An intelligent way to save for collegeSM

PROGRAM GUIDE

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Plan

Plan...To pay for college without financial strain . . . . . . . 2

CollegeSenseSM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Enjoy significant tax and estate-planning advantages . . . . . . 5

Your education savings options . . . . . . . . . . . . . . . . . . . . . . 6

Invest

Invest...With the help of experienced investment managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

The Age-Based Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

The Custom Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Achieve

Achieve...A college education without financial hardship . . 14

“I was wondering…”Answers to your questions . . . . . . . . 15

CollegeSenseSM

Program Guide

CollegeSense is an IRC Section 529 Trust available to all U.S. residents and is sponsored by The Education Trust Board of New Mexico.CollegeSense is distributed by NYLIFE Distributors Inc. Schoolhouse Capital, LLC, a wholly owned subsidiary of State Street Corporation, is theprogram manager for CollegeSense. Please read the Disclosure Statement (and the prospectuses of the mutual funds in which CollegeSense invests)available at www.collegesense.com or by calling us toll free at 1-866-529-SENSE (1-866-529-7367), prior to investing.

Plan

Invest

Achieve

Table of Contents

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One of life’s biggest financial challenges is

saving for college. That’s no surprise, considering that

for a baby born today, the average annual total cost for

four years will be approximately $110,000 at a public

university and more than $240,000 at a private institution.1

1 “Annual Survey of Colleges,” The College Board, 2000–2001.2 “Trends in College Pricing,” The College Board, 2000.

■ A convenient, flexible, and federaltax-free way to save for future collegecosts.

■ The ability to cover qualified highereducation expenses at any accreditedpost-secondary school in the U.S.

■ The freedom to change beneficiaries.

■ Powerful income, estate, and gift taxadvantages.

■ Flexible contribution choices.

■ Diversified investment options.

■ A multi-manager investmentapproach.

■ High contribution limit—over $250,000, including earnings.

Plan. Invest. Achieve.A College Education Without a Lifetime of Debt

And those figures are for only one child.

Sure, financial aid can help offset a portion of these expenses—for families that qualify. But almost 60% of financial aid is in the formof loans. Last year, families assumed over$39 billion in federal- and state-sponsoredstudent loan debt.2 So if you don’t want yourproud graduate to leave school saddled withdebt, it’s more important than ever to establisha college savings strategy. And to do it today.

The bottom line? In order to help your childachieve the goal of attaining a college educationwithout incurring a lifetime of debt, you need aplan…an investment plan. You need theCollegeSense 529 Higher Education Savings Plan.

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www.collegesense.comwww.collegesense.com

529 plans—A combination of benefitsyou won’t find in any other education savings vehicle

Named after a section of the Internal RevenueCode (just like the familiar 401(k) retirementplan), the Qualified Tuition Program (QTP), or529 plan, is a savings program designed to helpfamilies meet higher education expenses. 529plans offer unique benefits, including:

■ Significant tax advantages—Beginning in 2002, all withdrawals from 529 collegesavings plans are federal tax-free,3 if themoney is spent on qualified educationalcosts.4 Previously, investment earningsaccumulated on a tax-deferred basis, but a portion of any distribution attributable to such earnings was taxable, even if spenton qualifiededucation costs.

■ Control over assets—With a 529 plan, theaccount owner can ensure that assets will beused to pay for college. This contrasts withthe popular Uniform Gifts to Minors Act or Uniform Transfers to Minors Act(UGMA/UTMA accounts), where the account owner loses control over the moneywhen the child reaches the age of majority at age 18 in most states, 21 in others.

■ Broad availability—529 college savings programs are available to any U.S. resident.And anyone—including parents, grand-parents, other relatives, and non-relatives—can establish accounts for the same beneficiary provided the total amount in all accounts doesnot exceed CollegeSense’s contribution limit—currently over $250,000, including earnings,per beneficiary.

■ No income limits—Unlike some other college-savings instruments, such asCoverdell Education Savings Accounts

Plan Plan…To Pay for CollegeWithout Financial Strain

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(formerly Education IRAs), there are noincome limitations placed on any individualswho wish to establish a 529 for a beneficiary,or contribute to a plan that is already in place.

■ Favorable estate tax treatment—Contributions are generally considered completed gifts and are excluded from your estate.5

■ Accelerated gift tax treatment—A special taxprovision known as five-year averaging letsyou give large gifts (currently up to $50,000per individual, $100,000 per married couplefiling income taxes jointly—a lump sum equalto five times the annual gift tax exclusion) freeof gift taxes with certain restrictions. Theselimits may change annually.

■ Flexible beneficiary designation—There isno age restriction or personal relationshiprequirement for the initial beneficiary. Inaddition, 529 plan assets can easily be trans-ferred without penalty between beneficiariesas long as the new beneficiary is a “familymember” of the original beneficiary—whichis broadly defined to include a sibling, cousin,niece or nephew, whether a child or adult—even yourself. You can even set up your ownplan now and later transfer the assets to yourchild. There may be gift or generation-skipping tax consequences depending on who the new beneficiary is. Consult your taxadvisor for more information.

■ Broad use of 529 assets—Account assets can be used to pay qualified higher education expenses such as tuition, fees,room and board, books and supplies, andother expenses. Funds can be used at anyaccredited post-secondary public or private

3 Applies to qualified withdrawals after 12/31/01. State tax treatment varies. The tax bill exempting earnings on qualified withdrawals from federalincome tax expires on 12/31/10, requiring the government to take some further action to secure these provisions prior to this date in order forthem to remain in effect following 12/31/10.

4 For withdrawals not used for qualified higher education expenses, earnings are subject to income taxes at the distributee’s rate plus a 10% federaltax penalty.

5 If the account owner dies within five years of the funding date, the account owner’s estate will receive only part of the deduction.

Plan

It’s a fact: College gradsearn more money

Over a lifetime,

the gap in earnings

potential between a

high school diploma

and a bachelor’s

degree or higher

exceeds $1,000,000.

—The College Board, 2000

school in the U.S. This includes accredited two- and four-year undergraduate programs,and technical schools, in addition to graduateand professional schools.

■ Penalty-free withdrawals—Funds can bewithdrawn without penalty if the beneficiaryreceives a scholarship (withdrawals can bemade up to the scholarship amount), or inthe event of the death or disability of thebeneficiary.

■ Non-qualified withdrawals—Money can be withdrawn from a 529 account at anytime. However, if it is not used for qualifiededucation expenses, your investment earnings are subject to income taxes at theaccount owner’s tax rate, plus a 10% federaltax penalty. State income tax treatment on 529 plan non-qualified withdrawals varies by state.

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per account, but you may open as manyaccounts as you want, and the maximumcontribution applies to each beneficiary.CollegeSense has one of the higher contribution limits available today.

■ Family-friendly contribution options—Contribute as little as $25 a month or $75 aquarter through automatic contributions, oropen an account with just a $250 minimuminitial investment. Additional investmentscan be made for $25 or more. Anyone,including relatives and friends, can makecontributions at any time.

■ Low account fees—The minimal $25 annualaccount maintenance fee is waived if youcontribute with automatic contributionsthrough your checking account (as little as$25 a month or $75 a quarter) or have anaccount balance of at least $25,000.7

Investment portfolio fees vary depending on the specific investments you select, but generally are competitive with typicalinvestment portfolio fees.

■ Online tools—Visit the CollegeSense website at www.collegesense.com to take fulladvantage of our interactive tools and calculators. You can calculate the projectedcost of individual colleges and your neededsavings, check your balance and contributionhistory, and review your account statementright on the Internet!

■ Customer service—CollegeSense plan representatives are available by calling us toll free at 1-866-529-SENSE(866-529-7367), Monday through Friday, from 9 a.m. to midnight, Eastern Standard Time.

CollegeSense gives you all the unique benefitsof a 529 plan, including availability to anyU.S. resident regardless of where you live.6

CollegeSense also provides several additionalsignificant features that help to make it anintelligent way to save for college.

CollegeSense’s unique advantages include:

■ A choice of investment options—There aretwo different investment tracks for you tochoose from. The Age-Based Choice givesyou “set-it-and-forget-it” simplicity with a diversified portfolio based on your beneficiary’s age. The Custom Choice letsyou select your own investment mix from a series of investment portfolios. Many plans automatically place your money intothe age-based investment option. WithCollegeSense, you determine which trackworks best for you.

■ Multi-manager approach—Rather thanhand over control of your money to a singleinvestment management company, a systemof multiple investment managers has beenestablished to provide you with the best classof investments in all investment categories.Each of the managers, including New YorkLife Investment Management LLC, StateStreet Global Advisors, and JPMorganFleming Asset Management, brings unique investment expertise that provides you with well-diversified investment offerings.

■ High contribution limits—Currently, youcan contribute over $250,000, includingearnings, per beneficiary to all 529 plansacross all accounts, over the life of theaccount. You can have only one beneficiary

6 CollegeSense is sponsored by the State of New Mexico, so all contributions made to CollegeSense by New Mexico residents are New Mexico statetax deductible. In addition, investment earnings are exempt from New Mexico income taxes, provided that the money is used to cover qualifiededucation expenses, making your savings free of state and federal taxes. Other state tax treatment varies.

7 If you or your beneficiary is a New Mexico State resident, the $25 annual account maintenance fee is waived.

CollegeSense…All theBenefits of a Typical 529Plan—And More

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It’s all your money…no federal taxes on earnings or withdrawals

Investment earnings in a 529 college savings program account grow federal income tax-free.Withdrawals are not taxed either, provided the money is used for qualified higher education expenses.8

The added flexibility of reducing your estate

As a 529 plan, CollegeSense qualifies for a special gift tax exclusion. You can elect to contribute up to $50,000 free of gift taxes,$100,000 if married, filing jointly (that’s five times the annual gift tax exclusion) in one lump sum, to as many beneficiaries as you want. Once you make this maximum contribution, any other contributions or giftsto that beneficiary within five years will notreceive the benefit of the exclusion.

Assets held in the plan are not included in the account owner’s estate and as a result arenot subject to estate tax. If the account ownerdies within five years of the funding date, theaccount owner’s estate will receive only part ofthe deduction. For more information on howCollegeSense can help with estate planning,speak with your tax advisor or estate-planningattorney.

One in five grandparents

report that they are

saving money for a

grandchild’s education.

—“Funding a College Education”

Hart Research, 2000

PlanEnjoy Significant Tax andEstate-Planning Advantages

8 For withdrawals not used for qualified higher education expenses, earnings are subject to income taxes at the distributee’s rate plus a 10% federal tax penalty.5

www.collegesense.com

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Feature

Who controls assets

Estate/gift tax guidelines

Taxation/penalty fornon-qualified or earlywithdrawals

Federal tax deductible contributions

Taxation of earnings

Maximum contribution

Guidelines for use of assets

CollegeSense529 Plan

Adjusted Gross Income(AGI) limit for plan contributions

9 All 529 plan assets, including earnings, established for the benefit of a particular beneficiary must be aggregated whenapplying this limit. Consult your tax advisor for how 529 tax treatment would apply to your particular situation.

10 Earnings are New Mexico state tax-free for New Mexico residents.

There’s really no comparison

There are several ways to putmoney aside for future educationexpenses. This table gives you aquick way to compare yourchoices. You have to decidewhich one fits your needs, butin many cases, CollegeSenseoffers greater opportunities thanany other education savingsoption.

Beneficiary changes

Your EducationSavings Options

Over $250,0009

None

Federal Tax-FreeEarnings are federal tax-free if used for qualified education expenses for tax years beginning in 2002. State tax advantages may vary.10

Earnings OnlyEarnings portion subject to a 10% federal tax penalty and taxed to distributee at ordinary incometax rates.

No

Value Excluded from Account Owner’s Estate;$50,000 Tax-Free GiftIndividuals can contribute up to $50,000($100,000 married filing jointly) per beneficiary,once within a five-year period, without triggeringgift taxes. Generally, neither donor nor designatedbeneficiary includes the account in estate.

Change Any TimeCan change any time, without income tax ramifica-tions, to any member of the initial beneficiary’s family (as defined in IRC Section 529). Gift tax consequences unless new beneficiary is member of theold beneficiary’s family and same generational level.

Account OwnerAccount owner may name beneficiaries and direct distributions; investment is limited to investmentoptions in the plan and can be changed once per calendar year.

Qualified ExpensesCan be used for qualified higher educationexpenses at any accredited post-secondary schoolin the U.S.

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529CPG-11/01First Use: 11/01

For more information, please call us toll free:

1-866-529-SENSE (866-529-7367) 9:00 a.m. to midnight, Eastern Standard Time

Or, visit the CollegeSense web site at www.collegesense.com

Not FDIC insured. No bank guarantee. May lose value.

NYLIM Center, 169 Lackawanna Avenue, Parsippany, NJ 07054. This guide is not intended to provide tax or legal advice. Your tax advisor can help you determine the best course of action for your specific situation. ©New York Life Investment Management LLC and Schoolhouse Capital, LLC. All rights reserved.

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