unethical or questionable behavior. If you have any
knowledge of or suspect anyone is about to engage in unethical business activity
that either violates any of the rules set forth herein, or simply appears
improper, please provide such information to either the Chief Compliance Officer
or senior management through the Jennison Financial Reporting Concern Mailbox
located on the Risk Management webpage. E.mails sent in this manner anonymously.
The default setting is set to display your e.mail address, so if you prefer the
e.mail to be anonymous, please be sure to check the appropriate box. If you
choose not to report your concerns anonymously, you should be aware that
Jennison has strict policies prohibiting retaliation against employees who
report ethical concerns.
Jennison employees should use this Code, as well as the accompanying policies and procedures that follow, as an educational guide that will be complemented by Jennison's training protocol.
Each Jennison employee has the responsibility to be fully aware of and strictly adhere to the Code of Ethics and the accompanying policies that support the Code. It should be noted that because ethics is not a science, there may be gray areas that are not covered by laws or regulations. Jennison and its employees will nevertheless be held accountable to such standards. Individuals are expected to seek assistance for help in making the right decision.
If you have any questions as to your obligation as a Jennison employee under either the Code or any of the policies that follow, please contact the Compliance Department.
2.CONFIDENTIAL INFORMATION
Employees may become privy to confidential information (information not generally available to the public) concerning the affairs and business transactions of Jennison, companies researched by us for investment, our present and prospective clients, client portfolio transactions (executed, pending or contemplated) and holdings, suppliers, officers and other staff members. Confidential information also includes trade secrets and other proprietary information of the Company such as business or product plans, systems, methods, software, manuals and client lists. Safeguarding confidential information is essential to the conduct of our business. Caution and discretion are required in the use of such information and in sharing it only with those who have a legitimate need to know (including other employees of Jennison and clients).
A) PERSONAL USE:
Confidential information obtained or developed as a result of employment with the Company is not to be used or disclosed for the purpose of furthering any private interest or as a means of making any personal gain. Unauthorized or disclosure of such information (other than as described above) could result in civil or criminal penalties against the Company or the individual responsible for disclosing such information.
Further guidelines pertaining to confidential information are
contained in the "Policy Statement on Insider Trading" (Set forth in
Section II dedicated specifically to Insider Trading).
B) RELEASE OF CLIENT INFORMATION:
All requests for information concerning a client (other than routine inquiries), including requests pursuant to the legal process (such as subpoenas or court orders) must be promptly referred to the Chief Compliance Officer, or Legal Department. No information may be released, nor should the client involved be contacted, until so directed by either the Chief Compliance Officer, or Legal Department.
In order to preserve the rights of our clients and to limit the firm's liability concerning the release of client proprietary information, care must be taken to:
- Limit use and discussion of information obtained on the job to normal business activities.
- Request and use only information that is related to our business needs.
- Restrict access to records to those with proper authorization and legitimate business needs.
- Include only pertinent and accurate data in files, which are used as a basis for taking action or making decisions.
3. CONFLICTS OF INTEREST
You should avoid actual or apparent conflicts of interest - that is, any personal interest inside or outside the Company, which could be placed ahead of your obligations to our clients, Jennison Associates or Prudential. Conflicts may exist even when no wrong is done. The opportunity to act improperly may be enough to create the appearance of a conflict.
We recognize and respect an employee's right of privacy concerning personal affairs, but we must require a full and timely disclosure of any situation, which could result in a conflict of interest, or even the appearance of a conflict. The Company, not by the employee involved, will determine the appropriate action to be taken to address the situation.
To reinforce our commitment to the avoidance of potential conflicts of interest, the following rules have been adopted, that prohibit you from engaging in certain activities without the pre-approval from the Chief Compliance Officer:
A) YOU MAY NOT, without first having secured prior approval, serve as a director, officer, employee, partner or trustee - nor hold any other position of substantial interest - in any outside business enterprise. You do not need prior approval, however, if the following three conditions are met: one, the enterprise is a family firm owned principally by other members of your family; two, the family business is not doing business with Jennison or Prudential and is not a securities or investment related business; and three, the services required will not interfere with your duties or your independence of judgment. Significant involvement by employees in outside business activity is generally unacceptable. In addition to securing prior approval for outside business activities, you will be required to disclose all relationships with outside enterprises annually.
* Note: The above deals only with positions in business enterprises. It does not affect Jennison's practice of permitting employees to be associated with governmental, educational, charitable, religious or other civic organizations. These activities may be entered into without prior consent, but must still be disclosed on an annual basis.
B) YOU MAY NOT act on behalf of Jennison in connection with any transaction in which you have a personal interest.
C) YOU MAY NOT, without prior approval, have a substantial interest in any outside business which, to your knowledge, is involved currently in a business transaction with Jennison or Prudential, or is engaged in businesses similar to any business engaged in by Jennison. A substantial interest includes any investment in the outside business involving an amount greater than 10 percent of your gross assets, or involving a direct or indirect ownership interest greater than 2 percent of the outstanding equity interests. You do not need approval to invest in open-ended registered investment companies such as investments in mutual funds and similar enterprises that are publicly owned.
D) YOU MAY NOT, without prior approval, engage in any transaction involving the purchase of products and/or services from Jennison, except on the same terms and conditions as they are offered to the public. Plans offering services to employees approved by the Board of Directors are exempt from this rule.
E) YOU MAY NOT, without prior approval, borrow an amount greater than 10% of your gross assets, on an unsecured basis from any bank, financial institution, or other business that, to your knowledge, currently does business with Jennison or with which Jennison has an outstanding investment relationship.
F) YOU MAY NOT favor one client account over another client account or otherwise disadvantage any client in any dealings whatsoever to benefit either yourself, Jennison or another third-party client account.
G) YOU MAY NOT, as result of your status as a Jennison employee, take advantage of any opportunity that your learn about or otherwise personally benefit from information you have obtained as an employee that would not have been available to you if you were not a Jennison employee.
4. OTHER BUSINESS ACTIVITIES
A) ISSUES REGARDING THE RETENTION OF SUPPLIERS: The choice of our suppliers must be based on quality, reliability, price, service, and technical advantages.
B) GIFTS: Jennison employees and their immediate families should not solicit, accept, retain or provide any gifts or entertainment which might influence decisions you or the recipient must make in business transactions involving Jennison or which others might reasonably believe could influence those decisions. Even a nominal gift should not be accepted if, to a reasonable observer, it might appear that the gift would influence your business decisions.
Modest gifts and favors, which would not be regarded by others as improper, may be accepted or given on an occasional basis. Examples of such gifts are those received as normal business entertainment (i.e., meals or golf games); non-cash gifts of nominal value (such as received at Holiday time); gifts received because of kinship, marriage or social relationships entirely beyond and apart from an organization in which membership or an official position is held as approved by the Company. Entertainment, which satisfies these requirements and conforms to generally accepted business practices, also is permissible. Please reference Jennison Associates' Gifts and Entertainment Policy and Procedures located on COMPLIANCE web page of Jennison Online for a more detailed explanation of Jennison's policy towards gifts and entertainment.
C) IMPROPER PAYMENTS - KICKBACKS: In the conduct of the Company's business, no bribes, kickbacks, or similar remuneration or consideration of any kind are to be given or offered to any individual or organization or to any intermediaries such as agents, attorneys or other consultants.
D) BOOKS, RECORDS AND ACCOUNTS: The integrity of the accounting records of the Company is essential. All receipts and expenditures, including personal expense statements must be supported by documents that accurately and properly describe such expenses. Staff members responsible for approving expenditures or for keeping books, records and accounts for the Company are required to approve and record all expenditures and other entries based upon proper supporting documents so that the accounting records of the Company are maintained in reasonable detail, reflecting accurately and fairly all transactions of the Company including the disposition of its assets and liabilities. The falsification of any book, record or account of the Company, the submission of any false personal expense statement, claim for reimbursement of a non-business personal expense, or false claim for an employee benefit plan payment are prohibited. Disciplinary action will be taken against employees who violate these rules, which may result in dismissal.
E) LAWS AND REGULATIONS: The activities of the Company must always be in full compliance with applicable laws and regulations. It is the Company's policy to be in strict compliance with all laws and regulations applied to our business. We recognize, however, that some laws and regulations may be ambiguous and difficult to interpret. Good faith efforts to follow the spirit and intent of all laws are expected. To ensure compliance, the Company intends to educate its employees on laws related to Jennison's activities, which may include periodically issuing bulletins, manuals and memoranda. Staff members are expected to read all such materials and be familiar with their content. For example, it would constitute a violation of the law if Jennison or any of its employees either engaged in or schemed to engage in: i) any manipulative act with a client; or ii) any manipulative practice including a security, such as touting a security to anyone or the press and executing an order in the opposite direction of such recommendation. Other scenarios and the policies that address other potential violations of the law and conflicts of interest are addressed more fully in Jennison's compliance
program and the policies adopted to complement that program which reside on the Jennison Online intranet at
(http://buzz/jennonline/DesktopDefault.aspx)
F) OUTSIDE ACTIVITIES & POLITICAL AFFILIATIONS: Jennison Associates does not contribute financial or other support to political parties or candidates for public office except where lawfully permitted and approved in advance in accordance with procedures adopted by Jennison's Board of Directors. Employees may, of course, make political contributions, but only on their own behalf; the Company for such contributions will not reimburse them. However, employees may not make use of company resources and facilities in furtherance of such activities, e.g., mail room service, facsimile, photocopying, phone equipment and conference rooms.
Legislation generally prohibits the Company or anyone acting on its behalf from making an expenditure or contribution of cash or anything else of monetary value which directly or indirectly is in connection with an election to political office; as, for example, granting loans at preferential rates or providing non-financial support to a political candidate or party by donating office facilities. Otherwise, individual participation in political and civic activities conducted outside of normal business hours is encouraged, including the making of personal contributions to political candidates or activities.
Employees are free to seek and hold an elective or appointive public office, provided you do not do so as a representative of the Company. However, you must conduct campaign activities and perform the duties of the office in a manner that does not interfere with your responsibilities to the firm.
5. COMPLIANCE WITH THE CODE & CONSEQUENCES IF VIOLATION OF THE CODE OCCURS
Each year all employees will be required to complete a form certifying that they have read this policy, understand their responsibilities, and are in compliance with the requirements set forth in this statement.
This process should remind us of the Company's concern with ethical issues and its desire to avoid conflicts of interest or their appearance. It should also prompt us to examine our personal circumstances in light of the Company's philosophy and policies regarding ethics.
Jennison employees will be required to complete a form verifying that they have complied with all company procedures and filed disclosures of significant personal holdings and corporate affiliations.
Please note that both the Investment Advisers Act of 1940, as amended, and ERISA both prohibit investment advisers (and its employees) from doing indirectly that which they cannot do directly. Accordingly, any Jennison employee who seeks to circumvent the requirements of this Code of Ethics and any of the policies that follow, or otherwise devise a scheme where such activity would result in a violation of these policies indirectly will be deemed to be a violation of
the applicable policy and will be subject to the full impact of any disciplinary action taken by Jennison as if such policies were violated directly.
It should be further noted that, and consistent with all other Jennison policies and procedures, failure to uphold the standards and principles as set forth herein, or to comply with any other aspect of these policies and procedures will be addressed by Legal and Compliance. Jennison reserves the right to administer whatever disciplinary action it deems necessary based on the facts, circumstances and severity of the violation or conflict. Disciplinary action can include termination of employment.
6. DISCLOSURE REQUIREMENTS
The principles set forth in this Code of Ethics and the policies and procedures that follow will be included in Jennison's Form ADV, which shall be distributed or offered to Jennison's clients annually, in accordance with Rule 204-3 of the Investment Advisers Act of 1940.
SECTION II
INSIDER TRADING
The Investment Advisors Act of 1940, requires that all investment advisors establish, maintain and enforce policies and supervisory procedures designed to prevent the misuse of material, non-public information by such investment advisor, and any associated person sometimes referred to as "insider trading."
This section of the Code sets forth Jennison Associates' policy statement on insider trading. It explains some of the terms and concepts associated with insider trading, as well as the civil and criminal penalties for insider trading violations. In addition, it sets forth the necessary procedures required to implement Jennison Associates' Insider Trading Policy Statement.
Please note that this policy applies to all Jennison Associates' employees
1. JENNISON ASSOCIATES' POLICY STATEMENT AGAINST INSIDER TRADING
Personal Securities transactions should not conflict, or appear to conflict, with the interest of the firm's clients when contemplating a transaction for your personal account, or an account in which you may have a direct or indirect personal or family interest, we must be certain that such transaction is not in conflict with the interests of our clients. Specific rules in this area are difficult, and in the final analysis. Although it is not possible to anticipate all potential conflicts of interest, we have tried to set a standard that protects the firm's clients, yet is also practical for our employees. The Company recognizes the desirability of giving its corporate personnel reasonable freedom with respect to their investment activities, on behalf of themselves, their families, and in some cases, non-client accounts (i.e., charitable or educational organizations on whose boards of directors corporate personnel serve). However, personal investment activity may conflict with the interests of the Company's clients. In order to avoid such conflicts - or even the appearance of conflicts - the Company has adopted the following policy:
Jennison Associates LLC forbids any director, officer or employee from trading, either personally or on behalf of clients or others, on material, non-public information or communicating material, non-public information to others in violation of the law, such as tipping or recommending that others trade on such information. Said conduct is deemed to be "insider trading." Such policy applies to every director, officer and employee and extends to activities within and outside their duties at Jennison Associates.
Every director, officer, and employee is required to read and retain this policy statement. Questions regarding Jennison Associates' Insider Trading policy and procedures should be referred to the Compliance or Legal Departments.
2. EXPLANATION OF RELEVANT TERMS AND CONCEPTS
Although insider trading is illegal, Congress has not defined "insider," "material" or "non-public information." Instead, the courts have developed definitions of these terms. Set forth below is very general descriptions of these terms. However, it is usually not easily determined whether information is "material" or "non-public" and, therefore, whenever you have any questions as to whether information is material or non-public, consult with the Compliance or Legal Departments. Do not make this decision yourself.
A) WHO IS AN INSIDER?
The concept of an "insider" is broad. It includes officers, directors and employees of a company. A person may be a "temporary insider" if he or she enters into a special confidential relationship in the conduct of a company's affairs and as a result is given access to information solely for the company's purposes. Examples of temporary insiders are the company's attorneys, accountants, consultants and bank lending officers, employees of such organizations, persons who acquire a 10% beneficial interest in the issuer, other persons who are privy to material non-public information about the company. Jennison Associates and its employees may become "temporary insiders" of a company in which we invest, in which we advise, or for which we perform any other service. An outside individual may be considered an insider, according to the Supreme Court, if the company expects the outsider to keep the disclosed non-public information confidential or if the relationship suggests such a duty of confidentiality.
B) WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the information is material. Material Information is defined as:
- Information, for which there is a substantial likelihood, that a reasonable investor would consider important in making his or her investment decisions, or
- Information that is reasonably certain to have a substantial effect on the price of a company's securities.
Information that directors, officers and employees should consider material includes, but is not limited to: dividend changes, earnings estimates, changes in previously released earnings estimates, a significant increase or decline in orders, significant new products or discoveries, significant merger or acquisition proposals or
agreements, major litigation and liquidity problems, for clients and extraordinary management developments.
In addition, knowledge about Jennison Associates' client holdings and transactions (including transactions that are pending or under consideration) as well as Jennison trading information and patterns may be deemed material.
C) WHAT IS NON-PUBLIC INFORMATION?
Information is "non-public" until it has been effectively communicated to the market place, including clients' holdings, recommendations and transactions. One must be able to point to some fact to show that the all information and not just part of the information is generally available to the public. For example, information found in a report filed with the SEC, holdings disclosed in a publicly available website regarding the top 10 portfolio holdings of a mutual fund, appearing in Dow Jones, Reuters Economics Services, The Wall Street Journal or other publications of general circulation would be considered public.
D) MISAPPROPRIATION THEORY
Under the "misappropriation" theory, liability is established when trading occurs on material non-public information that is stolen or misappropriated from any other person. In U.S. v. Carpenter, a columnist defrauded The Wall Street Journal by stealing non-public information from the Journal and using it for trading in the securities markets. Note that the misappropriation theory can be used to reach a variety of individuals not previously thought to be encompassed under the fiduciary duty theory.
E) WHO IS A CONTROLLING PERSON?
"Controlling persons" include not only employers, but also any person with power to influence or control the direction of the management, policies or activities of another person. Controlling persons may include not only the company, but also its directors and officers.
F) HOW IS NON-PUBLIC INFORMATION MONITORED?
When an employee is in possession of non-public information, a determination is made as to whether such information is material. If the non-public information is material, as determined by Jennison Compliance/Legal, the issuer is placed on a Restricted List ("RL"). Once a security is on the RL all personal and company trading activity is restricted. All securities that are placed on the RL are added to Jennison's internal trading restriction systems, which restricts company trading activity. Personal trading activity in such RL issuers is also restricted through the personal trading pre-clearance process.
In addition, Prudential distributes a separate list of securities for (Enterprise Restricted List) which Prudential and its affiliates, including Jennison, are restricted from engaging in trading activity, in accordance with various securities laws. In applying this policy and monitoring securities trading Jennison makes no distinction between securities on the Restricted List and those that appear on the Enterprise Restricted List.
3. PENALTIES FOR INSIDER TRADING VIOLATIONS
Penalties for trading on or communicating material non-public information are more severe than ever. The individuals involved in such unlawful conduct may be subject to both civil and criminal penalties. A controlling person may be subject to civil or criminal penalties for failing to establish, maintain and enforce Jennison Associates' Policy Statement against Insider Trading and/or if such failure permitted or substantially contributed to an insider trading violation.
Individuals can be subject to some or all of the penalties below even if he or she does not personally benefit from the violation. Penalties include:
A) CIVIL INJUNCTIONS
B) TREBLE DAMAGES
C) DISGORGEMENT OF PROFITS
D) JAIL SENTENCES - Maximum jail sentences for criminal securities law violations up to 10 years.
E) CIVIL FINES - Persons who committed the violation may pay up to three times the profit gained or loss avoided, whether or not the person actually benefited.
F) CRIMINAL FINES - The employer or other "controlling persons" may be subject to substantial monetary fines.
G) Violators will be barred from the securities industry.
SECTION III
IMPLEMENTATION PROCEDURES & POLICY
The following procedures have been established to assist the officers, directors and employees of Jennison Associates in preventing and detecting insider trading Every officer, director and employee must follow these procedures or risk serious sanctions, including but not limited to possible suspension or dismissal, substantial personal liability and criminal penalties. If you have any questions about these procedures you should contact the Compliance or Legal Departments.
1. IDENTIFYING INSIDE INFORMATION
Before trading for yourself or others, including client accounts managed by Jennison Associates, in the securities of a company about which you may have potential inside information, ask yourself the following questions:
A) IS THE INFORMATION MATERIAL?
- Would an investor consider this information important in making his or her investment decisions?
- Would this information substantially affect the market price of the securities if generally disclosed?
B) IS THE INFORMATION NON-PUBLIC?
- To whom has this information been provided?
- Has the information been effectively communicated to the marketplace by being published in Reuters, The Wall Street Journal, SEC filings, websites or other publications of general circulation?
If, after consideration of the above, you believe that the information is material and non-public ("MNPI"), or if you have questions as to whether the information is material and non-public, you should take the following steps:
A) Report the matter immediately to the Compliance or Legal Departments.
B) Do not purchase or sell the securities on behalf of yourself or others, including client accounts managed by Jennison Associates.
C) Do not communicate the information inside or outside Jennison Associates, other than to a senior staff member of either Compliance or Legal Departments.
D) After the issue has been reviewed by Compliance/Legal, you will be instructed to continue the prohibitions against trading and communication, or you will be allowed to trade and communicate the information.
2. RESTRICTING ACCESS TO MATERIAL NON-PUBLIC INFORMATION
Information that you, Legal or Compliance identify as MNPI may not be communicated to anyone, including persons within and outside of Jennison Associates LLC, except as provided above. In addition, care should be taken so that such information is secure. For example, files containing MNPI should be locked; given to Legal or Compliance (should not be reproduced or otherwise photocopied); access to computer files containing non-public information should be restricted, until such information becomes public.
Jennison employees have no obligation to the clients of Jennison Associates to trade or recommend trading on their behalf on the basis of MNPI (inside) in their possession. Jennison's fiduciary responsibility to its clients requires that the firm and its employees regard the limitations imposed by Federal securities laws.
3. ALLOCATION OF BROKERAGE
To supplement its own research and analysis, to corroborate data compiled by its staff, and to consider the views and information of others in arriving at its investment decisions, Jennison Associates, consistent with its efforts to secure best price and execution, allocates brokerage business to those broker-dealers in a position to provide such services.
It is the firm's policy not to allocate brokerage in consideration of the attempted furnishing of inside information or MNPI. Employees, in recommending the allocation of brokerage to broker-dealers, should not give consideration to the provision of any MNPI. The policy of Jennison Associates as set forth in this statement should be brought to the attention of such broker-dealer.
4. RESOLVING ISSUES CONCERNING INSIDER TRADING
If doubt remains as to whether information is material or non-public, or if there is any
unresolved question as to the applicability or interpretation of the foregoing procedures and standards, or as to the propriety of any action, it must be discussed with either the Compliance or Legal Departments before trading or communicating the information to anyone.
This Code of Ethics, Policy on Insider Trading and Personal Trading Policy will be distributed to all Jennison Associates personnel. Each quarter you will be required to certify in writing that you have received, read and understand and will comply with all the provisions of this policy. In addition, newly hired employees must also attest to the policy. Periodically or upon request, a representative from the Compliance or Legal Departments will meet with such personnel to review this statement of policy, including any developments in the law and to answer any questions of interpretation or application of this policy.
From time to time this statement of policy will be revised in light of developments in the law, questions of interpretation and application, and practical experience with the procedures contemplated by the statement. Any amendments to the above referred to policy and procedures will be highlighted and distributed to ensure that all employees are informed of and such changes and receive the most current policy, set forth in these policies and procedures.
SECTION IV
JENNISON ASSOCIATES PERSONAL TRADING POLICY
1. GENERAL POLICY AND PROCEDURES
The management of Jennison Associates is fully aware of and in no way wishes to deter the security investments of its individual employees. The securities markets, whether equity, fixed income, international or domestic, offer individuals alternative methods of enhancing their personal investments.
Due to the nature of our business and our fiduciary responsibility to our client funds, we must protect the firm and its employees from the possibilities of both conflicts of interest and illegal insider trading in regard to their personal security transactions. It is the duty of Jennison and its employees to place the interests of clients first and to avoid all actual or potential conflicts of interest. It is important to consider all sections to this combined policy to fully understand how best to avoid potential conflicts of interests and how best to serve our clients so that the interests of Jennison and its employees do not conflict with those of its clients when discharging its fiduciary duty to provide fair, equitable and unbiased investment advice to such clients.
Jennison employees are prohibited from short term trading or market timing mutual funds and variable annuities managed by Jennison other than those that permit such trading, as well as Prudential affiliated funds and variable annuities, and must comply with any trading restrictions established by Jennison to prevent market timing of these funds.
We have adopted the following policies and procedures on employee personal trading to reasonably ensure against actual or potential conflicts of interest that could lead to violations of federal securities law, such as short term trading or market timing of affiliated mutual funds, or as previously described in the preceding sections of the attached policies. To prevent the rapid trading of certain mutual funds and variable annuities, Jennison employees may not engage in opposite direction transactions within 90 days of the last transaction with respect to the mutual funds and variable annuities listed on the attached Exhibit D ("Covered Funds"). Jennison employees are also required to arrange the reporting of Covered Funds transactions under this policy identified in Exhibit D. This policy does not apply to money market mutual funds, and the Dryden Ultra Short Bond Fund. These policies and procedures are in addition to those set forth in the Code of Ethics and the Policy Statement Against Insider Trading. However, the standards of professional conduct as described in such policies must be considered when a Jennison employee purchases and sells securities on behalf of either their own or any other account for
which the employee is considered to be the beneficial owner - as more fully described in this personal trading policy.
All Jennison employees are required to comply with such policies and procedures in order to avoid the penalties set forth herein.
2. PERSONAL TRANSACTION REPORTING REQUIREMENTS
Jennison employees are required to provide Jennison with reports concerning their securities holdings and transactions, as described below. These include Jennison's policies and procedures, including Code of Ethics, names of Jennison's access personnel including those employees no longer employed by Jennison, their holdings and transaction reports, acknowledgements, pre-approvals, violations and the disposition thereof, exceptions to any policy, every transaction in securities in which any of its personnel has any direct or indirect beneficial ownership, except transactions effected in any account over which neither the investment adviser nor any advisory representative of the investment adviser has any direct or indirect influence or control and transactions in securities which are direct obligations of the United States, high-quality short-term instruments and mutual funds. For purposes of this policy, mutual funds that are exempt from this recordkeeping requirement are money market funds and funds that are either not managed by Jennison or affiliated with Prudential. This requirement applies to:
- transactions for the personal accounts of an employee,
- transactions for the accounts of other members of their immediate family (including the spouse, minor children, and adults living in the same household with the officer, director, or employee) for which they or their spouse have any direct or indirect influence or control, and
- trusts of which they are trustees or
- other accounts in which they have any direct or indirect beneficial interest or direct or indirect influence or control.
However, the above requirements do not apply if the investment decisions for the above mentioned account(s) are made by an independent investment manager in a fully discretionary account. Jennison recognizes that some of its employees may, due to their living arrangements, be uncertain as to their obligations under this Personal Trading Policy. If an employee has any question or doubt as to whether they have direct or indirect influence or control over an account, he or she must consult with the Compliance or Legal Departments as to their status and obligations with respect to the account in question. Please refer to Jennison's Record Management Policy located on the Jennison Online compliance website for a complete list of records and retention periods.
In addition, Jennison, as a subadviser to investment companies registered under the Investment Company Act of 1940 (e.g., mutual funds), is required by Rule 17j-1 under the Investment Company Act to review and keep records of personal investment activities of "access persons" of these funds, unless the access person does not have direct or indirect influence or
control of the accounts. An "access person" is defined as any director, officer,
general partner or Advisory Person of a Fund or Fund's Investment Adviser.
"Advisory Person" is defined as any employee of the Fund or investment adviser
(or of any company in a control relationship to the Fund or investment adviser)
who, in connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding the purchase or sale of
investments by a Fund, or whose functions relate to the making of any
recommendations with respect to the purchases or sales. Jennison's "access
persons" and "advisory persons" include Jennison's employees and any other
persons that Jennison may designate.
A) JENNISON EMPLOYEES
All Jennison employees are Access Persons and are subject to the following reporting requirements. Access Persons are required to report all transactions, as set forth on Exhibit A, including activity in Prudential affiliated and Jennison managed mutual funds, as well as affiliated variable annuities or Covered Funds. A list of these funds and variable annuities is attached hereto as Exhibit D. This requirement applies to all accounts in which Jennison employees have a direct or indirect beneficial interest, as previously described. All Access Persons are required to provide the Compliance Department with the following:
1) INITIAL HOLDINGS REPORTS:
Within 10 days of commencement of BECOMING AN ACCESS person, an initial holdings report detailing all personal investments (including private placements, and index futures contracts and options thereon, but excluding automatic investment plans approved by Compliance, all direct obligation government, such as US Treasury securities, mutual funds and variable annuities that are not Covered Funds and short-term high quality debt instruments) must be submitted to Compliance. The report should contain the following information, and must be current, not more than 45 days prior to becoming an "access person":
a. The title, number of shares and principal amount of each investment in which the Access Person had any direct or indirect beneficial ownership;
b. The name of any broker, dealer or bank with whom the Access Person maintained an account in which any securities were held for the direct or indirect benefit of the Access Person; and
c. The date that the report is submitted by the Access Person.
2) QUARTERLY REPORTS:
a. TRANSACTION REPORTING:
Within 30 days after the end of a calendar quarter, with respect to any transaction, including activity in Covered Funds, during the quarter in investments in which the Access Person had any direct or indirect beneficial ownership:
i) The date of the transaction, the title, the interest rate and maturity date (if applicable), the number of shares and the principal amount of each investment involved;
ii) The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition);
iii) The price of the investment at which the transaction was effected;
iv) The name of the broker, dealer or bank with or through which the transaction was effected; and
v) The date that the report is submitted by the Access Person.
b. PERSONAL SECURITIES ACCOUNT REPORTING:
Within 30 days after the end of a calendar quarter, with respect to any account established by the Access Person in which any securities were held during the quarter for the direct or indirect benefit of the Access Person:
i) The name of the broker, dealer or bank with whom the Access Person established the account;
ii) The date the account was established; and
iii) The date that the report is submitted by the Access Person.
To facilitate compliance with this reporting requirement, Jennison Associates requires that a duplicate copy of all trade confirmations and brokerage statements be supplied directly to Jennison Associates' Compliance Department and to Prudential's Corporate Compliance Department. Access Persons are required to notify the Compliance Department of any Covered Fund including accounts of all household members, held directly with the fund. The Compliance Department must also be notified prior to the creation of any new personal investment accounts so that we may request that duplicate statements and
confirmations of all trading activity (including mutual funds) be sent to the Compliance Department.
3) ANNUAL HOLDINGS REPORTS:
Annually, the following information (which information must be current as of a date no more than 45 days before the report is submitted):
a. The title, number of shares and principal amount of each investment, including investments set forth Covered Funds, in which the Access Person had any direct or indirect beneficial ownership;
b. The name of any broker, dealer or bank with whom the Access Person maintains an account in which any securities are held for the direct or indirect benefit of the Access Person; and
c. The date that the report is submitted by the Access Person.
4) A copy of all discretionary investment advisory contracts or agreements between the officer, director or employee and his investment advisors.
5) A copy of Schedule B, Schedule D, and Schedule E from federal income tax returns on an annual basis.
Please note that Access Persons may hold and trade Covered Funds listed through Authorized Broker/Dealers, Prudential Mutual Fund Services, the Prudential Employee Savings Plan ("PESP"), and the Jennison Savings and Pension Plans. As indicated above, opposite direction trading activity within a 90 day period is prohibited with respect to Covered Funds, other than money market funds and Dryden Ultra Short Fund. It should also be noted that transacting the same Covered Funds in opposite directions on the same day and at the same NAV will not be considered market timing for purposes of this policy, as such activity would not result in a gain to the employee.
In addition, Access Persons may maintain accounts with respect to certain Covered Funds directly with the fund company, provided that duplicate confirms and statements are provided to the Compliance Department.
B) OTHER PERSONS DEFINED BY JENNISON AS ACCESS PERSONS
Other Persons Defined by Jennison as Access Persons, pursuant to Rule 204A-1 under the Investment Advisers Act of 1940, as amended, include individuals who in connection with his or her regular functions or duties may obtain information regarding the purchase or sale of investments by Jennison on behalf of its clients. These individuals
or groups of individuals are identified on Exhibit C and will be required to comply with such policies and procedures that Jennison deems necessary to reasonably ensure that the interests of our clients are not in any way compromised. These policies and procedures are specified on Exhibit C.
3. PRE-CLEARANCE PROCEDURES
All employees of Jennison Associates may need to obtain clearance from the Jennison Personal Investment Committee prior to effecting any securities transaction (except for those securities described in Exhibit A) in which they or their immediate families (including the spouse, minor children, and adults living in the same household with the officer, director, or employee) for which they or their spouse have any direct or indirect influence or control, have a beneficial interest on behalf of a trust of which they are trustee, or for any other account in which they have a beneficial interest or direct or indirect influence or control. Determination as to whether or not a particular transaction requires pre-approval should be made by consulting the "Compliance and Reporting of Personal Transactions Matrix" found on Exhibit A.
The Jennison Personal Investment Committee will make its decision of whether to clear a proposed trade on the basis of the personal trading restrictions set forth below. A member of the Compliance Department shall promptly notify the individual of approval or denial to trade the requested security. Notification of approval or denial to trade may be verbally given as soon as possible; however, it shall be confirmed in writing within 24 hours of the verbal notification. Please note that the approval granted will be valid ONLY for that day in which the approval has been obtained; provided, however, that approved orders for securities traded in certain foreign markets may be executed within 2 business days from the date pre-clearance is granted, depending on the time at which approval is granted and the hours of the markets on which the security is traded are open. In other words, if a trade was not effected on the day for which approval was originally sought, a new approval form must be re-submitted on each subsequent day in which trading may occur. Or, if the security for which approval has been granted is traded on foreign markets, approval is valid for an additional day (i.e., the day for which approval was granted and the day following the day for which approval was granted).
Only transactions where the investment decisions for the account are made by an independent investment manager in a fully discretionary account (including managed accounts) will be exempt from the pre-clearance procedures, except for those transactions that are directed by an employee in a Jennison managed account. Copies of the agreement of such discretionary accounts, as well as transaction statements or another comparable portfolio report, must be submitted on a quarterly basis to the Compliance Department for review and record retention.
Written notice of your intended securities activities must be filed for approval prior to effecting any transaction for which prior approval is required. The name of the security, the date, the nature of the transaction (purchase or sale), the price, the name and relationship to you of the account holder (self, son, daughter, spouse, father, etc.), and the name of the broker-dealer or bank involved in the transaction must be disclosed in such written notice. Such written notice should be submitted on the Pre-Clearance Transaction Request Forms (Equity/Fixed Income)
which can be obtained from the Compliance Department. If proper procedures are not complied with, action will be taken against the employee. The violators may be asked to reverse the transaction and/or transfer the security or profits gained over to the accounts of Jennison Associates. In addition, penalties for personal trading violations shall be determined in accordance with the penalties schedule set forth in Section 5, "Penalties for Violating Jennison Associates' Personal Trading Policies." Each situation and its relevance will be given due weight.
4. PERSONAL TRADING POLICY
The following rules, regulations and restrictions apply to the personal security transactions of all employees. These rules will govern whether clearance for a proposed transaction will be granted. These rules also apply to the sale of securities once the purchase of a security has been pre-approved and completed.
No director, officer or employee of the Company may effect for himself, an immediate family member (including the spouse, minor children, and adults living in the same household with the officer, director, or employee) for which they or their spouse have any direct or indirect influence or control, or any trust of which they are trustee, or any other account in which they have a beneficial interest or direct or indirect influence or control ("Covered Accounts") any transaction in a security, or recommend any such transaction in a security, of which, to his/her knowledge, the Company has either effected or is contemplating effecting the same for any of its clients, if such transaction would in any way conflict with, or be detrimental to, the interests of such client, or if such transaction was effected with prior knowledge of material, non-public information, or any other potential conflict of interest as described in the sections preceding this personal trading policy.
Except in particular cases in which the Jennison Personal Investment Committee has determined in advance that proposed transactions would not conflict with the foregoing policy, the following rules shall govern all transactions (and recommendations) by all Jennison employees for their Covered Accounts. The provisions of the following paragraphs do not necessarily imply that the Jennison Personal Investment Committee will conclude that the transactions or recommendations to which they relate are in violation of the foregoing policy, but rather are designed to indicate the transactions for which prior approval should be obtained to ensure that no actual, potential or perceived conflict occurs.
A) BLACKOUT PERIODS
1) Company personnel may not purchase any security recommended, or proposed to be recommended to any client for purchase, nor any security purchased or proposed to be purchased for any client may be purchased by any corporate personnel if such purchase will interfere in any way with the orderly purchase of such security by any client.
2) Company personnel may not sell any security recommended, or proposed to be recommended to any client for sale, nor any security sold, or proposed to be sold, for any client may be sold by any corporate personnel if such sale will interfere in any way with the orderly sale of such security by any client.
3) Company personnel may not sell any security after such security has been recommended to any client for purchase or after being purchased for any client Company personnel may not purchase a security after being recommended to any client for sale or after being sold for any client, if the sale or purchase is effected with a view to making a profit on the anticipated market action of the security resulting from such recommendation, purchase or sale.
4) In order to prevent even the appearance of a violation of this rule or a conflict of interest with a client account, you should refrain from trading in the SEVEN (7) CALENDAR DAYS BEFORE AND AFTER Jennison trades in that security. This restriction does not apply to non-discretionary Jennison trading activity, as determined by Compliance on a case-by-case basis. For example trading activity that occurs in Jennison Managed Account ("JMA") when either implementing a pre-existing model for new accounts or in situations where JMA trading activity is generated due to cash flow instructions from the managed account sponsor. However, all requests to pre-clear a personal security transaction where the same security is also being traded in JMA on the same day will be denied.
If an employee trades during a blackout period, disgorgement may be required. For example, if an Employee's trade is pre-approved and executed and subsequently, within seven days of the transaction, the Firm trades on behalf of Jennison's clients, the Jennison Personal Investment Committee shall review the personal trade in light of firm trading activity and determine on a case-by-case basis the appropriate action. If the Personal Investment Committee finds that a client is disadvantaged by the personal trade, the trader may be required to reverse the trade and disgorge to the firm any difference due to any incremental price advantage over the client's transaction.
B) SHORT-TERM TRADING PROFITS
All employees of Jennison Associates are prohibited from profiting in Covered Accounts from the purchase and sale, or the sale and purchase of the same or equivalent securities within 60 calendar days. All employees are prohibited from executing a purchase and a sale or a sale and a purchase of the Covered Funds that appear on Exhibit D, during any 90-day period. Any profits realized from the purchase and sale or the sale and purchase of the same (or equivalent) securities within the 60 and 90 day restriction periods, respectively, shall be disgorged to the firm.
"Profits realized" shall be calculated consistent with interpretations under section 16(b) of the Securities Exchange Act of 1934, as amended, and the regulations
thereunder, which require matching any purchase and sale that occur with in a 60 calendar day period and, for purposes of this policy, within a 90 calendar day period for any purchase and sale or sale and purchase in those Covered Funds that appear on Exhibit D, across all Covered Accounts. As such, a person who sold a security and then repurchased the same (or equivalent) security would need to disgorge a profit if matching the purchase and the sale would result in a profit. Conversely, if matching the purchase and sale would result in a loss, profits would not be disgorged.
In addition, the last in, first out ("LIFO") method will be used in determining if any exceptions have occurred in any Covered Fund. Profits realized on such transactions must be disgorged. Certain limited exceptions to this holding period are available and must be approved by the Chief Compliance Officer or her designee prior to execution. Exceptions to this policy include, but are not limited to, hardships and extended disability. Automatic investment and withdrawal programs and automatic rebalancing are permitted transactions under the policy.
The prohibition on short-term trading profits shall not apply to trading of index options and index futures contracts and options on index futures contracts on broad based indices. However, trades related to non-broad based index transactions remains subject to the pre-clearance procedures and other applicable procedures. A list of broad-based indices is provided on Exhibit B.
C) Jennison employees may not purchase any security if the purchase would deprive any of Jennison's clients of an investment opportunity, after taking into account (in determining whether such purchase would constitute an investment opportunity) the client's investments and investment objectives and whether the opportunity is being offered to corporate personnel by virtue of his or her position at Jennison.
D) Jennison employees may not purchase NEW ISSUES OF EITHER COMMON STOCK, FIXED INCOME SECURITIES or CONVERTIBLE SECURITIES in Covered Accounts except in accordance with item E below. This prohibition does not apply to new issues of shares of open-end investment companies. All Jennison employees shall also obtain prior written approval of the Jennison Personal Investment Committee in the form of a completed "Request to Buy or Sell Securities" form before effecting any purchase of securities on a `PRIVATE PLACEMENT' basis. Such approval will take into account, among other factors, whether the investment opportunity should be reserved for Jennison's clients and whether the opportunity is being offered to the employee by virtue of his or her position at Jennison.
E) Subject to the pre-clearance and reporting procedures, Jennison employees may purchase securities on the date of issuance, provided that such securities are acquired in the secondary market. Upon requesting approval of such transactions, employees must acknowledge that he or she is aware that such request for approval may not be submitted until AFTER the security has been issued to the public and is trading at prevailing market prices in the secondary market.
F) Subject to the preclearance and reporting procedures, Jennison employees may effect purchases upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent that such rights were acquired from such issuer, and sales of such rights so acquired. In the event that approval to exercise such rights is denied, subject to preclearance and reporting procedures, corporate personnel may obtain permission to sell such rights on the last day that such rights may be traded.
G) Any transactions in index futures contracts and index options, except those effected on a broad-based index, are subject to preclearance and all are subject to the reporting requirements.
H) No employee of Jennison Associates may short sell or purchase put options or writing call options on securities that represent a long position in any portfolios managed by Jennison on behalf of its clients. Conversely, no employee may sell put options, or purchase either the underlying security or call options that represent a short position in a Jennison client portfolio. Any profits realized from such transactions shall be disgorged to the Firm. All options and short sales are subject to the preclearance rules.
All employees are prohibited from selling short and from participating in any options transactions on any securities issued by Prudential except in connection with bona fide hedging strategies (e.g., covered call options and protected put options). However, employees are prohibited from buying or selling options to hedge their financial interest in employee stock options granted to them by Prudential.
I) No employee of Jennison Associates may participate in investment clubs.
J) While participation in employee stock purchase plans and employee stock option plans need not be pre-approved, copies of the terms of the plans should be provided to the Compliance Department as soon as possible so that the application of the various provisions of the Personal Trading Policy may be determined (e.g., pre-approval, reporting, short-term trading profits ban). Jennison employees must obtain pre-approval for any discretionary disposition of securities or discretionary exercise of options acquired pursuant to participation in an employee stock purchase or employee stock option plan, except for the exercise of Prudential options (this exception does not apply to certain Designated Employees). All such transactions, however, must be reported. Nondiscretionary dispositions of securities or exercise are not subject to pre-approval. Additionally, Jennison employees should report holdings of such securities and options on an annual basis.
K) Subject to pre-clearance, long-term investing through direct stock purchase plans is permitted. The terms of the plan, the initial investment, and any notice of intent to purchase through automatic debit must be provided to and approved by the Jennison Personal Investment Committee. Any changes to the original terms of approval, e.g., increasing, decreasing in the plan, as well as any sales or discretionary purchase of
securities in the plan must be submitted for pre-clearance. Termination of participation in such a plan, must be reported to Compliance. Provided that the automatic monthly purchases have been approved by the Jennison Personal Investment Committee, each automatic monthly purchase need not be submitted for pre-approval. "Profits realized" for purposes of applying the ban on short-term trading profits will be determined by matching the proposed discretionary purchase or sale transaction against the most recent discretionary purchase or sale, as applicable, not the most recent automatic purchase or sale (if applicable). Additionally, holdings should be disclosed annually.
L) DESIGNATED PERSONS: REQUIREMENTS FOR TRANSACTIONS IN SECURITIES ISSUED BY PRUDENTIAL
A Designated Person is an employee who, during the normal course of his or her job has routine access to material, nonpublic information about Prudential, including information about one or more business units or corporate level information that may be material about Prudential. Employees that have been classified as Designated Persons have been informed of their status.
Designated Persons are permitted to trade in Prudential common stock (symbol: "PRU") only during certain "open trading windows". Trading windows will be closed for periods surrounding the preparation and release of Prudential financial results. Approximately 24 hours after Prudential releases its quarterly earnings to the public, the trading window generally opens and will remain open until approximately three weeks before the end of the quarter. Designated Persons will be notified by the Compliance Department announcing the opening and closing of each trading window.
Designated Persons are required to obtain a dual pre-clearance approval for all transactions from both Jennison and Prudential. To request pre-clearance approval, Designated Persons are required to complete a pre-clearance form for Jennison and a separate pre-clearance form for Prudential. These forms can be obtained from the Compliance Department. The Compliance Department will notify the Designated Person if their request has been approved or denied. Please note that pre-clearance also applies to transactions of household members and dependents of any Designated Person and is valid only for the day approval is provided. All other pre-clearance rules and restrictions apply.
M) JENNISON EMPLOYEE PARTICIPATION IN MANAGED STRATEGIES
All eligible employees must adhere to the following conditions in order to open an account in a managed account program:
- All employees may open a managed account in any managed account program, including Jennison-managed strategies.
- Portfolio Managers of the Jennison models are prohibited from opening accounts in managed account programs in strategies that he or she manages.
- Portfolio Advisors may open accounts in managed account programs in strategies for which he or she has responsibility; however, these individuals may not direct selling or purchases for his or her own accounts. All such decisions and implementation of portfolio transactions for Portfolio Advisor accounts will be made by the Financial Adviser.
- Eligible employees will not be permitted to have discretion over any managed account. This means that employees will be invested in the model.
- All transactions in any managed account for which a Jennison employee has discretion will be subject to the pre-clearance requirements of this policy.
- In connection with tax selling, eligible employees (except Portfolio Advisors) are permitted to identify specific securities to be sold, however, such sales are subject to the 60-day ban on short-term trading profits and pre-clearance for Jennison managed strategies.
- Both the Jennison Compliance Department and Prudential Corporate Compliance will need to receive duplicate confirmations and statements.
N) EXCEPTIONS TO THE PERSONAL TRADING POLICY
Notwithstanding the foregoing restrictions, exceptions to certain provisions (e.g., blackout period, pre-clearance procedures, and short-term trading profits) of the Personal Trading Policy may be granted on a case-by-case basis by Jennison when no abuse is involved and the facts of the situation strongly support an exception to the rule.
Investments in the following instruments are not bound to the rules and restrictions as set forth above and may be made without the approval of the Jennison Personal Investment Committee: direct governments obligations (Bills, Bonds and Notes), money markets, commercial paper, repurchase orders, reverse repurchase orders, bankers acceptances, bank certificates of deposit, other high quality short-term debt instrument(1), and open-ended registered investment companies. Although not subject to pre-clearance, Covered Funds listed on Exhibit D, are subject to reporting and a ban on
1 "High Quality Short-Term Debt Instrument" means any instrument having a maturity at issuance of less than 366 days and which is rated in one of the highest two rating categories by a Nationally Recognized Statistical Rating Agency (Moody's and S&P).
short term trading, i.e. buying and selling or selling and buying within 90 days. Covered Funds listed on Exhibit D, are only subject to reporting, as previously described.
5. MONITORING/ADMINISTRATION
The Jennison Associates' Compliance Department will maintain and enforce this policy and the Chief Compliance Officer ("CCO"), or her designee(s), will be directly responsible for reasonably assuring for monitoring compliance with the policy. If such authority is delegated to another compliance professional, a means of reporting deficiencies to the CCO, with respect to any one of the policies as set forth in this combined document, must be established to ensure the CCO is aware of all violations.
Requests for exceptions to the policy will be provided to the Jennison CCO or her designee and from time to time shared with the Prudential Personal Securities Trading Department and Jennison Compliance Committees. While Jennison has primary responsibility to administer its own Personal Trading Policy, Prudential will assist Jennison by monitoring activity in Prudential mutual funds, as well as Jennison funds in Jennison Savings and Pension Plans, and identifying violations to the ban on short term trading, as described in this policy.
As part of monitoring compliance with these policies, Compliance will employ various monitoring techniques, that may consist of but not limited to, reviewing personal securities transactions to determine whether the security was pre-cleared, compare personal securities requests against a firm-wide (includes affiliates of Prudential) or Jennison specific restricted list(s), receiving exception reporting to monitor Jennison 7 day black out period, as described above.
In addition, as indicated above, short term or market timing trading in any Covered Fund identified in Exhibit D, represents a significant conflict of interest for Jennison and Prudential. Market timing any of these investment vehicles may suggest the use of inside information - namely, knowledge of portfolio holdings or contemplated transactions - acquired or developed by an employee for personal gain. The use of such information constitutes a violation of the law that can lead to severe disciplinary action against Jennison and its senior officers. Therefore, trading activity in certain Covered Funds will be subject to a heightened level of scrutiny. Jennison employees who engage in short term trading of such funds can be subject to severe disciplinary action, leading up to and including possible termination.
6. PENALTIES FOR VIOLATIONS OF JENNISON ASSOCIATES' PERSONAL TRADING POLICIES
Violations of Jennison's Personal Trading Policy and Procedures, while in most cases may be inadvertent, must not occur. It is important that every employee abide by the policies established by the Board of Directors. Penalties will be assessed in accordance with the schedules set forth below. THESE, HOWEVER, ARE MINIMUM PENALTIES. THE FIRM
RESERVES THE RIGHT TO TAKE ANY OTHER APPROPRIATE ACTION, INCLUDING BUT NOT LIMITED TO SUSPENSION OR TERMINATION OF EMPLOYMENT.
All violations and penalties imposed will be reported to Jennison's Compliance Committee. The Compliance Committee will review annually a report which at a minimum:
A) summarizes existing procedures concerning personal investing and any changes in procedures made during the preceding year;
B) identifies any violations requiring significant remedial action during the preceding year; and
C) identifies any recommended changes in existing restrictions or procedures based upon Jennison's experience under its policies and procedures, evolving industry practices, or developments in applicable laws and regulations.
7. TYPE OF VIOLATION
A) PENALTIES FOR FAILURE TO SECURE PRE-APPROVAL
The minimum penalties for failure to pre-clear personal securities transactions include POSSIBLE REVERSAL OF THE TRADE, POSSIBLE DISGORGEMENT OF PROFITS, POSSIBLE SUSPENSION, POSSIBLE REDUCTION IN DISCRETIONARY BONUS AS WELL AS THE IMPOSITION OF ADDITIONAL CASH PENALTIES TO THE EXTENT PERMISSIBLE BY APPLICABLE STATE LAW.
1) FAILURE TO PRE-CLEAR PURCHASE
Depending on the circumstances of the violation, the individual may be asked to reverse the trade (i.e., the securities must be sold). Any profits realized from the subsequent sale must be turned over to the firm. PLEASE NOTE: THE SALE OR REVERSAL OF SUCH TRADE MUST BE SUBMITTED FOR PRE-APPROVAL.
2) FAILURE TO PRE-CLEAR SALES THAT RESULT IN LONG-TERM CAPITAL GAINS
Depending on the circumstances of the violation, the firm may require that profits realized from the sale of securities that are defined as "long-term capital gains" by Internal Revenue Code (the "IRC") section 1222 and the rules thereunder, as amended, to be turned over to the firm, subject to the following maximum amounts:
JALLC POSITION DISGORGEMENT PENALTY* -------------- --------------------- Senior Vice Presidents and above Realized long-term capital gain, up to $10,000.00 Vice Presidents and Assistant Vice Presidents Realized long-term capital gain, up to $5,000.00 All other JALLC Personnel 25% of the realized long-term gain, irrespective of taxes, up to $3,000.00 |
* Penalties will be in the form of fines to the extent permissible by law, suspension, or the reduction of discretionary bonus.
3) FAILURE TO PRE-CLEAR SALES THAT RESULT IN SHORT-TERM CAPITAL GAINS
Depending on the nature of the violation, the firm may require that all profits realized from sales that result in profits that are defined as "short-term capital gains" by IRC section 1222 and the rules thereunder, as amended, be disgorged irrespective of taxes. Please note, however, any profits that result from violating the ban on short-term trading profits are addressed in section 6.C), "Penalty for Violation of Short-Term Trading Profit Rule."
4) ADDITIONAL CASH PENALTIES
VP'S AND ABOVE* OTHER JALLC PERSONNEL*
--------------- ----------------------
FIRST OFFENSE None/Warning None/Warning
SECOND OFFENSE $1,000 $200
THIRD OFFENSE $2,000 $300
FOURTH OFFENSE $3,000 $400
FIFTH OFFENSE $4,000 & Automatic Notification of the Board of Directors $500 & Automatic Notification of the Board of Directors
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NOTWITHSTANDING THE FOREGOING, JENNISON RESERVES THE RIGHT TO NOTIFY
THE BOARD OF DIRECTORS FOR ANY VIOLATION.
Penalties shall be assessed over a rolling three year period. For example, if over a three year period (year 1 through year 3), a person had four violations, two in year 1, and one in each of the following years, the last violation in year 3 would be considered a fourth offense. However, if in the subsequent year (year 4), the person only had one violation of the policy, this violation would be penalized at the third offense level because over the subsequent three year period (from year 2 through year 4), there were only three
violations. Thus, if a person had no violations over a three year period, a subsequent offense would be considered a first offense, notwithstanding the fact that the person may have violated the policy prior to the three year period.
* Penalties will be in the form of fines to the extent permissible by law, suspension, or the reduction of discretionary bonus.
B) FAILURE TO COMPLY WITH REPORTING REQUIREMENTS
Such violations occur if Jennison does not receive a broker confirmation within ten (10) business days following the end of the quarter in which a transaction occurs or if Jennison does not routinely receive brokerage statements. Evidence of written notices to brokers of Jennison's requirement and assistance in resolving problems will be taken into consideration in determining the appropriateness of penalties.
VP'S AND ABOVE * OTHER JALLC PERSONNEL *
---------------- -----------------------
FIRST OFFENSE None/Warning None/Warning
SECOND OFFENSE $200 $50
THIRD OFFENSE $500 $100
FOURTH OFFENSE $600 $200
FIFTH OFFENSE $700& Automatic Notification of the Board $300 & Automatic Notification of the Board
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* Penalties will be in the form of fines to the extent permissible by law, suspension, or the reduction of discretionary bonus.
NOTWITHSTANDING THE FOREGOING, JENNISON RESERVES THE RIGHT TO NOTIFY
THE BOARD OF DIRECTORS FOR ANY VIOLATION.
C) PENALTY FOR VIOLATION OF SHORT-TERM TRADING PROFIT RULE
Any profits realized from the purchase and sale or the sale and purchase of the same (or equivalent) securities within 60 calendar days and within 90 calendar days for all Covered Funds that appear on Exhibit D, shall be disgorged to the firm. "Profits realized" shall be calculated consistent with interpretations under section 16(b) of the Securities Exchange Act of 1934, as amended, which requires matching any purchase and sale that occur with in a 60 calendar day period without regard to the order of the purchase or the sale during the period. As such, a person who sold a security and then repurchased the same (or equivalent) security would need to disgorge a profit if matching the purchase and the sale would result in a profit. The LIFO standard will be applied when determining if any violations have occurred in the trading of a Prudential affiliated
or Jennison managed mutual fund, other than a money market fund, and whether the corresponding purchase and sale or sale and purchase of such fund(s) has resulted in a profit or loss. Conversely, if matching the purchase and sale would result in a loss, profits would not be disgorged.
D) OTHER POLICY INFRINGEMENTS WILL BE DEALT WITH ON A CASE-BY-CASE BASIS
PENALTIES WILL BE COMMENSURATE WITH THE SEVERITY OF THE VIOLATION.
Serious violations would include:
- Failure to abide by the determination of the Personal Investment Committee.
- Failure to submit pre-approval for securities in which Jennison actively trades.
- Failure to comply with the ban on all short term trading, i.e. buying and selling or selling and buying the same or equivalent securities and mutual funds set forth on Exhibit D, within 60 and 90 days, respectively.
E) DISGORGED PROFITS
Profits disgorged to the firm shall be donated to a charitable organization selected by the firm in the name of the firm. Such funds may be donated to such organization at such time as the firm determines.
8. MISCELLANEOUS
A. POLICIES AND PROCEDURES REVISIONS
These policies and procedures (Code of Ethics, Policy on Insider Trading and Personal Trading Policy and Procedures) may be changed, amended or revised as frequently as necessary in order to accommodate any changes in operations or by operation of law. Any such change, amendment or revision may be made only by Jennison Compliance in consultation with the business groups or areas impacted by these procedures and consistent with applicable law. Such changes will be promptly distributed to all impacted personnel and entities.
B. COMPLIANCE
The Jennison Chief Compliance Officer shall be responsible for the administration of this Policy. Jennison Compliance continuously monitors for
compliance with theses policies and procedures, as set forth herein, through its daily pre-clearance process and other means of monitoring, as described above in 5. Monitoring/Administration. This data that is reviewed and our other means of monitoring ensures that employees are in compliance with the requirements of these policies and procedures. All material obtained during this review, including any analysis performed, reconciliations, violations (and the disposition thereof), exceptions granted is retained and signed by compliance and retained in accordance with section 2 RECORDKEEPING REQUIREMENTS above.
In addition, this Code of Ethics, Policy on Insider Trading and Personal Trading Policy will be reviewed annually for adequacy and effectiveness. Any required revisions will be made consistent with section A above.
EXHIBIT A
COMPLIANCE AND REPORTING OF PERSONAL TRANSACTIONS MATRIX
Required If reportable,
Pre- minimum
Approval Reportable reporting
Investment Category/Method Sub-Category (Y/N) (Y/N) frequency
================================================================================================================================
BONDS Treasury Bills, Notes, Bonds N N N/A
Commercial Paper N N N/A
Other High Quality Short-Term Debt Instrument(1) N N N/A
Agency N Y Quarterly
Corporates Y Y Quarterly
MBS N Y Quarterly
ABS N Y Quarterly
CMO's Y Y Quarterly
Municipals N Y Quarterly
Convertibles Y Y Quarterly
STOCKS Common Y Y Quarterly
Preferred Y Y Quarterly
Rights Y Y Quarterly
Warrants Y Y Quarterly
Initial, Secondary and Follow On Public Y Y Quarterly
Offerings
Automatic Dividend Reinvestments N N N/A
Optional Dividend Reinvestments Y Y Quarterly
Direct Stock Purchase Plans with automatic Y Y Quarterly
investments
Employee Stock Purchase/Option Plan Y* Y *
OPEN-END MUTUAL FUNDS AND Affiliated Investments - see Exhibit D. N Y Quarterly
ANNUITIES
Non-Affiliated Funds, not managed by Jennison. N N N/A
CLOSED END FUNDS,
UNIT INVESTMENT TRUSTS
and ETF All Affiliated & Non-Affiliated Funds N Y Quarterly
US Funds (including SPDRs, NASDAQ 100 Index N Y Quarterly
Tracking Shares)
Foreign Funds N Y Quarterly
Holders Y Y Quarterly
ETF organized as open-end registered N Y Quarterly
investment company only, e.g., I Shares.
DERIVATIVES Any exchange traded, NASDAQ, or OTC
option or futures contract, including,
but not limited to:
Financial Futures ** Y Quarterly
Commodity Futures N Y Quarterly
Options on Futures ** Y Quarterly
Options on Securities ** Y Quarterly
Non-Broad Based Index Options Y Y Quarterly
Non Broad Based Index Futures Y Y Quarterly
Contracts and Options on
Non-Broad Based Index Futures
Contracts
Broad Based Index Options N Y Quarterly
Broad Based Index Futures Contracts N Y Quarterly
and Options on Broad Based Index
Futures Contracts
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LIMITED PARTNERSHIPS, PRIVATE
PLACEMENTS, & PRIVATE
INVESTMENTS Y Y Quarterly
VOLUNTARY TENDER OFFERS Y Y Quarterly
MANAGED ACCOUNT PROGRAMS Employee Directed Portfolio Transactions Y Y Quarterly
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* Pre-approval of sales of securities or exercises of options acquired through employee stock purchase or employee stock option plans are required, except for the exercise of Prudential options (this exception does not apply to certain Designated Employees). Holdings are required to be reported annually; transactions subject to pre-approval are required to be reported quarterly. Pre-approval is not required to participate in such plans.
** Pre-approval of a personal derivative securities transaction is required if the underlying security requires pre-approval.
EXHIBIT B
BROAD-BASED INDICES
Nikkei 300 Index CI/Euro
S&P 100 Close/Amer Index
S&P 100 Close/Amer Index
S&P 100 Close/Amer Index
S&P 500 Index
S&P 500 Open/Euro Index
S&P 500 Open/Euro Index
S&P 500 (Wrap)
S&P 500 Open/Euro Index
Russell 2000 Open/Euro Index
Russell 2000 Open/Euro Index
S&P Midcap 400 Open/Euro Index
NASDAQ- 100 Open/Euro Index
NASDAQ- 100 Open/Euro Index
NASDAQ- 100 Open/Euro Index
NASDAQ- 100 Open/Euro Index
NASDAQ- 100 Open/Euro Index
S&P Small Cap 600
U.S. Top 100 Sector
S&P 500 Long-Term Close
Russell 2000 L-T Open./Euro
Russell 2000 Long-Term Index
EXHIBIT C
OTHER PERSONS DEFINED BY JENNISON AS ACCESS PERSONS
The following groups of persons have been defined by Jennison as Access Persons because these are individuals who, in connection with his or her regular functions or duties obtain information regarding the purchase or sale of investments by Jennison on behalf of its clients. These individuals or groups of individuals are identified on this Exhibit C and will be required to comply with such policies and procedures that Jennison deems necessary as specified on this Exhibit.
1. JENNISON DIRECTORS AND OFFICERS WHO ARE PRUDENTIAL EMPLOYEES
Jennison recognizes that a Jennison director or officer who is employed by Prudential ("Prudential Director or Officer") may be subject to the Prudential Personal Securities Trading Policy ("Prudential's Policy"), a copy of which and any amendments thereto shall have been made available to Jennison's Compliance Department. A Prudential Director or Officer does not need to obtain preclearance from Jennison's Personal Investment Committee; provided that the Prudential Director or Officer does not otherwise have access to current Jennison trading activity.
For purposes of the recordkeeping requirements of this Policy, Prudential Directors and Officers are required to comply with Prudential's Policy. Prudential will provide an annual representation to the Jennison Compliance Department, with respect to employees subject to the Prudential Policy, that the employee has complied with the recordkeeping and other procedures of Prudential's Policy during the most recent calendar year. If there have been any violations of Prudential's Policy by such employee, Prudential will submit a detailed report of such violations and what remedial action, if any was taken. If an employee is not subject to the Prudential Policy, Prudential will provide a certification that the employee is not subject to the Prudential Policy.
2. OUTSIDE CONSULTANTS AND INDEPENDENT CONTRACTORS
Outside Consultants and Independent Contractors who work on-site at Jennison and who in connection with his or her regular functions or duties obtain information regarding the purchase or sale of investments in portfolios managed by Jennison will be subject to such policies and procedures as determined by Jennison.
EXHIBIT D
JENNISON MANAGED AND PRUDENTIAL AFFILIATED MUTUAL FUNDS
A. JENNISON NON-PROPRIETARY FUNDS (ALSO KNOWN AS COVERED FUNDS)
AEGON/Transamerica Series Trust - Jennison Growth
Allmerica Investment Trust - Select Growth Fund
Dreyfus Variable Investment Fund - Special Value Portfolio
Harbor Fund - Harbor Capital Appreciation Fund
Jennison Conservative Growth Fund
John Hancock Trust - Capital Appreciation Trust
Metropolitan Series Fund, Inc. - Jennison Growth Portfolio
Ohio National Fund, Inc. - Capital Appreciation Portfolio
Pacific Select Fund - Health Sciences Portfolio
The Hartford Select Small Cap Growth Fund
The Hirtle Callaghan Trust - The Growth Equity Portfolio
The MainStay Funds - MainStay MAP Fund
The Preferred Group of Mutual Funds - Preferred Large Cap Growth Fund
Transamerica IDEX Mutual Funds - TA IDEX Jennison Growth
USAllianz Variable Insurance Products Trust - USAZ Jennison 20/20 Focus Fund
USAllianz Variable Insurance Products Trust - USAZ Jennison Growth Fund
B. PRUDENTIAL AND PRUDENTIAL INVESTMENT MANAGEMENT (PIM) MUTUAL FUNDS
America Skandia
JennisonDryden Funds
Prudential's Gibraltar Fund, Inc.
SEI Institutional Investors Trust Fund
Strategic Partners
The Prudential Series Fund, Inc.
The Prudential Variable Contract Account-10
The Prudential Variable Contract Account- 2
This Exhibit D may change from time to time due to new product development or changes in relationships and may not always be up-to-date. If you are not sure whether or not you either hold or anticipate purchasing a mutual fund that is either affiliated with Prudential, managed by Jennison, or is a variable annuity, please contact the Compliance Department.
Last update 10/5/05
EXHIBIT p(6)
WINSLOW CAPITAL MANAGEMENT, INC.
CODE OF ETHICS
Effective Date: February 1, 2005
The definitions of some of the capitalized terms used in this Code of Ethics are listed in Appendix A.
1. SCOPE OF CODE
Winslow Capital Management, Inc. (the "Adviser") has established and will maintain and enforce this Code of Ethics to set forth the standards of conduct expected of Employees, to require compliance with the federal securities laws, and to uphold the Adviser's fiduciary duties. This Code of Ethics also addresses the personal securities trading activities of Access Persons in an effort to detect and prevent illegal or improper personal securities transactions. This Code of Ethics is intended to satisfy the requirements of Rule 17j-1 under the Investment Company Act of 1940 and Rule 204A-1 under the Investment Advisers Act of 1940.
2. STANDARDS OF BUSINESS CONDUCT FOR THE ADVISER AND ALL EMPLOYEES
A. PREFACE
The reputation and success of Winslow Capital Management, Inc. (the "Adviser") require adherence to high ethical standards. Employees should act in a manner that will serve the best interests of the client and then the Adviser; that will preserve confidential information; and that will avoid conflicts of interest. The Adviser's goal is to create an environment in which ethical behavior is actively thought about and practiced.
B. COMPLIANCE WITH FEDERAL SECURITIES LAWS
The Adviser and all Employees shall comply with all applicable provisions of the federal securities laws and the regulations related to those laws, including the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, the Investment Company Act of 1940, the Sarbanes-Oxley Act of 2002, Title V of the Gramm-Leach-Bliley Act (privacy), and the Bank Secrecy Act as it applies to funds and investment advisers (anti-money laundering). In connection with providing investment management services to Clients, this includes prohibiting any activity which directly or indirectly:
o Defrauds a Client in any manner;
o Misleads a Client, including making any statement that omits material facts;
o Operates or would operate as a fraud or deceit on a Client;
o Functions as a manipulative practice with respect to a Client; and
o Functions as a manipulative practice with respect to securities.
C. STATUS AS A FIDUCIARY
The Adviser at all times shall conduct its business consistent with its status as a fiduciary to its Clients. This means the Adviser has affirmative duties of care, loyalty, honesty and good faith in connection with all of its activities for its Clients and must act in the best interests of its Clients. This includes putting Client interests first at all times.
D. CONFIDENTIALITY OF INFORMATION
The Adviser and all Employees have a duty to ensure the confidentiality of Client information, including Client holdings, transactions and securities recommendations. To ensure this duty is fulfilled, the Adviser has adopted this Code of Ethics and the Policy regarding Protection of Non-Public Information. All Employees are required to adhere to the provisions of these policies. All Employees are also prohibited from disclosing confidential information concerning the Adviser, including any trade secrets or other proprietary information.
3. SPECIFIC POLICIES APPLICABLE TO ALL EMPLOYEES
Employees must avoid conflicts of interest in their personal and business activities. A conflict of interest exists when an employee has a personal interest in a matter that may be inconsistent or incompatible with the employee's obligation to exercise his or her best judgment in pursuit of the interest of the Adviser and its Clients or where an outside activity encroaches on the time an employee should devote to the affairs of the Adviser.
When presented with a situation involving a potential conflict of interest, an employee should ask: Would public disclosure of the matter embarrass the Adviser or lead an outside observer to believe that a conflict exists? It is important to recognize that the appearance of a conflict of interest can be just as damaging to the reputation of the Adviser and the employee as the existence of an actual conflict.
The sections that follow provide rules and guidance for specific situations in which the possibility of a conflict of interest is present. Certain activities must be strictly avoided and others require approval before they can be undertaken.
A. Employees shall not accept any gift, entertainment or other thing of more than nominal value (defined as less than $200) from any broker-dealer, underwriter or placement agent that does business with or on behalf of any Client. Employees shall not accept any gift, entertainment or other thing of more than nominal value from any vendor or service provider to the Adviser. Any gifts where a possible inference can be drawn that the gift could influence the Employee in the performance of his or her duties for the Adviser must not be accepted.
B. Neither the Adviser nor Employees shall provide extravagant or excessive gifts, entertainment or other benefits to any Client, prospective client or any entity that does business with or on behalf of the Adviser.
C. Employees are generally prohibited from serving on the boards of directors of publicly traded companies. An exception may be made only with the approval of the Chief Compliance Officer and only after such person has determined that such service is in the best interests of the Adviser and its Clients. If an Employee is permitted to serve as a director of a publicly-traded company pursuant to this section, the Adviser shall not transact in the securities of such publicly-traded company.
D. Employees may not have other employment without prior written approval of the Chief Executive Officer. Employment that competes with or conflicts with employment by the Adviser is strictly prohibited. This includes any position that:
1. Competes with a service or business provided by the Adviser;
2. Requires activities or services to be performed during the regular Adviser working hours (e.g. receiving phone calls, preparing reports); or,
3. Includes providing services to the general public where the knowledge of the individual's employment with the Adviser may influence customers.
Participation in an outside business involves responsibilities and risks which an Employee needs to be aware of and needs to be willing to assume. Approval shall not imply that an Employee is serving at the direction or request of the Adviser.
E. The Adviser recognizes that certain outside activities of Employees are permissible and will not interfere with the Employee's duties to the Adviser and to Clients. To ensure that such outside activities do not conflict with any duties to the Adviser or to Clients or otherwise harm the Adviser's reputation, the Adviser requires that all Employees disclose such outside activities at the inception of the activity and annually thereafter. "Outside activities" include directorships of private companies, public/charitable positions (including holding a public office) and fiduciary appointments (such as executorship, trusteeship or power of attorney) other than with respect to family members. Questions regarding whether any outside activity conflicts with duties or harms the Adviser's reputation must be promptly directed to and resolved by the Chief Compliance Officer.
F. Any Employee who discovers a violation or apparent violation of the Code must promptly report the matter to the Chief Compliance Officer. Any Employee who discovers that he or she has violated or apparently violated the Code must promptly report the matter to the Chief Compliance Officer. All such reports will be treated confidentially to the extent permitted by law and will be investigated promptly and appropriately. The Adviser prohibits retaliation against individuals who report violation or apparent violations of the Code in good faith and will treat any such retaliation as a further violation of the Code.
G. The Adviser will provide this Code to all Employees upon adoption and to all new Employees upon employment. All Employees must certify that they have received, read and understand this Code, recognize that they are subject to it and will comply with it. The form of certificate is attached to the Code.
H. The Adviser will provide any amendments to the Code promptly to all Employees. Similar certifications will be required for all such amendments. The form of certificate is attached to the Code.
I. On an annual basis, all Employees must certify that they have received, read and understand this Code, recognize that they are subject to it, have complied with it during the period, and will comply with it going forward.
4. SPECIFIC POLICIES APPLICABLE TO ALL ACCESS PERSONS
A. No Access Person shall divulge to any person any Client holdings, any recommendation made to a Client, or any contemplated or completed securities transactions or trading strategies of a Client, except as required in the performance of his or her duties and only to the extent such other person has a need to know such information to perform his or her duties.
B. An Access Person shall use his or her best judgment in giving investment advice to Clients and shall not take into consideration his or her personal financial situation or interests in doing so.
C. When engaging in a Personal Securities Transaction, an Access Person shall place the interests of Clients first and avoid any actual or potential conflict of interest or abuse of his or her position. This policy is designed to recognize the fundamental principle that Access Persons owe their chief duty and loyalty to the Adviser and the Adviser's Clients.
(1) It is expected that an Access Person who becomes aware of an investment opportunity that may be suitable for a Client account will present it for consideration in writing first to appropriate personnel of the Adviser before taking advantage of the opportunity himself or herself.
(2) No Access Person shall, without prior written approval, sell out of the Access Person's personal account Securities also held by a Client account for which the Access Person has portfolio management or research responsibility.
(3) No Access Person shall short a Security in the Access Person's personal account if the Security is a long position in a Client account for which the Access Person has portfolio management or research responsibility.
(4) The Adviser strongly recommends that Access Persons effect no purchases of any securities held in Client accounts or reasonably likely to be purchased for Client accounts in the near term. Specific restrictions regarding personal trading are addressed in Sections 4E.
D. Before effecting a Personal Securities Transaction, an Access Person shall notify the Chief Compliance Officer in writing of the proposed transaction, including the amount of the transaction and the Security involved. The Chief Compliance Officer after investigation shall determine whether such transaction is consistent with the Code and shall promptly communicate such determination to the Access Person making the request. Transaction clearances must be obtained no more than two days prior to making a purchase or sale of a Security. If the trade is not made within two days of the date of clearance,
a new clearance must be obtained. Absent extraordinary circumstances, no Access Person shall be deemed to have violated the Code for effecting a Personal Securities Transaction if such Access Person has been advised by the Chief Compliance Officer that the transaction would be consistent with the Code. The form "Request by Access Person to Engage in Personal Securities Transaction" is attached to this Code.
E. The timing of Personal Securities Transactions shall be limited as follows:
(1) No Access Person shall engage in a Personal Securities Transaction on a day during which the Adviser has a pending "buy" or "sell" order for the same Security until that order is executed or withdrawn.
(2) No Access Person shall PURCHASE a Security for the Access Person's personal account if the Access Person is responsible for PURCHASING or recommending the same Security for Client accounts during the following seven calendar days. This also applies to Access Persons who have actual knowledge of any such intent to purchase or recommend the Security for Client accounts.
(3) No Access Person shall SELL a Security from the Access Person's personal account until seven calendar days have elapsed since the most recent PURCHASE of that Security by Client accounts.
(4) No Access Person shall PURCHASE a Security for the Access Person's personal account until seven calendar days have elapsed since the most recent SALE of that Security from Client accounts.
(5) Access Persons are not restricted from SELLING a Security in the Access Person's personal account after the Client account has COMPLETELY SOLD that Security. In the case of a partial sale in a Client account, the Access Person must wait until seven calendar days have elapsed before selling that Security in their personal account.
(6) Access Persons shall not profit from the purchase and sale, or sale and purchase, of the same (or equivalent) Securities within sixty (60) calendar days. The Chief Compliance Officer may grant an exception to this provision in cases of personal hardship or other appropriate circumstances.
F. When an Access Person engages in a Personal Securities Transaction the Access Person shall direct that the executing broker send a duplicate copy of the confirmation to the Chief Compliance Officer at the same time as it is provided to such Access Person. Such Access Person shall also direct such broker to provide duplicate copies of any periodic statements on any account maintained by such person that has records of such Personal Securities Transactions to the Chief Compliance Officer.
G. Access Persons shall not engage in excessive trading for their personal securities accounts. Excessive trading personal trading by an Access Person diverts such Access Person's attention from the responsibility of providing services to Client accounts and increases the possibilities for transactions that are in actual or apparent conflict with Client transactions. This Code of Ethics does not define "excessive trading", but rather leaves such determinations to the judgement of the Chief Compliance Officer based
on the circumstances. Access Persons should be aware, however, that if their trades exceed fifteen (15) per quarter, the trading activity will be specifically reviewed for excessiveness.
H. No Access Person shall directly or indirectly engage, or directly or indirectly enable, assist or permit any other person to engage, in Late Trading, Excessive or Abusive Trading or Market Timing with respect to shares of any registered open-end investment company (mutual fund), whether advised or sub-advised by the Adviser or otherwise.
I. Access Persons shall not engage in any Personal Securities Transactions that involve the purchase of Securities in an initial public offering. Investments in privately placed Securities shall be limited as follows:
(1) Access Persons shall not engage in any Personal Securities Transaction that involves a private placement of Securities without the express prior approval of the Chief Compliance Officer. In reviewing any such approval request, the Chief Compliance Officer shall consider, among other factors, whether the investment opportunity should be reserved for Clients, and whether the opportunity is being offered to the requesting individual by virtue of his or her position with the Adviser.
(2) Access Persons who have a Beneficial Ownership interest in any Securities obtained through a private placement shall disclose such interest to the Chief Compliance Officer if and when they become aware of or involved in any subsequent consideration of an investment in the same issuer for a Client account. In such case, the decision to invest in the Securities of such an issuer for a Client account shall be subject to the review and approval of the Chief Investment Officer and reported to the Chief Compliance Officer.
J. The provisions of sections 4.D., 4.E. and 4.F. above shall not apply to purchases or sales of securities which:
(1) Are effected in an account or in a manner over which the Access Person has no direct or indirect influence or control (e.g. transaction in an account managed on a fully discretionary basis by an investment adviser or trustee);
(2) Are effected pursuant to an automatic investment plan (a systematic dividend reinvestment, cash purchase, or withdrawal plan);
(3) Are effected in connection with the exercise or sale of rights to purchase additional securities from an issuer and granted by such issuer pro rata to all holders of a class of its securities;
(4) Are issued by the government of the United States or, with respect to short-term debt securities, its agencies or instrumentalities, or are bankers' acceptances, bank certificates of deposits, commercial paper, or shares of registered open-end investment companies (mutual funds) for which the Adviser does not provide advisory or sub-advisory services;
(5) Are effected in connection with the call by the issuer of a preferred stock or bond.
K. Access Persons must report all Personal Securities Transactions in shares of registered open-end investment companies (mutual funds) for which the Adviser provides advisory or sub-advisory services.
5. ADDITIONAL POLICIES, PROCEDURES AND RESTRICTIONS TO DETECT AND PREVENT INSIDER TRADING
A. Employees must ensure that Material Non-Public Information remains secure, and must not divulge to any person any Material Non-Public Information, except in the performance of their duties.
B. No Employee who becomes an Insider shall engage in Insider Trading on behalf of himself or herself or others. If an Insider learns of any Material Non-Public Information, he or she shall promptly disclose it to the Chief Compliance Officer. The Chief Compliance Officer shall promptly notify all Employees of the Adviser to abstain (and to use their best efforts to cause their Immediate Family Members to abstain) from all trading in the applicable security. This prohibition on trading shall apply until the Chief Compliance Officer notifies the Employees that the Material Non-Public Information has become public or otherwise has ceased to be Material Non-Public Information. The Insider shall not disclose or divulge such Material Non-Public Information, or the fact that Material Non-Public Information exists, to any other person.
C. Questions regarding whether any information is Material Non-Public Information must be promptly directed to the Chief Compliance Officer.
6. ACCESS PERSON REPORTING REQUIREMENTS
A. INITIAL HOLDINGS REPORT; ANNUAL HOLDINGS REPORT
Each Access Person must provide an initial holdings report to the Chief Compliance Officer within 10 days of becoming an Access Person and thereafter on an annual basis. The form of the report is attached to this Code. Access Persons need not report holdings that are not "Securities" as defined in Appendix A of this Code.
B. QUARTERLY PERSONAL TRADING REPORT
No later than 30 days after the end of each calendar quarter, each Access Person must file a personal trading report with the Chief Compliance Officer. The form of the report is attached to this Code. The report must provide details of all transactions during the quarter in any Security in which the Access Person has, or by reason of any transaction acquired, any Beneficial Ownership. The report must also provide details concerning all transactions during the quarter in any mutual funds held by the Access Person for which the Adviser provides advisory or sub-advisory services. If no reportable transactions occurred during the quarter, the report must say so. The Chief Compliance Officer must review, initial and date the personal trading report of each Access Person before filing it.
An Access Person is not required to submit a report with respect to:
(1) holdings that are not "Securities" as defined in this Code;
(2) securities held in accounts over which the Access Person had no direct or indirect influence or control; nor
(3) transactions effected pursuant to an automatic investment plan.
C. CONFIDENTIAL TREATMENT
The Adviser shall maintain all holdings and transaction reports in confidence, except to the extent necessary to implement and enforce the provisions of the Code or to comply with valid requests from regulatory authorities.
7. ENFORCEMENT AND SANCTIONS
A. PROCESS AND RESPONSIBILITY
The Chief Compliance Officer has the primary responsibility for determining whether violations of the Code have occurred and if so, for recommending any sanctions with respect to violations. The ultimate responsibility for determining sanctions shall rest with the Adviser's Board of Directors. If the alleged violator is the Chief Compliance Officer, the matter must be reported to the Chief Executive Officer, who shall have responsibility for enforcing the Code and determining any sanctions.
The Adviser shall maintain a written record of all such violations and any action taken as a result.
A violator of the Code may be terminated, suspended, reduced in salary
or position or sanctioned in any other manner in the discretion of the person or
persons enforcing the Code. In determining appropriate sanctions, the person or
persons enforcing the Code may consider any factors they deem relevant,
including, without limitation: (i) the degree of willfulness of the violation;
(ii) the severity of the violation; (iii) the extent, if any, to which the
violator profited or benefited from the violation; (iv) the adverse effect, if
any, of the violation on any Clients; (v) the market value and liquidity of the
class of securities involved in the violation; (vi) the prior violations, if
any, of this Code by the violator; (vii) the circumstances of discovery of the
violation; and (viii) if the violation involved the purchase or sale of
securities in violation of the Code, (a) the price at which the purchase or sale
was made, and (b) the violator's justification of making the purchase or sale,
including the violator's tax situation, the extent of the appreciation or
depreciation of the securities involved, and the period the securities have been
held.
In addition to sanctions, violations may result in referral to civil or criminal authorities where appropriate.
B. OPPORTUNITY TO RESPOND
A person charged with a violation of the Code shall have the opportunity to appear before the person or persons enforcing the Code and to respond to all charges, orally or in writing.
8. RESPONSIBILITIES OF CHIEF COMPLIANCE OFFICER RELATED TO PERSONAL TRADING
A. INITIAL HOLDINGS REPORT; ANNUAL HOLDINGS REPORT
The Chief Compliance Officer shall review and maintain all initial and annual holdings reports. Completion of the review shall be indicated on the report itself and shall involve such considerations as the Chief Compliance Officer deems necessary to enforce the provisions and intent of this Code.
B. QUARTERLY PERSONAL TRADING REPORTS
The Chief Compliance Officer shall review and maintain all quarterly transaction reports. Completion of the review shall be indicated on the report itself and shall involve such considerations as the Chief Compliance Officer deems necessary to enforce the provisions and intent of this Code.
C. PRE-CLEARANCE
The Chief Compliance Officer shall review and approve or disapprove all Access Person requests to pre-clear securities transactions. Such review shall involve such considerations as the Chief Compliance Officer deems necessary to enforce the provisions and intent of this Code. With respect to private placements, the Chief Compliance Officer shall specifically document the reasons for approving or disapproving the request.
D. VIOLATIONS OR SUSPECTED VIOLATIONS
If the Chief Compliance Officer becomes aware of a violation or suspected violation of the Code as a result of such review, the Chief Compliance Officer shall take the necessary steps to enforce the provisions of the Code, including consulting with outside counsel.
E. REVIEW OF CHIEF COMPLIANCE OFFICER REPORTS AND REQUESTS
To the extent the Chief Compliance Officer submits holdings and transactions reports, and pre-clearance requests pursuant to this Code of Ethics, such reports and requests will be reviewed by the Chief Executive Officer who shall act as the "Chief Compliance Officer" under this Code with respect to all such reports and requests.
F. DELEGATION
The Chief Compliance Officer may delegate certain administrative responsibilities under this Code of Ethics. The Chief Compliance Officer shall retain ultimate responsibility, however, for the administration of the Code of Ethics.
9. OTHER RESPONSIBILITIES OF THE CHIEF COMPLIANCE OFFICER
A. ADMINISTRATIVE
o Ensure all Employees receive a copy of the Code of Ethics and sign the certification on an initial and annual basis, as well as for any amendments to the Code of Ethics.
o Determine whether an Employee has Material Non-Public Information, with such assistance as may be required. Further, upon determining that an Employee possesses Material Non-Public Information, enforce the provisions of this Code.
o Receive reports of violations and suspected violations of the Code, investigate them promptly, with such assistance as may be required, and determine whether a violation has occurred.
o Review the operation of the Code on at least an annual basis to determine its adequacy and the effectiveness of its implementation.
o Update the Code of Ethics as necessary or appropriate in the event of compliance issues, changes in the Adviser's business activities or regulatory developments.
B. RECORDS REQUIRED TO BE KEPT FOR SIX YEARS (MINIMUM TWO YEARS ON-SITE)
o All initial and annual holdings reports
o All quarterly personal trading reports
o A copy of the Code of Ethics currently in effect and any that have been in effect within the past six years
o A record of any violation of the Code of Ethics and of any action taken as a result of the violation
o All written acknowledgements of the Code of Ethics for each person who is currently, or within the past six years was, an employee or supervised person of the Adviser
o A list of persons who are currently, or within the past six years were, Access Persons o All records documenting the annual review of the Code of Ethics o All records of pre-clearance requests and the responses thereto o All records of any approval of investments in private placements
C. ANNUAL REPORT TO THE BOARD OF DIRECTORS
Each year the Compliance Officer shall prepare an annual report to the Adviser's Board of Directors that:
(1) Summarizes existing procedures concerning personal investing and any changes in the procedures made during the past year;
(2) Identifies any material Code or procedure violations, including any violations requiring significant remedial action during the past year; and
(3) Identifies any recommended changes in existing restrictions or procedures based upon the Adviser's experience under this Code of Ethics, evolving industry practices, or developments in applicable laws or regulations.
APPENDIX A
DEFINITIONS
"Access Person" means any Employee who
o has access to nonpublic information regarding any Clients' purchase or sale of securities or nonpublic information regarding the portfolio holdings of any fund the Adviser or its affiliates manage, or
o recommends securities for Client accounts, or
o has access to securities recommendations for Client accounts that are nonpublic.
Any Employee who is also a director or officer of the Adviser is also presumed to be an Access Person.
"Beneficial Ownership" of a security means a direct or indirect
"financial interest" in the security. This means the opportunity, directly or
indirectly, to profit or share in any profit derived from a transaction in the
security. In addition to obvious instances of Beneficial Ownership, Beneficial
Ownership by a person includes, without limitation, the following examples:
securities Beneficially Owned by Immediate Family Members of the person (a
presumption rebuttable by evidence to the contrary); securities held by a trust
in which the person is a beneficiary; securities held by a partnership in which
the person is a general partner or, in some circumstances, owned by a
corporation in which the person is a shareholder; securities held in a portfolio
from which the person is entitled to a performance-related fee (subject to
limited exceptions); and securities held by another person or entity pursuant to
any agreement, understanding, relationship or other arrangement giving the
person any direct or indirect pecuniary interest.
"Client" means any person or entity for whom or which the Adviser serves as an "investment adviser" within the meaning of Section 202(a)(11) of the Investment Advisers Act of 1940, as amended, and the rules and regulations thereunder.
"Chief Compliance Officer" means the person designated by the Adviser to serve as Chief Compliance Officer pursuant to Rule 206(4)-7.
"Employees" include all directors, officers and employees of the Adviser and any other person who provides advice on behalf of the Adviser and is subject to the Adviser's supervision and control. It is intended that this definition reflect the concept of "Supervised Persons" set forth under the Investment Advisers Act of 1940.
"Excessive or Abusive Trading" means effecting purchases or sales of shares in a registered open-end investment company (mutual fund) with a frequency, or otherwise in a manner (including seeking to profit from differences in the timing of valuation of foreign securities held in the fund's investment portfolio), that is likely to be detrimental to the interests of other shareholders in the fund, regardless of whether such purchases and sales are effected for purposes of market timing or otherwise.
"Immediate Family Member" of a person includes the person's spouse, children under the age of 25 years residing with the person, and any trust or estate in which the person or any other Immediate Family Member has a Beneficial Ownership interest.
"Insider" means the Adviser, an Employee of the Adviser and any Immediate Family Member of the Employee. In addition, a person is an Insider if the person enters into a special confidential relationship in the conduct of the affairs of the Adviser and as a result is given access to Material Non-Public Information. Examples include, without limitation, accountants, consultants, advisers, attorneys, bank lending officers and the employees of such organizations.
"Insider Trading" means the use of Material Non-Public Information to trade in a security (whether or not one is an Insider) or the communication of Material Non-Public Information to others. While the meaning of the term is not static, Insider Trading generally includes: (a) trading in a security by an Insider, while in possession of Material Non-Public Information; (b) trading in a security by a person who is not an Insider, while in possession of Material Non-Public Information, where such information either was disclosed to the person in violation of an Insider's duty to keep it confidential or was misappropriated; and (c) communicating Material Non-Public Information to any person, who then trades in a security while in possession of the information.
"Late Trading" means effecting purchases or sales of shares in a registered open-end investment company (mutual fund) after its net asset value per share has been determined (typically following the 4:00 p.m. close of normal trading on the New York Stock Exchange) at such previously-determined net asset value per share.
"Material Non-Public Information" For purposes of this policy, information is "material" if it has "market significance" in the sense that such information, if disclosed, would be likely to affect the market price of any outstanding securities or would be likely to be considered important by reasonable investors in determining whether to purchase or sell such securities. Information should be deemed "non-public" when it is not yet in general circulation or when the possessor knows or should know that the information is only available to "insiders". To show that information is public, one should be able to point to some fact demonstrating that the information is generally available, e.g., by disclosure in a press release or public filing.
Although issuers are generally prohibited from selectively disclosing material non-public information, disclosure of such information may occur in the context a of a formal or informal meeting with a company representative. Material non-public information may be in the possession of a service provider to the issuer, such as a lawyer, accountant, investment banker or consultant. Such information may also be in the possession of friends or relatives of an issuer's employees or service providers. A person's relationship with the company is not determinative of whether that person possesses material nonpublic information. Rather, it is the nature of the information itself that must be examined. If the information possessed by an individual satisfies the definition of material non-public information set forth above, that information must be kept confidential and may not be the basis for any securities or other transactions related to the information.
Although it is not possible to identify in a policy all information that could be deemed "material", some examples relating to issuers would include earnings, dividend actions, mergers and acquisitions, major discoveries, major new products, significant achievements or failures in research or testing
activities, major personnel changes, labor negotiations, price changes, major marketing changes, government investigations or significant litigation.
For purposes of this policy, the prohibition on transactions based on the possession of material non-public information includes transactions in all securities and other instruments while in the possession of material non-public information relevant to the transaction. This includes transactions in equity securities and debt securities, including municipal securities and government-issued securities.
"Market Timing" means effecting the purchase and sale, or the sale and purchase, of the same (or equivalent) shares in a registered open-end investment company (mutual fund) within a thirty (30) day period with a view to profiting from short-term movements in the securities markets, regardless of whether such purchases and sales violate the market timing policies of the fund.
"Personal Securities Transaction" means a transaction in a security in which a person has or thereby acquires Beneficial Ownership. A person is considered to be "engaging in" or "effecting" a Personal Securities Transaction if the person, directly or indirectly, directs, participates in or receives advance notification or advice regarding such transaction.
"Security" means (except as set forth below) any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guaranty of, or warrant or right to subscribe to or purchase any of the foregoing.
"Security" does not include:
o Direct obligations of the Government of the United States;
o Bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements;
o Shares issued by money market funds;
o Shares issued by open-end mutual funds not advised or
sub-advised by the Adviser; and
o Shares issued by unit investment trusts that are invested
exclusively in one or more open-end funds.
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WINSLOW CAPITAL MANAGEMENT, INC.
HOLDINGS REPORT OF ACCESS PERSONS
Please indicate below whether this is an Initial Holdings Report or an Annual Holdings Report.
____ INITIAL ____ ANNUAL
You must submit this Report to the Chief Compliance Officer not later than 10 days after you become an Access Person and thereafter no later than January 31st of each year. You should carefully review the Code of Ethics before completing the Report. Capitalized terms in this Report have the same meanings as defined in the Code of Ethics. Please direct questions regarding the completion of this Report to the Chief Compliance Officer.
o You need not include securities holdings that are not "Securities" as defined in the Code.
o If you have no reportable securities holdings, put an "X" in the following box [ ], and skip to the BROKERAGE ACCOUNTS section.
o Set forth the following information with respect to reportable securities holdings in which you have any Beneficial Ownership:**
Number of
Shares or
Title and Exchange Ticker/ Principal Type of Broker, Dealer
CUSIP Amount Security or Bank Involved
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(If you need additional space, please attach additional pages.)
BROKERAGE ACCOUNTS. The names of any broker, dealer or bank with whom I maintain an account in which my securities are held for my direct or indirect benefit are as follows:
The answers to the foregoing (including any attached statements) are true and correct to the best of my information and belief and the information supplied is current as of a date no more than 45 days before the date of this submission.
Name of Access Person
Dated: ,
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Signature of Access Person
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WINSLOW CAPITAL MANAGEMENT, INC.
HOLDINGS REPORT OF ACCESS PERSONS
(Continued)
** Alternatively, you may attach broker-dealer or other statements reflecting these holdings as long as the statements contain all the information required by this Report. If you attach statements, write "See attached statements" on the face of the Report.
WINSLOW CAPITAL MANAGEMENT, INC.
QUARTERLY TRANSACTION REPORT OF ACCESS PERSONS
(FOR THE QUARTER ENDED _________________ , _______)
You must submit this Report to the Chief Compliance Officer not later than 30 days after the end of each calendar quarter. You should carefully review the Code of Ethics before completing the Report. Capitalized terms in this Report have the same meanings as defined in the Code of Ethics. Please direct questions regarding the completion of this Report to the Chief Compliance Officer.
o You need not include transactions of the type described in Section 6.B of the Code or involving securities other than "Securities" as defined in this Code.
o If you had no reportable transactions during the quarter, put an "X" in the following box [ ], and skip to the NEW BROKERAGE ACCOUNTS section.
o If you wish to make a statement that this Report should not be construed as an admission that you have any Beneficial Ownership in a security listed in the Report, please put an asterisk (*) next to the reported transaction(s) in that Security.
o Set forth the following information with respect to reportable transactions during the quarter in any security in which you have, or by reason of such transaction acquired, any Beneficial Ownership in the security:**
Date of Transaction/ Number of Nature of
Name of Issuer/ Shares or Transaction
Title or Description Principal (purchase, Unit Total Broker, Dealer
of Security Amount sale or other) Price Price or Bank Involved
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(If you need additional space, please attach additional pages.)
NEW BROKERAGE ACCOUNTS. During the quarter referred to above, I established the following accounts in which securities were held during the quarter for my direct or indirect benefit:
The answers to the foregoing (including any attached statements) are true and correct to the best of my information and belief.
Name of Access Person
Date: ,
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Signature of Access Person
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WINSLOW CAPITAL MANAGEMENT, INC.
QUARTERLY TRANSACTION REPORT OF ACCESS PERSONS
(Continued)
** Alternatively, you may attach broker-dealer or other statements reflecting those transactions as long as the statements contain all the information required by this Report. If you attach statements, write "See attached statements" on the face of the Report.
Chief Compliance Officer Initials: Date:
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Chief Executive Officer Initials: Date:
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WINSLOW CAPITAL MANAGEMENT, INC.
REQUEST BY ACCESS PERSON
TO ENGAGE IN PERSONAL SECURITIES TRANSACTION
I hereby request permission to effect a Personal Securities Transaction, as indicated below, for my own account or other account in which I have a Beneficial Ownership interest. (If necessary, use approximate dates and amounts of proposed Personal Securities Transaction.)
Record Owner of Account:
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Relationship to Access Person:
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Proposed Date of Transaction: , 20
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PROPOSED TRANSACTION
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Type of Transaction: BUY or SELL **
Is this an Initial Public Offering: YES NO
I am familiar with and agree to abide by the requirements set forth in the Code of Ethics and particularly with the following (I understand and agree that capitalized terms used herein without definition shall have the same meaning herein as is assigned to them in the Code of Ethics):
1. In the case of a purchase of Securities, I agree that I will not sell the same (or equivalent) Securities for a minimum of sixty days from the date of the purchase transaction.
2. I am aware that except in limited circumstances, it shall be a violation of the Code of Ethics if the Adviser purchases or sells the same security in Client accounts within seven (7) days preceding or subsequent to my transaction.
WINSLOW CAPITAL MANAGEMENT, INC.
REQUEST BY ACCESS PERSON
TO ENGAGE IN PERSONAL SECURITIES TRANSACTION
CONTINUED
Dated: , 20 .
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Signature of Access Person
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[ ] PERMISSION GRANTED [ ] PERMISSION DENIED
WINSLOW CAPITAL MANAGEMENT, INC.
ACKNOWLEDGMENT OF CODE OF ETHICS
Please indicate below whether this is an initial acknowledgement, an annual acknowledgement or an acknowledgement of an amended Code of Ethics.
____ Initial ____ Annual ____ Amended
YOU MUST REVIEW THE ADVISER'S CODE OF ETHICS BEFORE COMPLETING THIS ACKNOWLEDGMENT. TERMS DEFINED IN THE CODE OF ETHICS HAVE THE SAME MEANINGS IN THIS ACKNOWLEDGMENT. YOU MUST GIVE THIS ACKNOWLEDGMENT DIRECTLY TO THE CHIEF COMPLIANCE OFFICER.
For the initial and annual acknowledgements, please complete the following as of the date below:
1. Do you participate in outside activities (as discussed in the Code of the
Ethics)?
YES NO
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If YES, please describe:
Name of Organization Position
2. Do you or any of your immediate family members (including spouses, parents, children, or siblings) serve as a Director, Officer, Trustee or Audit, Compensation or Nominating Committee Member for any publicly traded company or business entity?
If YES, please describe:
3. Do you or any of your immediate family members hold Advisory Committee positions of any business entity where the members of the committee have the ability or authority to affect or influence the selection of investment managers or the selection of the investment of the entity's operating, endowment, pension or other funds?
If YES, please describe:
4. Do you or any of your immediate family members hold positions on the Board of Directors, Trustees or any Advisory Committee of a Client of Winslow Capital Management, Inc. or any potential client who is actively considering engaging Winslow Capital Management, Inc.'s investment advisory services?
If YES, please describe:
5. During the twelve (12) month period ended December ______ , did you receive any gifts (valued at $200 or more) from, or make any gifts to, any one doing business with Winslow Capital Management, Inc., other than gifts of nominal value?
If YES, please describe:
I, THE UNDERSIGNED, HEREBY REPRESENT AND CERTIFY THAT I HAVE RECEIVED, READ, UNDERSTOOD AND WILL COMPLY WITH THE CODE OF ETHICS AND UNDERSTAND THAT I AM SUBJECT TO THE CODE.
IF THIS IS AN ANNUAL CERTIFICATION, I FURTHER REPRESENT AND CERTIFY
THAT I HAVE COMPLIED WITH THE CODE DURING THE PRECEDING YEAR AND THAT
[ ] During the year ended December 31, _______, I was not in possession of information which appeared to be material non-public information.
OR
[ ] During the year ended December 31, _______, I was in possession of information which appeared to be material non-public information and reported all such information as required by the Code of Ethics.
Please direct questions regarding the completion of this Acknowledgment to the Chief Compliance Officer of Winslow Capital Management, Inc.
Name of Employee
Dated: ,
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Signature of Employee
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