Securities Act File No. [●]
Investment Company Act File No. 811-23157
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
(Check Appropriate Box or Boxes)
REGISTRATION STATEMENT
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UNDER
THE SECURITIES ACT OF 1933
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x
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Pre-Effective Amendment No.
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¨
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Post-Effective Amendment No. [ ]
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and/or
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REGISTRATION STATEMENT
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UNDER
THE INVESTMENT COMPANY ACT OF 1940
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Amendment No. 1
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BROOKFIELD REAL ASSETS INCOME FUND INC.
(Exact Name of Registrant as Specified
in Charter)
Brookfield Place, 250 Vesey Street
New York, New York 10281-1023
(Address of Principal Executive Offices)
Registrant’s Telephone Number,
including Area Code: (212) 417-7049
Brian F. Hurley, Esq.
Brookfield Real Assets Income Fund Inc.
Brookfield Place, 250 Vesey Street
New York, New York 10281-1023
(Name and Address of Agent for Service)
Copies to:
Thomas D. Peeney, Esq.
Brookfield Public Securities Group LLC
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Michael R. Rosella, Esq.
Vadim Avdeychik, Esq.
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Brookfield Place
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Paul Hastings LLP
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250 Vesey Street
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200 Park Avenue
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New York, New York 10281-1023
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New York, New York 10166
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(212) 318-6800
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Approximate date of proposed offering: From time to time after
the effective date of this Registration Statement.
If the
only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, check
the following box ☐
If any
securities being registered on this Form will be offered on a delayed or continuous basis in reliance on Rule 415 under
the Securities Act of 1933 (“Securities Act”), other than securities offered in connection with a dividend reinvestment
plan, check the following box. ☒
If this
Form is a registration statement pursuant to General Instruction A.2 or a post-effective amendment thereto, check the following
box ☒
If this
Form is a registration statement pursuant to General Instruction B or a post-effective amendment thereto that will become
effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box ☐
If this
Form is a post-effective amendment to a registration statement filed pursuant to General Instruction B to register additional
securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following
box ☐
It is proposed that this filing will
become effective (check appropriate box):
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When declared effective pursuant to section 8(c) of the Securities Act.
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Check each box that appropriately characterizes
the Registrant:
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Registered Closed-End Fund (closed-end company that is registered under the Investment Company Act of 1940 (the “Investment Company Act”)).
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Business Development Company (closed-end company that intends or has elected to be regulated as a business development company under the Investment Company Act.
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Interval Fund (Registered Closed-End Fund or a Business Development Company that makes periodic repurchase offers under Rule 23c-3 under the Investment Company Act).
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A.2 Qualified (qualified to register securities pursuant to General Instruction A.2 of this Form).
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Well-Known Seasoned Issuer (as defined by Rule 405 under the Securities Act).
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Emerging Growth Company (as defined by Rule 12b-2 under the Securities and Exchange Act of 1934).
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If an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
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New Registrant (registered or regulated under the Investment Company Act for less than 12 calendar months preceding this filing).
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CALCULATION OF REGISTRATION FEE UNDER
THE SECURITIES ACT OF 1933
Title of Securities
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Amount Being
Registered
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Proposed
Maximum
Offering Price
Per Share
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Proposed
Maximum
Aggregate
Offering Price(1)
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Amount of
Registration Fee
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Common Shares(2)
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[●] Shares
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$[●]
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Preferred Shares(2)
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[●] Shares
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$[●]
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Subscription Rights to Purchase Common Shares(2)
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$[●]
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$[●]
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Subscription Rights to Purchase Preferred Shares(2)
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$[●]
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$[●]
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Total
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[●] Shares
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$[●]
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$1
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$0
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(1)
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Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
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(2)
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There is being registered hereunder an indeterminate principal amount of common shares or preferred shares as may be sold, from time to time, including subscription rights to purchase common shares or preferred shares.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT
ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT
WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
The information in this Prospectus is not complete
and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission
is effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
Preliminary Prospectus Dated
December 18, 2020
Subject to Completion
Brookfield Real Assets Income Fund Inc.
COMMON SHARES
PREFERRED SHARES
SUBSCRIPTION RIGHTS TO PURCHASE COMMON SHARES
SUBSCRIPTION RIGHTS TO PURCHASE PREFERRED SHARES
Brookfield Real Assets Income Fund Inc.,
a Maryland corporation (the “Fund”), is a diversified, closed-end management investment company registered under the
Investment Company Act of 1940, as amended (the “1940 Act”). The Fund’s investment objective is to seek high
total return, primarily through high current income and secondarily, through growth of capital. No assurance can be given that
the Fund’s investment objective will be achieved. Brookfield Public Securities Group LLC (the “Investment Adviser”)
serves as investment adviser to the Fund.
Under normal market conditions, the Fund
will invest at least 80% of its Managed Assets (average daily net assets plus the amount of any borrowings for investment purposes)
in the securities and other instruments of companies and issuers in the “real assets” asset class, which includes real
estate securities, infrastructure securities; and natural resources securities (collectively, “Real Asset Companies and Issuers”).
The Fund may change the 80% Policy without shareholder approval upon at least 60 days’ prior written notice to shareholders.
The Fund normally expects to invest at least 65% of its Managed Assets in fixed income securities of Real Asset Companies and Issuers
and in derivatives and other instruments that have economic characteristics similar to such securities. Under normal market conditions,
the Fund will invest more than 25% of its total assets in the real estate industry. The policy of concentration is a fundamental
policy. This fundamental policy and the investment restrictions described in the Statement of Additional Information under the
caption “Investment Restrictions” cannot be changed without the approval of the holders of a majority of the Fund’s
outstanding voting securities. An investment in the Fund is not appropriate for all investors. No assurances can be given that
the Fund’s objectives will be achieved.
The Fund may offer, from time to time,
in one or more offerings, common shares or preferred shares, each having a par value of $0.001 per share, or subscription rights
to purchase our common shares or preferred shares (the “Offer”). Shares may be offered at prices and on terms to be
set forth in one or more supplements to this Prospectus (each a “Prospectus Supplement”). You should read this Prospectus
and the applicable Prospectus Supplement carefully before you invest in our shares.
Our shares may be offered through agents
designated from time to time by us, directly to purchasers, or through a combination of these methods. The Prospectus Supplement
relating to the offering will identify any agents involved in the sale of our shares, and will set forth any applicable purchase
price, fee, commission, or discount arrangement between us and any agents or the basis upon which such amount may be calculated.
The Prospectus Supplement relating to any sale of preferred shares will set forth the liquidation preference and information about
the dividend period, dividend rate, any call protection or non-call period and other matters. We may not sell any of our shares
through agents without delivery of a Prospectus Supplement describing the method and terms of the particular offering of our shares.
Our common shares are listed on the New
York Stock Exchange (“NYSE”) under the symbol “RA.” On [●], the last reported sale price of our common
shares were $[●] per share. The net asset value of the Fund’s common shares at the close of business on [●] was
$[●] per share. Shares of closed-end funds could trade at a discount from net asset value. This creates a risk of loss for
an investor purchasing shares in a public offering.
Investing in our securities involves certain
risks. You could lose some or all of your investment. See “Risk Factors and Special Considerations” beginning on page [●]
of this Prospectus. Shares of closed-end investment companies frequently trade at a discount to their net asset value and this
may increase the risk of loss to purchasers of our securities. You should consider carefully these risks together with all of the
other information contained in this Prospectus and any Prospectus Supplement before making a decision to purchase our securities.
NEITHER THE SECURITIES AND EXCHANGE
COMMISSION (THE “SEC”) NOR ANY STATE SECURITY COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus sets forth concisely information
about the Fund you should know before investing. Please read this Prospectus carefully before deciding whether to invest and retain
it for future reference. A Statement of Additional Information dated [●], 2020 (the “SAI”) has been filed with
the SEC. A table of contents to the SAI is located on page [●] of this Prospectus. This Prospectus incorporates by reference
the entire SAI. The SAI is available along with other Fund-related materials at the SEC’s public reference room in Washington,
DC (call 1-202-551-8090 for information on the operation of the reference room), on the EDGAR database on the SEC’s internet
site (http://www.sec.gov), upon payment of copying fees by writing to the SEC’s Public Reference Section, 100 F Street, N.E.,
Washington, DC 20549-0102, or by electronic mail at publicinfo@sec.gov.
You
may also request a free copy of the SAI, annual and semi-annual reports to shareholders, when available, and additional information
about the Fund, and may make other shareholder inquiries, by calling 1-855-244-4859, by writing to the Fund or visiting the Fund’s
website https://publicsecurities.brookfield.com/en
The securities do not represent a deposit
or obligation of, and are not guaranteed by or endorsed by, any bank or other insured depositary institution, and are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.
You should rely only on the information
contained or incorporated by reference in this Prospectus. The Fund has not authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information, you should not rely on it. The Fund is not making
an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.
Cautionary Notice Regarding
Forward-Looking Statements
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Prospectus Summary
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1
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Summary of Fund expenses
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28
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Financial Highlights
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Incorporation by Reference
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30
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The Offer
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30
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The Fund
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31
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Use of Proceeds
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31
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Description of Common Shares
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31
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Investment Objective and Investment Policies
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33
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Leverage
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44
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Risk Factors and Special Considerations
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55
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Management of the Fund
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77
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Distributions and Dividends
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80
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Dividend Reinvestment Plan
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81
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Description of Capital Structure
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83
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Certain provisions of Maryland Law and of the
Fund’s Charter and Bylaws
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86
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Closed-end Fund Structure
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Repurchase of Common Shares
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Net Asset Value
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89
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Limitation on Directors’ and Officers’
Liability
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90
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Taxation
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91
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Plan of Distribution
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93
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Custodian, Sub-administrator, Fund Accountant,
Transfer Agent and Dividend Disbursing Agent
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96
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Legal Matters
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96
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Independent Registered Public Accounting Firm
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Additional Information
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Privacy Principles of the Fund
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97
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Table of Contents of SAI
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98
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Cautionary Notice Regarding Forward-Looking
Statements
This Prospectus, any accompanying Prospectus
Supplement and the SAI contain “forward-looking statements.” Forward-looking statements can be identified by the words
“may,” “will,” “intend,” “expect,” “estimate,” “continue,”
“plan,” “anticipate,” and similar terms and the negative of such terms. Such forward-looking statements
may be contained in this Prospectus as well as in any accompanying Prospectus Supplement. By their nature, all forward-looking
statements involve risks and uncertainties, and actual results could differ materially from those contemplated by the forward-looking
statements. Several factors that could materially affect our actual results are the performance of the portfolio of securities
we hold, the price at which our shares will trade in the public markets and other factors discussed in our periodic filings with
the SEC. Currently known risk factors that could cause actual results to differ materially from our expectations include, but are
not limited to, the factors described in the “Risk Factors and Special Considerations” section of this Prospectus.
We urge you to review carefully that section for a more detailed discussion of the risks of an investment in our securities.
Although we believe that the expectations
expressed in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed
in our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements,
are subject to change and are subject to inherent risks and uncertainties, such as those disclosed in the “Risk Factors and
Special Considerations” section of this Prospectus. All forward-looking statements contained or incorporated by reference
in this Prospectus or any accompanying Prospectus Supplement are made as of the date of this Prospectus or the accompanying Prospectus
Supplement, as the case may be. Except for our ongoing obligations under the federal securities laws, we do not intend, and we
undertake no obligation, to update any forward-looking statement. The forward-looking statements contained in this Prospectus,
any accompanying Prospectus Supplement and the SAI are excluded from the safe harbor protection provided by section 27A of the
Securities Act of 1933, as amended (the “Securities Act”).
Prospectus Summary
The following summary is qualified in
its entirety by reference to the more detailed information appearing elsewhere or incorporated by reference in this Prospectus.
It may not contain all of the information that you should consider before investing in the securities offered by this Prospectus.
Accordingly, you are encouraged to carefully read the entire Prospectus, any related Prospectus Supplement, the SAI (particularly
the section entitled “Risk Factors and Special Considerations”), and any documents incorporated by reference into the
above documents, as well as financial statements and related notes. As used in this Prospectus, the terms “the Fund,”
“our,” and “us” refer to the Brookfield Real Assets Income Fund Inc., a diversified, closed-end management
investment company organized as a corporation under the laws of the State of Maryland, unless the context suggests otherwise.
THE OFFER AT A GLANCE
Purpose of the Offer
We may offer, from time to time, in one
or more offerings or series, together or separately, up to $ [●] of our common shares, preferred shares or subscription rights
to purchase common shares or preferred shares, which we refer to, collectively, as the “securities.” We may sell our
securities through agents, underwriters or dealers, “at the market” to or through a market maker into an existing trading
market or otherwise directly to one or more purchasers, or through a combination of methods of sale. The identities of such agents,
underwriters, dealers, or market makers as the case may be, will be described in one or more supplements to this Prospectus. The
securities may be offered at prices and on terms to be described in one or more supplements to this Prospectus. In the event we
offer common shares, the offering price per share of our common shares exclusive of any underwriting commissions or discounts will
not be less than the net asset value per share of our common shares at the time we make the offering except as permitted by applicable
law. To the extent that the Fund issues common shares and current shareholders do not participate, those current shareholders may
experience a dilution of their voting rights as new shares are issued to the public. Depending on the facts, any issuance of new
common shares may also have the effect of reducing any premium to per share net asset value at which the shares might trade and
the market price at which the shares might trade.
We may offer our securities directly to
one or more purchasers, through agents that we or they designate from time to time, or to or through underwriters or dealers. The
Prospectus Supplement relating to the relevant offering will identify any agents, underwriters, dealers involved in the sale of
our securities, and will set forth any applicable purchase price, fee, commission or discount arrangement between us and such agents
or underwriters or among underwriters or dealers and the basis upon which such amount may be calculated. See “Plan of Distribution.”
Our securities may not be sold through agents, underwriters or dealers without delivery or deemed delivery of a Prospectus and
Prospectus Supplement describing the method and terms of the applicable offering of our securities.
Use of Proceeds
The net proceeds of an offering will be
invested in accordance with the Fund’s investment objective and investment policies as set forth below. It is presently anticipated
that the Fund will be able to invest substantially all of the net proceeds of an offering in accordance with its investment objective
and investment policies within approximately three months of receipt by the Fund of the proceeds from the offering, depending on
the amount and timing of proceeds available to the Fund, as well as the availability of investments consistent with the Fund’s
investment objective and investment policies, and except to the extent proceeds are held in cash to pay dividends or expenses,
or for temporary defensive purposes. See “Use of Proceeds.”
THE FUND AT A GLANCE
Information Regarding the Fund
Brookfield Real Assets Income Fund Inc.
(the “Fund”) is a diversified, closed-end management investment company registered under the Investment Company Act
of 1940, as amended (the “1940 Act”). The Fund was formed from the reorganizations of three closed-end funds, as further
described below, and commenced operations on December 5, 2016. The Fund’s shares are listed on the New York Stock Exchange
(“NYSE”) and trade under the ticker symbol “RA.” The Fund was incorporated under the laws of the State
of Maryland on October 6, 2015.
The Fund was formed from the reorganizations
of each of Brookfield Mortgage Opportunity Income Fund Inc. (NYSE: BOI), Brookfield High Income Fund Inc. (NYSE: HHY), and Brookfield
Total Return Fund Inc. (NYSE: HTR) (collectively, the “Target Funds”) into the Fund (each, a “Reorganization”
and together, the “Reorganizations”). As a result of the Reorganizations, common shareholders of HHY, HTR and BOI,
respectively, received an amount of RA common shares equal to the aggregate net asset value of their holdings of HHY, HTR and BOI
common shares, as applicable, as determined at the close of business on December 2, 2016. As a result of the Reorganizations,
the assets of the Target Funds were combined, and the shareholders of each Target Fund became shareholders of the Fund.
The Fund is treated as the survivor of
the Reorganizations for accounting and performance reporting purposes. Accordingly, all performance and other information shown
for the Fund is from its commencement of operations date on December 5, 2016, and there is no historical performance or other
information to present for the Target Funds.
Since
commencement of operations date, another fund, Brookfield Global Listed Infrastructure Income Fund Inc. (NYSE: INF) was
reorganized into the Fund. As a result of this reorganization, common shareholders of INF received newly issued common shares of
RA, par value $0.001 per share, the aggregate net asset value (not the market value) of which will equal the aggregate net asset
value (not the market value) of the common shares of INF you held immediately prior to the reorganization, less the costs of the
Reorganization.
Investment Objective
The Fund’s investment objective is
to seek high total return, primarily through high current income and secondarily, through growth of capital.
The Fund’s investment objective is
not fundamental and may be changed without shareholder approval. Shareholders will be provided with at least 60 days’ prior
written notice of any change in the Fund’s investment objective.
As a fundamental policy, the Fund will
not purchase a security if, as a result, with respect to 75% of its total assets, more than 5% of the Fund’s total assets
would be invested in securities of a single issuer or more than 10% of the outstanding voting securities of the issuer would be
held by the Fund. This policy may not be changed without a shareholder vote.
The Fund makes investments that will result
in the concentration (as that term is used in the 1940 Act) of its assets. Under normal market conditions, the Fund will invest
more than 25% of its total assets in the real estate industry. The policy of concentration is a fundamental policy. This fundamental
policy and the investment restrictions described in the Statement of Additional Information under the caption “Investment
Restrictions” cannot be changed without the approval of the holders of a majority of the Fund’s outstanding voting
securities. Such majority vote requires the approval of the lesser of (i) 67% of the Fund’s shares represented at a
meeting at which more than 50% of the Fund’s shares outstanding are represented, whether in person or by proxy, or (ii) more
than 50% of the outstanding shares.
Investment Policies
The Fund seeks to achieve its investment
objective by investing primarily in Real Asset Companies and Issuers. Under normal market conditions, the Fund will invest at least
80% of its Managed Assets (average daily net assets plus the amount of any borrowings for investment purposes) in the securities
and other instruments of Real Asset Companies and Issuers. The Fund may change the 80% Policy without shareholder approval upon
at least 60 days’ prior written notice to shareholders. The Fund normally expects to invest at least 65% of its Managed Assets
in fixed income securities of Real Asset Companies and Issuers and in derivatives and other instruments that have economic characteristics
similar to such securities. Real Asset Companies and Issuers includes the following categories:
The Fund actively trades portfolio investments.
The Fund may invest in securities and instruments of companies of any size market capitalization. The Fund will invest in companies
located throughout the world and there is no limitation on the Fund’s investments in foreign securities or instruments or
in emerging markets. An “emerging market” country is any country that is included in the MSCI Emerging Markets Index.
The amount invested outside the United States may vary, and at any given time, the Fund may have a significant exposure to non-U.S.
securities. The Fund may invest in securities of foreign companies in the form of American Depositary Receipts (“ADRs”),
Global Depositary Receipts (“GDRs”) and European Depositary Receipts (“EDRs”). Generally, ADRs in registered
form are dollar denominated securities designed for use in the U.S. securities markets, which represent and may be converted into
an underlying foreign security. GDRs, in bearer form, are designated for use outside the United States. EDRs, in bearer form, are
designed for use in the European securities markets.
The Fund has flexibility in the relative
weightings given to each of these categories. In addition, the Fund may, in the future, invest in additional investment categories
other than those listed herein, to the extent consistent with the Fund’s investment objective.
The Fund may also invest in infrastructure,
real estate and natural resources (“Real Assets”) investment categories other than those listed herein, to the extent
consistent with its name. The Fund may invest without limit in investment grade and below investment grade, high yield fixed income
securities (commonly referred to as “junk bonds”). The Fund may also invest in restricted (“144A”) or private
securities, asset-backed securities (“ABS”), including mortgage-related debt securities and other mortgage-related
instruments (collectively, “Mortgage-Related Investments”), collateralized loan obligations, bank loans (including
participations, assignments, senior loans, delayed funding loans and revolving credit facilities), exchange-traded notes, and securities
issued and/or guaranteed by the U.S. Government, its agencies or instrumentalities or sponsored corporations. The Fund considers
Mortgage-Related Investments to consist of, but not be limited to, mortgage-backed securities (“MBS”) of any kind;
interests in loans and/or whole loan pools of mortgages, loans or other instruments used to finance long-term infrastructure, industrial
projects and public services; mortgage REITs; ABS that are backed by interest in real estate, land or other types of assets; and
securities and other instruments issued by mortgage servicers. The Fund’s investments in MBS may include Residential Mortgage-Backed
Securities (“RMBS”) or Commercial Mortgage-Backed Securities (“CMBS”). Under normal market conditions,
the Fund will invest more than 25% of its total assets in the real estate industry.
The Fund defines a Real Estate Security
as any company or issuer that (i) derives at least 50% of its revenues from the ownership, operation, development, construction,
financing, management or sale of commercial, industrial or residential real estate and similar activities, or (ii) commits
at least 50% of its assets to activities related to real estate.
For purposes of selecting investments in
Real Estate Securities, the Fund defines the real estate sector broadly. It includes, but is not limited to, the following:
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Real estate investment trusts (“REITs”);
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Real estate operating companies (“REOCs”);
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Brokers, developers and builders of residential, commercial, and industrial properties;
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Property management firms;
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Finance, mortgage, and mortgage servicing firms;
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Construction supply and equipment manufacturing companies;
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Firms dependent on real estate holdings for revenues and profits, including lodging, leisure, timber,
mining and agriculture companies; and
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Debt securities, including securitized obligations, which are predominantly (i.e., at least
50%) supported by real estate assets.
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REITs are companies that own interests
in real estate or in real estate related loans or other interests, and their revenue primarily consists of rent derived from owned,
income producing real estate properties and capital gains from the sale of such properties. A REIT in the United States is generally
not taxed on income distributed to shareholders so long as it meets tax-related requirements, including the requirement that it
distribute substantially all of its taxable income to its shareholders. Dividends from REITs are not “qualified dividends”
and therefore are taxed as ordinary income rather than at the reduced capital gains rate. REIT-like entities are organized outside
of the United States and maintain operations and receive tax treatment similar to that of U.S. REITs. The Fund retains the ability
to invest in real estate companies of any size market capitalization. The Fund will not invest in real estate directly.
REOCs are real estate companies that have
not elected to be taxed as REITs and therefore are not required to distribute taxable income and have fewer restrictions on what
they can invest in.
The Fund defines an Infrastructure Security
as, any company or issuer that (i) derives at least 50% of its revenue or profits, either directly or indirectly, from infrastructure
assets, or (ii) commits at least 50% of its assets to activities related to infrastructure.
For purposes of selecting investments in
Infrastructure Securities, the Fund defines the infrastructure sector broadly. It includes, but is not limited to, the physical
structures, networks and systems of transportation, energy, water and sewage, and communication. Infrastructure assets include:
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toll roads, bridges and tunnels;
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electricity generation and transmission and distribution lines;
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gathering, treating, processing, fractionation, transportation and storage of hydrocarbon products;
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water and sewage treatment and distribution pipelines;
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communication towers and satellites;
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other companies with direct and indirect involvement in infrastructure through the development,
construction or operation of infrastructure assets.
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Infrastructure Securities also include
master limited partnerships (“MLPs”).
An MLP is a publicly traded company organized
as a limited partnership or limited liability company and treated as a partnership for federal income tax purposes. MLPs may derive
income and gains from the exploration, development, mining or production, processing, refining, transportation (including pipelines
transporting gas, oil, or products thereof), or the marketing of any mineral or natural resources. MLPs generally have two classes
of owners, the general partner and limited partners. The general partner of an MLP is typically owned by one or more of the following:
a major energy company, an investment fund, or the direct management of the MLP. The general partner may be structured as a private
or publicly traded corporation or other entity. The general partner typically controls the operations and management of the MLP
through an up to 2% equity interest in the MLP plus, in many cases, ownership of common units and subordinated units. Limited partners
own the remainder of the partnership, through ownership of common units, and have a limited role in the partnership’s operations
and management. From time to time, the energy sector will experience volatility as a result of fluctuations in the price of oil
and such volatility may continue in the future. As a result, MLPs that invest in the oil industry are subject to greater volatility
than MLPs which do not invest in the oil sector.
From time to time, the Fund may invest
in stapled securities to gain exposure to certain infrastructure companies. A stapled security is a security that is comprised
of two parts that cannot be separated from one another. The two parts of a stapled security are a unit of a trust and a share of
a company. The resulting security is influenced by both parts, and must be treated as one unit at all times, such as when buying
or selling a security. The value of stapled securities and the income derived from them may fall as well as rise. Stapled securities
are not obligations of, deposits in, or guaranteed by, the Fund. The listing of stapled securities on a domestic or foreign exchange
does not guarantee a liquid market for stapled securities.
The Fund defines a Natural Resources Security
as, any company or issuer that derives at least 50% of its revenues, profits or value, either directly or indirectly, from natural
resources assets including, but not limited to:
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Timber and Agriculture assets and securities;
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Commodities and Commodity-Linked assets and securities, including, but not limited to, precious
metals, such as gold, silver and platinum, ferrous and nonferrous metals, such as iron, aluminum and copper, metals such as uranium
and titanium, hydrocarbons such as coal, oil and natural gas, timberland, undeveloped real property and agricultural commodities;
and
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Energy, including the exploration, production, processing and manufacturing of hydrocarbon-related
and chemical-related products.
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Commodities are assets that have tangible
properties, such as oil, coal, natural gas, agricultural products, industrial metals, livestock and precious metals. In order to
gain exposure to the commodities markets without investing directly in physical commodities, the Fund may invest in commodity index-linked
notes. Commodity index-linked notes are derivative debt instruments with principal and/or coupon payments linked to the performance
of commodity indices. These notes are sometimes referred to as “structured notes” because the terms of these notes
may be structured by the issuer and the purchaser of the note. The value of these notes will rise or fall in response to changes
in the underlying commodity index and will be subject to credit and interest rate risks that typically affect debt securities.
The Fund may also invest up to 35% of its
Managed Assets in equities, including common stock, preferred stock, convertible stock, and open-end and closed-end investment
companies, including exchange-traded funds. The Fund may invest up to 20% of its Managed Assets in fixed income securities other
than those of Real Asset Companies and Issuers, including in TIPS and other inflation-linked fixed income securities.
The Investment Adviser will determine the
Fund’s strategic allocation with respect to its debt and equity investments as well as its strategic allocation with respect
to its investment sub-portfolios.
The Fund intends to use leverage to seek
to achieve its investment objective. The Fund currently anticipates obtaining leverage through reverse repurchase agreements and
through borrowings from banks and/or other financial institutions. As a non-fundamental policy that may be changed by the Fund’s
Board, the Fund may issue preferred shares or borrow money and issue debt securities (“traditional leverage”) with
an aggregate liquidation preference and aggregate principal amount up to 33 1/3% of the Fund’s total assets. The use of borrowing
techniques, preferred shares, debt or effective leverage (defined below) to leverage the common shares will involve greater risk
to common shareholders. The Fund will monitor interest rates and market conditions and anticipates that it will leverage the common
shares at some point in the future if the Fund’s Board determines that it is in the best interest of the Fund and its common
shareholders. The costs of leverage will be borne solely by the common shareholders. In addition, the Fund may enter into reverse
repurchase agreements, swaps, futures, securities lending, or short sales, that may provide leverage (collectively referred to
as “effective leverage”). Such effective leverage will be considered leverage for the Fund’s leverage limits.
The Fund may also engage in certain investment management techniques which may have effects similar to the leverage described herein
and may be considered senior securities for purposes of the 1940 Act unless the Fund segregates cash or other liquid securities
equal to the Fund ‘s daily marked-to-market obligations in respect of such techniques. The Fund may cover such transactions
using other methods currently or in the future permitted under the 1940 Act, the rules and regulations thereunder, or orders
issued by the SEC thereunder. For these purposes, interpretations and guidance provided by the SEC and its staff may be taken into
account when deemed appropriate by the Fund. These segregation and coverage requirements could result in the Fund maintaining securities
positions that it would otherwise liquidate, segregating assets at a time when it might be disadvantageous to do so, or otherwise
restricting portfolio management. Such segregation and cover requirements will not limit or offset losses on related positions.
The use of leverage may magnify the impact of changes in net asset value on the common shareholders. In addition, the cost of leverage
could exceed the return on the securities acquired with the proceeds of the leverage, thereby diminishing returns to the common
shareholders.
The Investment Adviser utilizes a fundamental,
bottom-up, value-based selection methodology, taking into account short-term considerations, such as temporary market mispricing,
and long-term considerations, such as values of assets and cash flows. The Investment Adviser also draws upon the expertise and
knowledge within Brookfield Asset Management Inc. and its affiliates, which provides extensive owner/operator insights into industry
drivers and trends. Brookfield Asset Management Inc. is a global alternative asset manager with approximately $575 billion in assets
under management as of September 30, 2020, and over 100 years of experience owning and operating Real Assets, including property,
infrastructure, renewable power, timberland and agricultural lands. The Investment Adviser takes a balanced approach to investing,
seeking to mitigate risk through diversification, credit analysis, economic analysis and review of sector and industry trends.
The Investment Adviser uses credit research to select individual securities that it believes can add value from income and/or the
potential for capital appreciation. The credit research may include an assessment of an issuer’s general financial condition,
its competitive positioning and management strength, as well as industry characteristics and other factors. The Investment Adviser
may sell a security due to changes in credit characteristics or outlook, as well as changes in portfolio strategy or cash flow
needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile.
Distributions and Dividends
The Fund intends to distribute to common
shareholders all or a portion of its net investment income monthly and net realized capital gains, if any, at least annually. Under
normal market conditions, the Fund intends to distribute substantially all of its distributable cash flows, less Fund expenses,
to shareholders monthly. The Fund intends to pay common shareholders annually all, or at least 90%, of its investment company taxable
income. Various factors will affect the level of the Fund’s investment company taxable income, such as its asset mix. Distributions
may be paid to the holders of the Fund’s shares of common shares if, as and when authorized by the Board of Directors and
declared by the Fund out of assets legally available therefor. To permit the Fund to maintain more stable monthly distributions,
it may from time to time distribute less than the entire amount of income earned in a particular period, with the undistributed
amount being available to supplement future distributions. As a result, the distributions paid by the Fund for any particular monthly
period may be more or less than the amount of income actually earned during that period. Because the Fund’s income will fluctuate
and the Fund’s distribution policy may be changed by the Board of Directors at any time, there can be no assurance that the
Fund will pay distributions or dividends. Distributions are subject to re-characterization for federal income tax purposes after
the end of the fiscal year.
In the event that the total distributions
on the Fund’s shares exceed the Fund’s current and accumulated earnings and profits allocable to such shares, the excess
distributions will generally be treated as a tax free return of capital (to the extent of the shareholder’s tax basis in
the shares). A return of capital is a return to investors of a portion of their original investment in the Fund rather than income
or capital gain. Shareholders should not assume that the source of a distribution from the Fund is net profit or income. Distributions
sourced from paid-in capital should not be considered the current yield or the total return from an investment in the Fund. The
amount treated as a tax free return of capital will reduce a shareholder’s adjusted tax basis in the shares of common shares,
thereby increasing the shareholder’s potential taxable gain or reducing the potential loss on the sale of the shares.
Distributions paid by the Fund will be
reinvested in additional shares of the Fund, unless a shareholder elects to receive all distributions in cash.
Market price of shares
In addition to NAV, the market price of
the common shares may be affected by such factors as the Fund’s dividend and distribution levels (which are affected by expenses)
and stability, market liquidity, market supply and demand, unrealized gains, general market and economic conditions and other factors.
The common shares are designed primarily
for long-term investors, and you should not purchase common shares of the Fund if you intend to sell them shortly after purchase.
Risk Factors and Special Considerations
You should carefully consider the following
factors, as well as the other information in this Prospectus, before making an investment in the Fund under this Offer.
Market
Discount Risk. Whether investors will realize gains or losses upon the sale of the Fund’s common shares will depend
upon the market price of the shares at the time of sale, which may be less or more than the Fund’s NAV per share. Since the
market price of the Fund’s common shares will be affected by various factors such as the Fund’s dividend and distribution
levels (which are in turn affected by expenses), dividend and distribution stability, NAV, market liquidity, the relative demand
for and supply of the common shares in the market, unrealized gains, general market and economic conditions and other factors beyond
the control of the Fund, it is impossible to predict whether the Fund’s common shares will trade at, below or above NAV or
at, below or above the public offering price. Common shares of closed-end funds often trade at a discount from their NAVs and the
Fund’s common shares may trade at such a discount. This risk may be greater for investors expecting to sell their common
shares soon after completion of the public offering. The common shares of the Fund are designed primarily for long -term investors,
and investors in the Fund’s common shares should not view the Fund as a vehicle for trading purposes.
Health
Crisis Risk. The global pandemic outbreak of an
infectious respiratory illness caused by a novel coronavirus known as COVID-19 has resulted in substantial market volatility and
global business disruption, impacting the global economy and the financial health of individual companies in significant and unforeseen
ways. The duration and future impact of COVID-19 are currently unknown, which may exacerbate other types of risks that apply to
the Fund and negatively impact Fund performance and the value of your investment in the Fund.
High Yield
(“Junk”) Securities Risk. Investors should recognize that below investment grade and unrated securities
in which the Fund will invest subject Fund shareholders to greater levels of credit risk, call risk and liquidity risk than funds
that do not invest in such securities. Generally, lower rated or unrated securities of equivalent credit quality offer a higher
return potential than higher rated securities but involve greater volatility of price and greater risk of loss of income and principal,
including the possibility of a default or bankruptcy of the issuers of such securities. Lower rated securities and comparable unrated
securities will likely have larger uncertainties or major risk exposure to adverse conditions and are predominantly speculative.
The occurrence of adverse conditions and uncertainties would likely reduce the value of securities held by the Fund, with a commensurate
effect on the value of the Fund’s common shares.
While the market values of lower rated
securities and unrated securities of equivalent credit quality tend to react less to fluctuations in interest rate levels than
do those of higher rated securities, the market value of certain of these lower rated securities also tend to be more sensitive
to changes in economic conditions, including unemployment rates, inflation rates and negative investor perception than higher -rated
securities. In addition, lower-rated securities and unrated securities of equivalent credit quality generally present a higher
degree of credit risk, and may be less liquid than certain other fixed income securities. High yield securities in which the Fund
invests may not be listed on any exchange and a secondary market for such securities may be comparatively illiquid relative to
markets for other more liquid fixed income securities. Furthermore, there are fewer dealers in the market for high yield securities
than for investment grade obligations. The prices quoted by different dealers may vary significantly, and the spread between the
bid and asked price is generally much larger for high yield securities than for higher quality instruments. Consequently, transactions
in high yield securities may involve greater costs than transactions in more actively traded securities. A lack of publicly-available
information, irregular trading activity and wide bid/ask spreads among other factors, may, in certain circumstances, make high
yield debt more difficult to sell at an advantageous time or price than other types of securities or instruments. These factors
may result in the Fund being unable to realize full value for these securities and/or may result in the Fund not receiving the
proceeds from a sale of a high yield security for an extended period after such sale, each of which could result in losses to the
Fund. The Fund may incur additional expenses to the extent that it is required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings.
High yield securities structured as zero-coupon
bonds or pay-in-kind securities tend to be especially volatile as they are particularly sensitive to downward pricing pressures
from rising interest rates or widening spreads and may require the Fund to make taxable distributions of imputed income without
receiving the actual cash currency. Issuers of high yield securities may have the right to “call” or redeem the issue
prior to maturity, which may result in the Fund having to reinvest the proceeds in other high yield securities or similar instruments
that may pay lower interest rates.
Securities which are rated Ba by Moody’s,
BB by S&P, or BB by Fitch IBCA (“Fitch”) have speculative characteristics with respect to capacity to pay interest
and repay principal. Securities which are rated B generally lack the characteristics of a desirable investment, and assurance of
interest and principal payments over any long period of time may be small. Securities which are rated Caa1 or CCC+ or below are
of poor standing and highly speculative. Those issues may be in default or present elements of danger with respect to principal
or interest. Securities rated C by Moody’s, D by S&P, or the equivalent by Fitch are in the lowest rating class. Such
ratings indicate that payments are in default, or that a bankruptcy petition has been filed with respect to the issuer or that
the issuer is regarded as having extremely poor prospects. It is unlikely that future payments of principal or interest will be
made to the Fund with respect to these highly speculative securities other than as a result of the sale of the securities or the
foreclosure or other forms of liquidation of the collateral underlying the securities.
In general, the ratings of the nationally
recognized statistical rating organizations (“NRSROs”) represent the opinions of these agencies as to the quality of
securities that they choose to rate. Such ratings, however, are relative and subjective, and are not absolute standards of quality
and do not evaluate the market value risk of the securities. It is possible that an agency might not change its rating of a particular
issue to reflect subsequent events. These ratings may be considered by the Fund in the selection of portfolio securities, but the
Fund also will rely upon the independent advice of the Investment Adviser to evaluate potential investments.
Zero Coupon,
Payment In-Kind and Deferred Payment Securities Risk. The Fund may invest in zero coupon bonds, deferred interest bonds,
and bonds on which the interest is payable in -kind (“PIK securities”). Zero coupon and deferred interest bonds are
debt obligations which are issued at a significant discount from face value. The discount approximates the total amount of interest
the bonds will accrue and compound over the period until maturity or the first interest accrual date at a rate of interest reflecting
the market rate of the security at the time of issuance. While zero coupon bonds do not require the periodic payment of interest,
deferred interest bonds provide for a period of delay before the regular payment of interest begins. Although this period of delay
is different for each deferred interest bond, a typical period is approximately one-third of the bond’s term to maturity.
PIK securities are debt obligations which provide that the issuer thereof may, at its option, pay interest on such bonds in cash
or in the form of additional debt obligations. Such investments benefit the issuer by mitigating its need for cash to meet debt
service, but also require a higher rate of return to attract investors who are willing to defer receipt of such cash. Such investments
experience greater volatility in market value due to changes in interest rates than debt obligations which provide for regular
payments of interest. The Fund will accrue income on such investments based on an effective interest method, which is distributable
to shareholders and which, because no cash is received at the time of accrual, may require the liquidation of other portfolio securities
to satisfy the Fund’s dividend and distribution obligations. As a result, the Fund may have to sell securities at a time
when it may be disadvantageous to do so.
Stripped
Securities Risk. Stripped securities are created when the issuer separates the interest and principal components of
an instrument and sells them as separate securities. In general, one security is entitled to receive the interest payments on the
underlying assets (the interest only or “IO” security) and the other to receive the principal payments (the principal
only or “PO” security). Some stripped securities may receive a combination of interest and principal payments. The
yields to maturity on IOs and POs are sensitive to the expected or anticipated rate of principal payments (including prepayments)
on the related underlying assets, and principal payments may have a material effect on yield to maturity. If the underlying assets
experience greater than anticipated prepayments of principal, the Fund may not fully recoup its initial investment in IOs. Conversely,
if the underlying assets experience less than anticipated prepayments of principal, the yield on POs could be adversely affected.
Stripped securities may be highly sensitive to changes in interest rates and rates of prepayment.
Distressed
Securities Risk. An investment in the securities of financially distressed issuers can involve substantial risks. These
securities may present a substantial risk of default or may be in default at the time of investment. The Fund may incur additional
expenses to the extent it is required to seek recovery upon a default in the payment of principal or interest on its portfolio
holdings. In any reorganization or liquidation proceeding relating to a portfolio company, the Fund may lose its entire investment
or may be required to accept cash or securities with a value less than its original investment. Among the risks inherent in investments
in a troubled entity is the fact that it frequently may be difficult to obtain information as to the true financial condition of
such issuer. The Investment Adviser’s judgment about the credit quality of the issuer and the relative value and liquidity
of its securities may prove to be wrong.
Collateralized
Loan Obligation (“CLO”) Risk. CLOs and other similarly structured securities are types of asset-backed securities.
The cash flows from the CLO trust are split into two or more portions, called tranches, varying in risk and yield. The riskiest
portion is the “equity” tranche which bears the bulk of defaults from the loans in the trust and serves to protect
the other, more senior tranches from default in all but the most severe circumstances. Since it is partially protected from defaults,
a senior tranche from a CLO trust typically has higher ratings and lower yields than the underlying securities, and can be rated
investment grade. Despite the protection from the equity tranche, CLO tranches can experience substantial losses due to actual
defaults, increased sensitivity to defaults due to collateral default and disappearance of protecting tranches, market anticipation
of defaults and aversion to CLO securities as a class. The risks of an investment in a CLO depend largely on the collateral and
the class of the CLO in which the Fund invests. Normally, CLOs and other similarly structured securities are privately offered
and sold, and thus are not registered under the securities laws. As a result, investments in CLOs may be characterized by the Fund
as illiquid securities; however, an active dealer market, or other relevant measures of liquidity, may exist for CLOs allowing
a CLO potentially to be deemed liquid by the Investment Adviser under liquidity policies approved by the Fund’s Board of
Directors. In addition to the risks associated with debt instruments (e.g., interest rate risk and credit risk), CLOs carry
additional risks including, but not limited to: (i) the possibility that distributions from collateral securities will not
be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or default; (iii) the
possibility that the Fund may invest in CLOs that are subordinate to other classes; and (iv) the complex structure of the
security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment
results.
Mortgage
and Asset-Backed Securities. The Fund may invest in a variety of mortgage related and other asset-backed securities,
including both commercial and residential mortgage securities and other mortgage backed instruments issued on a public or private
basis. Mortgage backed securities represent the right to receive a portion of principal and/or interest payments made on a pool
of residential or commercial mortgage loans. When interest rates fall, borrowers may refinance or otherwise repay principal on
their mortgages earlier than scheduled. When this happens, certain types of mortgage backed securities will be paid off more quickly
than originally anticipated and the Fund will have to invest the proceeds in securities with lower yields. This risk is known as
“prepayment risk.”
When interest rates rise, certain types
of mortgage backed securities will be paid off more slowly than originally anticipated and the value of these securities will fall.
This risk is known as “extension risk.”
Because of prepayment risk, mortgage backed
securities react differently to changes in interest rates than other fixed income securities. Small movements in interest rates
(both increases and decreases) may quickly and significantly reduce the value of certain mortgage backed securities.
Like more traditional fixed income securities,
the value of asset-backed securities typically increases when interest rates fall and decreases when interest rates rise. Certain
asset-backed securities may also be subject to the risk of prepayment. In a period of declining interest rates, borrowers may pay
what they owe on the underlying assets more quickly than anticipated. Prepayment reduces the yield to maturity and the average
life of the asset-backed securities. In addition, when the Fund reinvests the proceeds of a prepayment it may receive a lower interest
rate than the rate on the security that was prepaid. In a period of rising interest rates, prepayments may occur at a slower rate
than expected. As a result, the average maturity of the Fund’s portfolio may increase. The value of longer term securities
generally changes more widely in response to changes in interest rates than shorter term securities.
Residential
Mortgage Backed Securities Risk. The investment characteristics of RMBS differ from those of traditional debt securities.
The major differences include the fact that, on certain RMBS, prepayments of principal may be made at any time. Prepayment rates
are influenced by changes in current interest rates and a variety of economic, geographic, social and other factors and cannot
be predicted with certainty. Subordinated classes of CMOs are entitled to receive repayment of principal in many cases only after
all required principal payments have been made to more senior classes and also have subordinated rights as to receipt of interest
distributions. Such subordinated classes are subject to a greater risk of non-payment than are senior classes of CMOs guaranteed
by an agency or instrumentality of the U.S. Government.
Commercial
Mortgage Backed Securities Risk. CMBS may involve the risks of delinquent payments of interest and principal, early
prepayments and potentially unrecoverable principal loss from the sale of foreclosed property. Subordinated classes of CMBS are
entitled to receive repayment of principal only after all required principal payments have been made to more senior classes and
also have subordinated rights as to receipt of interest distributions. Such subordinated classes are subject to a greater risk
of non-payment than are senior classes.
Prepayment
or Call Risk. For certain types of MBS, prepayments of principal may be made at any time. Prepayment rates are influenced
by changes in current interest rates and a variety of economic, geographic, social and other factors and cannot be predicted with
certainty. During periods of declining mortgage interest rates, prepayments on MBS generally increase. If interest rates in general
also decline, the amounts available for reinvestment by the Fund during such periods are likely to be reinvested at lower interest
rates than the Fund was earning on the MBS that were prepaid, resulting in a possible decline in the Fund’s income and distributions
to shareholders. If interest rates fall, it is possible that issuers of fixed income securities with high interest rates will prepay
or “call” their securities before their maturity date. Under certain interest rate or prepayment scenarios, the Fund
may fail to recoup fully its investment in such securities.
Inflation, Interest
Rate and Bond Market Risk. The value of certain fixed income securities in the Fund’s portfolio could be affected
by interest rate fluctuations. Generally, when market interest rates fall, fixed rate securities prices rise, and vice versa. Interest
rate risk is the risk that the securities in the Fund’s portfolio will decline in value because of increases in market interest
rates. The prices of longer -term securities fluctuate more than prices of shorter -term securities as interest rates change. These
risks may be greater in the current market environment because certain interest rates are near historically low levels. The Fund’s
use of leverage, as described herein, will tend to increase common stock interest rate risk. The Fund utilizes certain strategies,
including taking positions in futures or interest rate swaps, for the purpose of reducing the interest rate sensitivity of fixed
income securities held by the Fund and decreasing the Fund’s exposure to interest rate risk. The Fund is not required to
hedge its exposure to interest rate risk and may choose not to do so. To the extent the Fund holds variable or floating rate instruments,
a decrease (or, in the case of inverse floating rate securities, an increase) in market interest rates will adversely affect the
income received from such securities, which may adversely affect the Fund’s NAV. It is likely that there will be less governmental
action in the near future to maintain low interest rates. The negative impact on fixed income securities from the resulting rate
increases for that and other reasons could be swift and significant, including falling market values and reduced liquidity. Substantial
redemptions from bond and other income funds may worsen that impact. Other types of securities also may be adversely affected from
an increase in interest rates.
Inflation risk is the risk that the value
of assets or income from investments will be worth less in the future as inflation decreases the value of money over time. As inflation
increases, the real value of the common stock and distributions can decline. In addition, debt securities that have longer maturities
tend to fluctuate more in price in response to changes in market interest rates. A decline in the prices of the portfolio securities
owned by the Fund would cause a decline in the Fund’s NAV, which in turn is likely to cause a corresponding decline in the
market price of the common stock. This risk is more pronounced given the current market environment because certain interest rates
are near historically low levels.
Similarly, the yield spreads of the MBS
and ABS in which the Fund invests, or yield differentials between the Fund’s securities and Treasury or Agency securities
with comparable maturities, may widen, causing the Fund’s assets to underperform Treasury or Agency securities. The amount
of public information available about MBS and ABS in the Fund’s portfolio is generally less than that for corporate equities
or bonds, and the investment performance of the Fund may therefore be more dependent on the analytical capabilities of the Investment
Adviser than if the Fund were a stock or corporate bond fund. Additionally, the secondary market for certain types of MBS and ABS
may be less well- developed or liquid than many other securities markets, which may adversely affect the Fund’s ability to
sell its bonds at attractive prices.
Variable
and Floating Rate Securities Risk. Variable and floating rate securities provide for adjustment in the interest rate
paid on the obligations. The terms of such obligations typically provide that interest rates are adjusted based upon an interest
or market rate adjustment as provided in the respective obligations. The adjustment intervals may be regular, and range from daily
up to annually, or may be event-based, such as based on a change in the prime rate. Variable rate obligations typically provide
for a specified periodic adjustment in the interest rate, while floating rate obligations typically have an interest rate which
changes whenever there is a change in the external interest or market rate. Because of the interest rate adjustment feature, variable
and floating rate securities provide the Fund with a certain degree of protection against rises in interest rates, although the
Fund will participate in any declines in interest rates as well. Generally, changes in interest rates will have a smaller effect
on the market value of variable and floating rate securities than on the market value of comparable fixed-income obligations. Thus,
investing in variable and floating rate securities generally allows less opportunity for capital appreciation and depreciation
than investing in comparable fixed-income securities.
Corporate
Bonds Risk. Corporate debt securities are subject to the risk of the issuer’s inability to meet principal and
interest payments on the obligation and may also be subject to price volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer and general market liquidity. When interest rates rise, the value of corporate
debt can be expected to decline. Debt securities with longer maturities tend to be more sensitive to interest rate movements than
those with shorter maturities.
Credit
Risk. Credit risk is the risk that one or more bonds in the Fund’s portfolio will (1) decline in price due
to deterioration of the issuer’s or underlying pool’s financial condition or other events or (2) fail to pay interest
or principal when due. The prices of non-investment grade quality securities (that is, securities rated Ba or lower by Moody’s
or BB or lower by S&P or Fitch) are generally more sensitive to negative developments, such as a general economic downturn
or an increase in delinquencies in the pool of underlying mortgages that secure an MBS, than are the prices of higher grade securities.
Non-investment grade quality securities are regarded as having predominantly speculative characteristics with respect to the issuer’s
or pool’s capacity to pay interest and repay principal when due and as a result involve a greater risk of default. The market
for lower-graded securities may also have less information available than the market for other securities.
Systemic
Risk. Credit risk may arise through a default by one of several large institutions that are dependent on one another
to meet their liquidity or operational needs, so that a default by one institution causes a series of defaults by the other institutions.
This is sometimes referred to as a “systemic risk” and may adversely affect financial intermediaries, such as clearing
agencies, clearing houses, securities firms and exchanges, with which the Fund interacts on a daily basis.
Issuer
Risk. The value of fixed income securities may decline for a number of reasons which directly relate to the issuer,
such as management performance, financial leverage, reduced demand for the issuer’s goods and services, historical and prospective
earnings of the issuer and the value of the assets of the issuer.
Event
Risk. Event risk is the risk that corporate issuers may undergo restructurings, such as mergers, leveraged buyouts,
takeovers, or similar events financed by increased debt. As a result of the added debt, the credit quality and market value of
a company’s bonds and/or other debt securities may decline significantly.
Bank Loan
Risk. Bank loans (including senior loans) are usually rated below investment grade. The market for bank loans may be
subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods. Investments in bank loans are
typically in the form of an assignment or participation. Investors in a loan participation assume the credit risk associated with
the borrower and may assume the credit risk associated with an interposed financial intermediary. Accordingly, if a lead lender
becomes insolvent or a loan is foreclosed, the Fund could experience delays in receiving payments or suffer a loss. In an assignment,
the Fund effectively becomes a lender under the loan agreement with the same rights and obligations as the assigning bank or other
financial intermediary. Accordingly, if the loan is foreclosed, the Fund could become part owner of any collateral, and would bear
the costs and liabilities associated with owning and disposing of the collateral. Due to their lower place in the borrower’s
capital structure and possible unsecured status, junior loans involve a higher degree of overall risk than senior loans of the
same borrower. In addition, the floating rate feature of loans means that bank loans will not generally experience capital appreciation
in a declining interest rate environment. Declines in interest rates may also increase prepayments of debt obligations and require
the Fund to invest assets at lower yields.
The Fund that invests in senior loans may
be subject to greater levels of credit risk, call risk, settlement risk and liquidity risk than funds that do not invest in such
securities. Senior Loans and other types of direct indebtedness may not be readily marketable and may be subject to restrictions
on resale because, among other reasons, they may not be listed on any exchange, or a secondary market for such loans may not exist
or if a secondary market exists, it may be comparatively illiquid relative to markets for other more liquid fixed income securities.
As a result, in some cases, transactions in senior loans may involve greater costs than transactions in more actively traded securities.
Furthermore, restrictions on transfers in loan agreements, a lack of publicly-available information, irregular trading activity
and wide bid/ask spreads among other factors, may, in certain circumstances, make senior loans more difficult to sell at what the
Investment Adviser believes to be a fair price for such security. These factors may result in the Fund being unable to realize
full value for the senior loans and/or may result in the Fund not receiving the proceeds from a sale of a senior loan for an extended
period after such sale, each of which could result in losses to the Fund. Senior loans may have extended trade settlement periods
which may result in cash not being immediately available to the Fund. In addition, valuation of illiquid indebtedness involves
a greater degree of judgment in determining the Fund’s NAV than if that value were based on available market quotations,
and could result in significant variations in the Fund’s daily share price. At the same time, some loan interests are traded
among certain financial institutions and accordingly may be deemed liquid. The Investment Adviser will determine the liquidity
of the Fund’s investments by reference to market conditions and contractual provisions.
Leverage
Risk. The Fund currently intends to use leverage to seek to achieve its investment objectives. Although the Fund may
issue preferred stock or debt securities, it has no current intention to do so within the next one year of operations. The borrowing
of money or issuance of debt securities and preferred stock represents the leveraging of the Fund’s common stock. In addition,
the Fund may also leverage its common stock through investment techniques, such as reverse repurchase agreements, writing credit
default swaps, futures or engaging in short sales. Leverage creates risks which may adversely affect the return for the holders
of common stock, including:
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the likelihood of greater volatility of NAV and market price of and distributions in the Fund’s
common stock;
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fluctuations in the dividend rates on any preferred stock or in interest rates on borrowings and
short-term debt;
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increased operating costs, which are effectively borne by common shareholders, may reduce the Fund’s
total return; and
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the potential for a decline in the value of an investment acquired with borrowed funds, while the
Fund’s obligations under such borrowing or preferred stock remain fixed.
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In addition, the rights of lenders and
the holders of preferred stock and debt securities issued by the Fund will be senior to the rights of the holders of common stock
with respect to the payment of dividends or to the distribution of assets upon liquidation. Holders of preferred stock have voting
rights in addition to and separate from the voting rights of common shareholders. The holders of preferred stock, on the one hand,
and the holders of the common stock, on the other, may have interests that conflict in certain situations.
Leverage is a speculative technique that
could adversely affect the returns to common shareholders. Leverage can cause the Fund to lose money and can magnify the effect
of any losses. To the extent the income or capital appreciation derived from securities purchased with funds received from leverage
exceeds the cost of leverage, the Fund’s return will be greater than if leverage had not been used. Conversely, if the income
or capital appreciation from the securities purchased with such funds is not sufficient to cover the cost of leverage or if the
Fund incurs capital losses, the return of the Fund will be less than if leverage had not been used, and therefore the amount available
for distribution to common shareholders as dividends and other distributions will be reduced or potentially eliminated (or, in
the case of distributions, will consist of return of capital).
The Fund will pay (and the common shareholders
will bear) all costs and expenses relating to the Fund’s use of leverage, which will result in the reduction of the NAV of
the common stock.
The Fund’s leverage strategy may
not work as planned or achieve its goals. In addition, the amount of fees paid to the Investment Adviser will be higher if the
Fund uses leverage because the fees will be calculated on the Fund’s total assets minus the sum of accrued liabilities (other
than the aggregate indebtedness constituting financial leverage), which may create an incentive for the Investment Adviser to leverage
the Fund.
Certain types of borrowings may result
in the Fund being subject to covenants in credit agreements, including those relating to asset coverage, borrowing base and portfolio
composition requirements and additional covenants that may affect the Fund’s ability to pay dividends and distributions on
common stock in certain instances. The Fund may also be required to pledge its assets to the lenders in connection with certain
types of borrowings. The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more rating
agencies which may issue ratings for any preferred shares or short-term debt instruments issued by the Fund. These guidelines may
impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act.
Risks
of Recent Market and Economic Developments. Investing in the Fund involves market risk, which is the risk that
securities held by the Fund will fall in market value due to adverse market and economic conditions, perceptions regarding the
industries in which the issuers of securities held by the Fund participate and the particular circumstances and performance of
particular companies whose securities the Fund holds. An investment in the Fund represents an indirect economic stake in the securities
owned by the Fund. The market value of these securities, like other market investments, may move up or down, sometimes rapidly
and unpredictably. The NAV of the Fund may at any point in time be worth less than the amount at the time the shareholder invested
in the Fund, even after taking into account any reinvestment of distributions.
The global pandemic outbreak of an infectious
respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has now
been detected globally. On March 11, 2020, the World Health Organization announced that it had made the assessment that COVID-19
can be characterized as a pandemic. COVID-19 and concern about its spread has resulted in severe disruptions to global financial
markets, border closings, restrictions on travel and gatherings of any measurable amount of people, “shelter in place”
orders (or the equivalent) for states, cities, metropolitan areas and countries, expedited and enhanced health screenings, quarantines,
cancellations, business and school closings, disruptions to employment and supply chains, reduced productivity, severely impacted
customer and client activity in virtually all markets and sectors, and a virtual cessation of normal economic activity. These events
have contributed to severe market volatility, which may result in reduced liquidity, heightened volatility and negatively impact
Fund performance and the value of your investment in the Fund.
Common
Stock Risk. Common stock of an issuer in the Fund’s portfolio may decline in price for a variety of reasons, including
if the issuer fails to make anticipated dividend payments. Common stock in which the Fund will invest is structurally subordinated
to preferred stock, bonds and other debt instruments in a company’s capital structure, in terms of priority to corporate
income, and therefore will be subject to greater dividend risk than preferred stock or debt instruments of such issuers. In addition,
while common stock has historically generated higher average returns over time than fixed income securities, common stock has also
experienced significantly more volatility in those returns.
Preferred
Securities Risk. There are special risks associated with investing in preferred securities, including:
Deferral
and Omission. Preferred securities may include provisions that permit the issuer, at its discretion, to defer or omit
distributions for a stated period without any adverse consequences to the issuer.
Subordination.
Preferred securities are subordinated to bonds and other debt instruments in a company’s capital structure in terms of priority
to corporate income and liquidation payments, and therefore will be subject to greater credit risk than more senior debt instruments.
Liquidity.
Preferred securities may be substantially less liquid than many other securities, such as common stock or U.S. government securities.
Limited
Voting Rights. Generally, preferred securities offer no voting rights with respect to the issuing company unless preferred
dividends have been in arrears for a specified number of periods, at which time the preferred security holders may elect a number
of directors to the issuer’s board.
Special
Redemption Rights. In certain varying circumstances, an issuer of preferred securities may redeem the securities prior
to a specified date. As with call provisions, a redemption by the issuer may negatively impact the return of the security held
by the Fund.
Convertible
Securities Risk. Convertible securities generally offer lower interest or dividend yields than non-convertible securities
of similar quality. The market values of convertible securities tend to decline as interest rates increase and, conversely, to
increase as interest rates decline. In the absence of adequate anti-dilutive provisions in a convertible security, dilution in
the value of the Fund’s holding may occur in the event the underlying stock is subdivided, additional equity securities are
issued for below market value, a stock dividend is declared or the issuer enters into another type of corporate transaction that
has a similar effect.
Foreign
Securities Risk. Investments in foreign securities involve certain considerations and risks not ordinarily associated
with investments in securities of U.S. issuers. Foreign companies are not generally subject to the same accounting, auditing and
financial standards and requirements as those applicable to U.S. companies. Foreign securities exchanges, brokers and listed companies
may be subject to less government supervision and regulation than exists in the United States. Dividend and interest income may
be subject to withholding and other foreign taxes, which may adversely affect the net return on such investments. There may be
difficulty in obtaining or enforcing a court judgment abroad, and it may be difficult to effect repatriation of capital invested
in certain countries.
In addition, with respect to certain countries,
there are risks of expropriation, confiscatory taxation, political or social instability or diplomatic developments that could
affect assets of the Fund held in foreign countries.
There may be less publicly available information
about a foreign company than a U.S. company. Foreign securities markets may have substantially less volume than U.S. securities
markets and some foreign company securities are less liquid than securities of otherwise comparable U.S. companies. A portfolio
of foreign securities may also be adversely affected by fluctuations in the rates of exchange between the currencies of different
nations and by exchange control regulations. Foreign markets also have different clearance and settlement procedures that could
cause the Fund to encounter difficulties in purchasing and selling securities on such markets and may result in the Fund missing
attractive investment opportunities or experiencing loss. In addition, a portfolio that includes foreign securities can expect
to have a higher expense ratio because of the increased transaction costs on non-U.S. securities markets and the increased costs
of maintaining the custody of foreign securities.
Investments in foreign securities will
expose the Fund to the direct or indirect consequences of political, social or economic changes in the countries that issue the
securities or in which the issuers are located. Certain countries in which the Fund may invest have historically experienced, and
may continue to experience, high rates of inflation, high interest rates, exchange rate fluctuations, large amounts of external
debt, balance of payments and trade difficulties and extreme poverty and unemployment. Many of these countries are also characterized
by political uncertainty and instability. The cost of servicing external debt will generally be adversely affected by rising international
interest rates because many external debt obligations bear interest at rates which are adjusted based upon international interest
rates.
Emerging
Markets Risk. The Fund may invest in securities of companies in an “emerging market.” An “emerging
market” country is any country that is considered to be an emerging or developing country by the World Bank. Investments
in emerging market securities involve a greater degree of risk than, and special risks in addition to the risks associated with,
investments in domestic securities or in securities of foreign, developed countries. Foreign investment risk may be particularly
high to the extent that the Fund invests in securities of issuers based or doing business in emerging market countries or invests
in securities denominated in the currencies of emerging market countries. Investing in securities of issuers based or doing business
in emerging markets entails all of the risks of investing in securities of foreign issuers noted above, but to a heightened degree.
These heightened risks include: (i) greater risks of expropriation, confiscatory taxation, nationalization and less social,
political and economic stability; (ii) the smaller size of the market for such securities and a lower volume of trading, resulting
in a lack of liquidity and in price volatility; (iii) certain national policies which may restrict the Fund’s investment
opportunities, including restrictions on investing in issuers or industries deemed sensitive to relevant national interests and
requirements that government approval be obtained prior to investment by foreign persons; (iv) certain national policies that
may restrict the Fund’s repatriation of investment income, capital or the proceeds of sales of securities, including temporary
restrictions on foreign capital remittances; (v) the lack of uniform accounting and auditing standards and/or standards that
may be significantly different from the standards required in the United States; (vi) less publicly available financial and
other information regarding issuers; (vii) potential difficulties in enforcing contractual obligations; and (viii) higher
rates of inflation, higher interest rates and other economic concerns. Also, investing in emerging market countries may entail
purchases of securities of issuers that are insolvent, bankrupt, in default or otherwise of questionable ability to satisfy their
payment obligations as they become due, subjecting the Fund to a greater amount of credit risk and/or high yield risk.
Foreign
Currency Risk. The Fund may invest in companies whose securities are denominated or quoted in currencies other than
U.S. dollars or have significant operations or markets outside of the United States. In such instances, the Fund will be exposed
to currency risk, including the risk of fluctuations in the exchange rate between U.S. dollars (in which the Fund’s shares
are denominated and the distributions are paid by the Fund) and such foreign currencies. Therefore, to the extent the Fund does
not hedge its foreign currency risk or the hedges are ineffective, the value of the Fund’s assets and income could be adversely
affected by currency rate movements.
Certain non-U.S. currencies have been devalued
in the past and might face devaluation in the future. Currency devaluations generally have a significant and adverse impact on
the devaluing country’s economy in the short and intermediate term and on the financial condition and results of companies’
operations in that country. Currency devaluations may also be accompanied by significant declines in the values and liquidity of
equity and debt securities of affected governmental and private sector entities generally. There can be no assurance that current
or future developments with respect to foreign currency devaluations will not impair the Fund’s investment flexibility, its
ability to achieve its investment objective or the value of certain of its foreign currency denominated investments.
REIT Risk.
An investment in a REIT may be subject to risks similar to those associated with direct ownership of real estate, including losses
from casualty or condemnation and environmental liabilities, and changes in local and general economic conditions, market value,
supply and demand, interest rates, zoning laws, regulatory limitations on rents, property taxes and operating expenses. In addition,
an investment in a REIT is subject to additional risks, such as poor performance by the manager of the REIT, adverse changes to
the tax laws, changes in the cost or availability of credit, or the failure by the REIT to qualify for tax-free pass-through of
income under the Code, and to the risk of general declines in stock prices. In addition, some REITs have limited diversification
because they invest in a limited number of properties, a narrow geographic area, or a single type of property. Also, the organizational
documents of a REIT may contain provisions that make changes in control of the REIT difficult and time-consuming. As a shareholder
in a REIT, the Fund, and indirectly the Fund’s shareholders, would bear its ratable share of the REIT’s expenses and
would at the same time continue to pay its own fees and expenses.
Special
Risks of Derivative Transactions. The Fund may participate in derivative transactions. Such transactions entail certain
execution, market, counterparty liquidity, hedging and tax risks. Participation in the options or futures markets, in currency
transactions and in other derivatives transactions involves investment risks and transaction costs to which the Fund would not
be subject absent the use of these strategies. If the Investment Adviser’s prediction of movements in the direction of the
securities, foreign currency, interest rate or other referenced instruments or markets is inaccurate, the consequences to the Fund
may leave the Fund in a worse position than if it had not used such strategies. Valuation may be more difficult in times of market
turmoil since many investors and market makers may be reluctant to purchase complex instruments or quote prices for them. Risks
inherent in the use of options, foreign currency, futures contracts and options on futures contracts, securities indices and foreign
currencies include:
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dependence on the Investment Adviser’s ability to predict correctly movements in the direction
of the relevant measure;
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imperfect correlation between the price of the derivative instrument and movements in the prices
of the referenced assets;
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the fact that skills needed to use these strategies are different from those needed to select portfolio
securities;
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the possible absence of a liquid secondary market for any particular instrument at any time could
expose the Fund to losses;
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certain derivative transactions involve substantial leverage risk and may expose the Fund to potential
losses that exceed the amount originally invested;
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the possible need to defer closing out certain hedged positions to avoid adverse tax consequences;
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the possible inability of the Fund to purchase or sell a security or instrument at a time that
otherwise would be favorable for it to do so, or the possible need for the Fund to sell a security or instrument at a disadvantageous
time due to a need for the Fund to maintain “cover” or to segregate securities in connection with the hedging techniques;
and
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the creditworthiness of counterparties.
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In October 2020, the SEC adopted Rule 18f-4
under the 1940 Act, which regulates the ability of registered investment companies to use derivatives and other transactions that
create future payment or delivery obligations. Under the newly adopted Rule 18f-4, closed-end funds that use derivatives will
be subject to a value-at-risk (“VaR”) leverage limit, a derivatives risk management program and testing requirements
and requirements related to board reporting. These new requirements will apply unless a closed-end fund qualifies as a “limited
derivatives user,” as defined under the rule. Collectively, these requirements may limit the Fund’s ability to use
derivatives and/or enter into certain other financial contracts.
Counterparty
Risk. The Fund will be subject to credit risk with respect to the counterparties to the derivative contracts purchased
by the Fund. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the
Fund may experience significant delays in obtaining any recovery in bankruptcy or other reorganization proceedings. The Fund may
obtain only a limited recovery, or may obtain no recovery, in such circumstances. The counterparty risk for cleared derivatives
is generally lower than for uncleared over-the-counter derivative transactions since generally a clearing organization becomes
substituted for each counterparty to a cleared derivative contract and, in effect, guarantees the parties’ performance under
the contract as each party to a trade looks only to the clearing organization for performance of financial obligations under the
derivative contract. However, there can be no assurance that a clearing organization, or its members, will satisfy its obligations
to the Fund.
Liquidity
Risk. Although both over-the-counter and exchange-traded derivatives markets may experience the lack of liquidity, over-the-counter
non-standardized derivative transactions are generally less liquid than cleared or exchange-traded instruments. The illiquidity
of the derivatives markets may be due to various factors, including congestion, disorderly markets, limitations on deliverable
supplies, the participation of speculators, government regulation and intervention, and technical and operational or system failures.
In addition, the liquidity of a secondary market in an exchange-traded derivative contract may be adversely affected by “daily
price fluctuation limits” established by the exchanges which limit the amount of fluctuation in an exchange-traded contract
price during a single trading day. Once the daily limit has been reached in the contract, no trades may be entered into at a price
beyond the limit, thus preventing the liquidation of open positions. Prices have in the past moved beyond the daily limit on a
number of consecutive trading days. If it is not possible to close an open derivative position entered into by the Fund, the Fund
would continue to be required to make daily cash payments of variation margin in the event of adverse price movements. In such
a situation, if the Fund has insufficient cash, it may have to sell portfolio securities to meet daily variation margin requirements
at a time when it may be disadvantageous to do so. The absence of liquidity may also make it more difficult for the Fund to ascertain
a market value for such instruments. The inability to close options and futures positions also could have an adverse impact on
the Fund’s ability to effectively hedge its portfolio.
Risks
Associated with Position Limits Applicable to Derivatives. The Fund’s investments in regulated derivatives instruments,
such as swaps, futures and options, are or may in the future be subject to maximum position limits established by the U.S. Commodity
Futures Trading Commission (the “CFTC”) and U.S. and foreign futures exchanges. Under the exchange rules, all accounts
owned or managed by advisers, such as the Investment Adviser, their principals and affiliates would be combined for position limit
purposes. In order to comply with the position limits, the Investment Adviser may in the future reduce the size of positions that
would otherwise be taken for the Fund or not trade in certain markets on behalf of the Fund in order to avoid exceeding such limits.
A violation of position limits by the Investment Adviser could lead to regulatory action resulting in mandatory liquidation of
certain positions held by the Investment Adviser on behalf of the Fund. There can be no assurance that the Investment Adviser will
liquidate positions held on behalf of all the Investment Adviser’s accounts in a proportionate manner or at favorable prices,
which may result in substantial losses to the Fund.
Risks
Related to the Fund’s Clearing Broker and Central Clearing Counterparty. The Commodity Exchange Act (the “CEA”)
requires swaps and futures clearing brokers registered as “futures commission merchants” to segregate all funds received
from customers with respect to any orders for the purchase or sale of U.S. domestic futures contracts and cleared swaps from the
brokers’ proprietary assets. Similarly, the CEA requires each futures commission merchant to hold in a separate secure account
all funds received from customers with respect to any orders for the purchase or sale of foreign futures contracts and segregate
any such funds from the funds received with respect to domestic futures contracts. However, all funds and other property received
by a clearing broker from its customers are held by the clearing broker on a commingled basis in an omnibus account and may be
freely accessed by the clearing broker, which may also invest any such funds in certain instruments permitted under the applicable
regulation. There is a risk that assets deposited by the Fund with any swaps or futures clearing broker as margin for futures contracts
or cleared swaps may, in certain circumstances and to varying degrees for swaps and options contracts, be used to satisfy losses
of other clients of the Fund’s clearing broker. In addition, the assets of the Fund might not be fully protected in the event
of the Fund’s clearing broker’s bankruptcy, as the Fund would be limited to recovering only a pro rata share of all
available funds segregated on behalf of the clearing broker’s combined domestic customer accounts.
Similarly, the CEA requires a clearing
organization approved by the CFTC as a derivatives clearing organization to segregate all funds and other property received from
a clearing member’s clients in connection with domestic futures, swaps and options contracts from any funds held at the clearing
organization to support the clearing member’s proprietary trading. Nevertheless, with respect to futures and options contracts,
a clearing organization may use assets of a non-defaulting customer held in an omnibus account at the clearing organization to
satisfy payment obligations of a defaulting customer of the clearing member to the clearing organization. With respect to cleared
swaps, a clearing organization generally cannot use assets of a non-defaulting customer with limited exceptions. As a result, in
the event of a default or the clearing broker’s other clients or the clearing broker’s failure to extend own funds
in connection with any such default, the Fund would not be able to recover the full amount of assets deposited by the clearing
broker on behalf of the Fund with the clearing organization.
Swaps.
Swap agreements are types of derivatives. In order to seek to hedge the value of the Fund’s portfolio, to hedge against increases
in the Fund’s cost associated with the interest payments on its outstanding borrowings or to seek to increase the Fund’s
return, the Fund may enter into interest rate or credit default swap transactions. In interest rate swap transactions, there is
a risk that yields will move in the direction opposite of the direction anticipated by the Fund, which would cause the Fund to
make payments to its counterparty in the transaction that could adversely affect Fund performance. In addition to the risks applicable
to swaps generally, credit default swap transactions involve special risks because they are difficult to value, are highly susceptible
to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual
default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty).
Credit default swaps may in some cases be illiquid, and they increase credit risk since the Fund has exposure to both the issuer
of the referenced obligation and the counterparty to the credit default swap. Additionally, to the extent the Fund sells credit
default swap contracts, the Fund effectively adds economic leverage to its portfolio because, in addition to its total net assets,
the Fund is subject to investment exposure on the notional amount of the swap in the event of a default of the referenced debt
obligation. The Fund is not required to enter into interest rate or credit default swap transactions for hedging purposes or to
enhance its return, and may choose not to do so.
Over-the-Counter
Trading Risk. Derivative instruments, such as swap agreements, that may be purchased or sold by the Fund may include
instruments not traded on an exchange. The risk of nonperformance by the counterparty to an instrument is generally greater than,
and the ease with which the Fund can dispose of or enter into closing transactions with respect to an instrument is generally less
than, the risk associated with an exchange traded instrument. In addition, greater disparities may exist between “bid”
and “asked” prices for derivative instruments that are not traded on an exchange. Derivative instruments not traded
on exchanges also are not subject to the same type of government regulation as exchange traded instruments, and many of the protections
afforded to participants in a regulated environment may not be available in connection with the transactions.
Tracking
Risk. The value of the derivatives that the Fund uses to gain commodities exposure may not correlate to the values of
the underlying commodities. When used for hedging purposes, an imperfect or variable degree of correlation between price or rate
movements of the derivative instrument and the underlying investment sought to be hedged may prevent the Fund from achieving the
intended hedging effect or expose the Fund to risk of loss.
Short
Sales Risk. The Fund may take short positions in securities that the Adviser believes may decline in price or in the
aggregate may underperform broad market benchmarks. The Fund may also engage in derivatives transactions that provide similar short
exposure. In times of unusual or adverse market, economic, regulatory or political conditions, the Fund may not be able, fully
or partially, to implement its short selling strategy.
Short sales are transactions in which the
Fund sells a security or other instrument (such as an option, forward, futures or other derivative contract) that it does not own.
Short selling allows the Fund to profit from a decline in market price to the extent such decline exceeds the transaction costs
and the costs of borrowing the securities. If a security sold short increases in price, the Fund may have to cover its short position
at a higher price than the short sale price, resulting in a loss. The Fund may have substantial short positions and must borrow
those securities to make delivery to the buyer. The Fund may not be able to borrow a security that it needs to deliver or it may
not be able to close out a short position at an acceptable price and may have to sell related long positions before it had intended
to do so. Thus, the Fund may not be able to successfully implement its short sale strategy due to limited availability of desired
securities or for other reasons. Also, there is the risk that the counterparty to a short sale may fail to honor its contractual
terms, causing a loss to the Fund.
Because losses on short sales arise from
increases in the value of the security sold short, such losses are theoretically unlimited. By contrast, a loss on a long position
arises from decreases in the value of the security and is limited by the fact that a security’s value cannot go below zero.
The use of short sales in combination with long positions in the Fund’s portfolio in an attempt to improve performance or
reduce overall portfolio risk may not be successful and may result in greater losses or lower positive returns than if the Fund
held only long positions. It is possible that the Fund’s long securities positions will decline in value at the same time
that the value of its short securities positions increase, thereby increasing potential losses to the Fund. In addition, the Fund’s
short selling strategies will limit its ability to fully benefit from increases in the securities markets.
Securities
Lending Risk. The Fund may lend its portfolio securities to banks or dealers which meet the creditworthiness standards
established by the Board of Directors. Securities lending is subject to the risk that loaned securities may not be available to
the Fund on a timely basis and the Fund may therefore lose the opportunity to sell the securities at a desirable price. Any loss
in the market price of securities loaned by the Fund that occurs during the term of the loan would be borne by the Fund and would
adversely affect the Fund’s performance. Also, there may be delays in recovery, or no recovery, of securities loaned or even
a loss of rights in the collateral should the borrower of the securities fail financially while the loan is outstanding.
Repurchase
Agreements Risk. Subject to its investment objectives and policies, the Fund may invest in repurchase agreements for
leverage or investment purposes. Repurchase agreements typically involve the acquisition by the Fund of fixed income securities
from a selling financial institution such as a bank, savings and loan association or broker-dealer. The agreement provides that
the Fund will sell the securities back to the institution at a fixed time in the future. The Fund does not bear the risk of a decline
in the value of the underlying security unless the seller defaults under its repurchase obligation. In the event of the bankruptcy
or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying securities
and losses, including possible decline in the value of the underlying security during the period in which the Fund seeks to enforce
its rights thereto; possible lack of access to income on the underlying security during this period; and expenses of enforcing
its rights. While repurchase agreements involve certain risks not associated with direct investments in fixed income securities,
the Fund follows procedures approved by the Board of Directors that are designed to minimize such risks. In addition, the value
of the collateral underlying the repurchase agreement will be at least equal to the repurchase price, including any accrued interest
earned on the repurchase agreement. In the event of a default or bankruptcy by a selling financial institution, the Fund generally
will seek to liquidate such collateral. However, the exercise of the Fund’s right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a default of the obligation to repurchase were less
than the repurchase price, the Fund could suffer a loss.
Reverse
Repurchase Agreements Risk. Reverse repurchase agreements involve the risks that the interest income earned on the investment
of the proceeds will be less than the interest expense of the Fund, that the market value of the securities sold by the Fund may
decline below the price at which the Fund is obligated to repurchase the securities and that the securities may not be returned
to the Fund. There is no assurance that reverse repurchase agreements can be successfully employed.
Illiquid
and Restricted Securities Risk. The Fund may invest in restricted securities and otherwise illiquid investments. Restricted
securities are securities that cannot be offered for public resale unless registered under the applicable securities laws or that
have a contractual restriction that prohibits or limits their resale such as Rule 144A securities. They may include private
placement securities that have not been registered under the Securities Act of 1933, as amended (the “Securities Act”).
Restricted securities may not be listed on an exchange and may or may not have an active trading market. An illiquid investment
is a security or other investment that cannot be disposed of within seven days in the ordinary course of business at approximately
the value at which the Fund has valued the investment. Restricted securities often can be resold only in privately negotiated transactions
with a limited number of purchasers or in a public offering registered under the Securities Act. Considerable delay could be encountered
in either event and, unless otherwise contractually provided for, the Fund’s proceeds upon sale may be reduced by the costs
of registration or underwriting discounts. The difficulties and delays associated with such transactions could result in the Fund’s
inability to realize a favorable price upon disposition of restricted securities, and at times might make disposition of such securities
impossible. In addition, the Fund may be unable to sell other illiquid investments when it desires to do so, resulting in the Fund’s
obtaining a lower price or being required to retain the investment. Illiquid investments generally must be valued at fair value,
which is inherently less precise than utilizing market values for liquid investments, and may lead to differences between the price
at which a security is valued for determining the Fund’s NAV and the price the Fund actually receives upon sale.
LIBOR
Risk. London Interbank Offered Rate (“LIBOR”). The Fund may invest in certain instruments including, but
not limited to, repurchase agreements, collateralized loan obligations and mortgage-backed securities, that rely in some fashion
upon LIBOR. The Fund also utilizes leverage primarily based on LIBOR. LIBOR is an average interest rate, determined by the ICE
Benchmark Administration (“IBA”), that banks charge one another for the use of short-term money. The United Kingdom’s
Financial Conduct Authority, which regulates LIBOR, has announced plans to phase out the use of LIBOR by the end of 2021. In November 2020, IBA
announced that it will consult on its intention to cease publication of (i) euro, sterling, Swiss franc and yen LIBORs after
December 31, 2021, (ii) one-week and two-week U.S. dollar LIBORs after December 31, 2021 and (iii) all other
tenors of U.S. dollar LIBORs after June 30, 2023. Acknowledging IBA’s announcement regarding U.S. dollar LIBOR, the
Federal Reserve Board, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency noted that extending
the publication of U.S. dollar LIBOR until June 30, 2023 would allow most legacy U.S. dollar LIBOR contracts to mature before
LIBOR experiences disruptions and cautioned that banks entering into new contracts that use U.S. dollar LIBOR as a reference rate
after December 31, 2021 would create safety and soundness risks.
At this time, no consensus exists as to
what rate or rates will become accepted alternatives to LIBOR, although the U.S. Federal Reserve, in connection with the Alternative
Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar
LIBOR with the Secured Overnight Financing Rate (“SOFR”). Given the inherent differences between LIBOR and SOFR, or
any other alternative benchmark rate that may be established, there remains uncertainty regarding the future utilization of LIBOR
and the nature of any replacement rate. Any potential effects of the transition away from LIBOR on the Fund or on certain instruments
in which the Fund invests can be difficult to ascertain, and they may vary depending on factors that include, but are not limited
to: (i) existing fallback or termination provisions in individual contracts and (ii) whether, how, and when industry
participants develop and adopt new reference rates and fallbacks for both legacy and new products and instruments. For example,
certain of the Fund’s investments may involve individual contracts that have no existing fallback provision or language that
contemplates the discontinuation of LIBOR, and those investments could experience increased volatility or illiquidity as a result
of the transition process. In addition, interest rate provisions included in such contracts may need to be renegotiated in contemplation
of the transition away from LIBOR. The transition may also result in a reduction in the value of certain instruments held by the
Fund, including those described in this paragraph, or a reduction in the effectiveness of related Fund transactions such as hedges.
Any such effects of the transition away from LIBOR, as well as other unforeseen effects, could result in losses to the Fund.
Corporate
Loans Risk. In furtherance of its primary investment objective and subject to its investment policies and limitations,
the Fund may also invest in primary or secondary market purchases of loans or participation interests in loans extended to corporate
borrowers or sovereign governmental entities by commercial banks and other financial institutions (“Corporate Loans”).
As in the case of lower grade securities, the Corporate Loans in which the Fund may invest may be rated below investment grade
(lower than Baa by Moody’s and lower than BBB by S&P) or may be unrated but of comparable quality in the judgment of
the Investment Adviser. As in the case of lower grade securities, such Corporate Loans can be expected to provide higher yields
than lower-yielding, higher-rated fixed income securities but may be subject to greater risk of loss of principal and income. The
risks of investment in such Corporate Loans are similar in many respects to those of investment in lower grade securities. There
are, however, some significant differences between Corporate Loans and lower grade securities. Corporate Loans are frequently secured
by pledges of liens and security interests in the assets of the borrower, and the holders of Corporate Loans are frequently the
beneficiaries of debt service subordination provisions imposed on the borrower’s bondholders. These arrangements are designed
to give Corporate Loan investors preferential treatment over investors in lower grade securities in the event of a deterioration
in the credit quality of the issuer. Even when these arrangements exist, however, there can be no assurance that the principal
and interest owed on the Corporate Loans will be repaid in full. Corporate Loans generally bear interest at rates set at a margin
above a generally recognized base lending rate that may fluctuate on a day to day basis, in the case of the prime rate of a U.S.
bank, or which may be adjusted on set dates, typically every 30 days but generally not more than one year, in the case of LIBOR.
Consequently, the value of Corporate Loans held by the Fund may be expected to fluctuate significantly less than the value of fixed
rate lower grade securities as a result of changes in the interest rate environment. On the other hand, the secondary dealer market
for Corporate Loans is not as well developed as the secondary dealer market for lower grade securities, and therefore presents
increased market risk relating to liquidity and pricing concerns.
U.S. Government
Securities Risk. Some U.S. Government securities, such as Treasury bills, notes, and bonds and mortgage-backed securities
guaranteed by the Government National Mortgage Association (Ginnie Mae), are supported by the full faith and credit of the United
States; others are supported by the right of the issuer to borrow from the U.S. Treasury; others are supported by the discretionary
authority of the U.S. Government to purchase the agency’s obligations; still others are supported only by the credit of the
issuing agency, instrumentality, or enterprise. Although U.S. Government-sponsored enterprises may be chartered or sponsored by
Congress, they are not funded by Congressional appropriations, and their securities are not issued by the U.S. Treasury, their
obligations are not supported by the full faith and credit of the U.S. Government, and so investments in their securities or obligations
issued by them involve greater risk than investments in other types of U.S. Government securities. In addition, certain governmental
entities have been subject to regulatory scrutiny regarding their accounting policies and practices and other concerns that may
result in legislation, changes in regulatory oversight and/or other consequences that could adversely affect the credit quality,
availability or investment character of securities issued or guaranteed by these entities.
The events surrounding the U.S. federal
government debt ceiling and any resulting agreement could adversely affect the Fund’s ability to achieve its investment objectives.
On August 5, 2011, S&P lowered its long-term sovereign credit rating on the U.S. The downgrade by S&P and other future
downgrades could increase volatility in both stock and bond markets, result in higher interest rates and lower Treasury prices
and increase the costs of all kinds of debt. These events and similar events in other areas of the world could have significant
adverse effects on the economy generally and could result in significant adverse impacts on issuers of securities held by the Fund
and the Fund itself. The Investment Adviser cannot predict the effects of these or similar events in the future on the U.S. economy
and securities markets or on the Fund’s portfolio. The Investment Adviser may not timely anticipate or manage existing, new
or additional risks, contingencies or developments.
Municipal
Securities Risk. The amount of public information available about municipal securities is generally less than that for
corporate equities or bonds, and the investment performance of the Fund’s municipal securities investments may therefore
be more dependent on the analytical abilities of the Investment Adviser. The secondary market for municipal securities, particularly
below investment grade municipal securities, also tends to be less well-developed or liquid than many other securities markets,
which may adversely affect the Fund’s ability to sell such securities at prices approximating those at which the Fund may
currently value them. In addition, many state and municipal governments that issue securities are under significant economic and
financial stress and may not be able to satisfy their obligations. The ability of municipal issuers to make timely payments of
interest and principal may be diminished during general economic downturns and as governmental cost burdens are reallocated among
federal, state and local governments. Issuers of municipal securities might seek protection under bankruptcy laws. In the event
of bankruptcy of such an issuer, holders of municipal securities could experience delays in collecting principal and interest and
such holders may not be able to collect all principal and interest to which they are entitled.
Mezzanine
Loan Risk. Mezzanine loans involve certain considerations and risks. For example, the terms of mezzanine loans may restrict
transfer of the interests securing such loans (including an involuntary transfer upon foreclosure) or may require the consent of
the senior lender or other members or partners of or equity holders in the related real estate company, or may otherwise prohibit
a change of control of the related real estate company. These and other limitations on realization on the collateral securing a
mezzanine loan or the practical limitations on the availability and effectiveness of such a remedy may affect the likelihood of
repayment in the event of a default.
When-Issued,
Forward Commitment and Delayed Delivery Transactions Risk. When-issued, forward commitment and delayed delivery transactions
occur when securities are purchased or sold by the Fund with payment and delivery taking place in the future to secure an advantageous
yield or price. Securities purchased on a when-issued, forward commitment or delayed delivery basis may expose the Fund to counterparty
risk of default as well as the risk that securities may experience fluctuations in value prior to their actual delivery. The Fund
will not accrue income with respect to a when-issued, forward commitment or delayed delivery security prior to its stated delivery
date. Purchasing securities on a when-issued, forward commitment or delayed delivery basis can involve the additional risk that
the price or yield available in the market when the delivery takes place may not be as favorable as that obtained in the transaction
itself.
Risks
Associated With Long-Term Objective; Not a Complete Investment Program. The Fund is intended for investors seeking a
high level of total return, with an emphasis on income. The Fund is not meant to provide a vehicle for those who wish to exploit
short-term swings in the stock market and is intended for long-term investors. An investment in shares of the Fund should not be
considered a complete investment program. Each shareholder should take into account the Fund’s investment objective as well
as the shareholder’s other investments when considering an investment in the Fund.
Management
Risk. The Fund is subject to management risk because its portfolio will be actively managed. The Investment Adviser
will apply investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee that
these will produce the desired results.
Potential
Conflicts of Interest Risk. The Investment Adviser and its affiliates are involved worldwide with a broad spectrum of
financial services and asset management activities and may engage in the ordinary course of business in activities in which their
interests or the interests of their clients may conflict with those of the Fund. The Investment Adviser and its affiliates may
provide investment management services to other funds and discretionary managed accounts that follow an investment program similar
to that of the Fund. Subject to the requirements of the 1940 Act, the Investment Adviser and its affiliates intend to engage in
such activities and may receive compensation from third parties for their services. Neither the Investment Adviser nor its affiliates
are under any obligation to share any investment opportunity, idea or strategy with the Fund. As a result, the Investment Adviser
and its affiliates may compete with the Fund for appropriate investment opportunities. The results of the Fund’s investment
activities, therefore, may differ from those of other accounts managed by the Investment Adviser and its affiliates, and it is
possible that the Fund could sustain losses during periods in which one or more of the proprietary or other accounts managed by
the Investment Adviser or its affiliates achieve profits. The Investment Adviser has informed the Fund’s Board of Directors
that the investment professionals associated with the Investment Adviser are actively involved in other investment activities not
concerning the Fund and will not be able to devote all of their time to the Fund’s business and affairs. The Investment Adviser
and its affiliates have adopted policies and procedures designed to address potential conflicts of interests and to allocate investments
among the accounts managed by the Investment Adviser and its affiliates in a fair and equitable manner.
Anti-Takeover
Provisions Risk. The Fund’s charter and Bylaws contain provisions that may delay, defer or prevent a transaction
or a change in control that might otherwise be in the best interests of the shareholders. Such provisions may discourage outside
parties from seeking control of the Fund or seeking to change the composition of its Board of Directors, which could result in
shareholders not having the opportunity to realize a price greater than the current market price for their shares at some time
in the future.
The Fund’s charter classifies the
Fund’s Board of Directors into three classes, with each class of directors serving until the third annual meeting following
their election and until their successors are duly elected and qualified, and authorizes the Board of Directors to cause the Fund
to issue additional shares of stock. The Board of Directors of The Fund also may classify or reclassify any unissued common shares
into one or more classes or series of stock, including preferred stock, may set the terms of each class or series and may authorize
the Fund to issue the newly-classified or reclassified shares, in each such instance without shareholder approval.
These provisions could have the effect
of depriving common shareholders of opportunities to sell their common shares at a premium over the then current market price of
the common shares.
Unrated
Securities Risk. Because the Fund may purchase securities that are not rated by any rating organization, the Investment
Adviser may internally assign ratings to certain of those securities, after assessing their credit quality, in categories of those
similar to those of rating organizations. Some unrated securities may not have an active trading market or may be difficult to
value, which means the Fund might have difficulty selling them promptly at an acceptable price.
Valuation
Risk. The Investment Adviser may use an independent pricing service or prices provided by dealers to value certain fixed
income securities at their market value. Because the secondary markets for certain investments may be limited, they may be difficult
to value. When market quotations are not readily available or are deemed to be unreliable, The Fund values its investments at fair
value as determined in good faith pursuant to policies and procedures approved by the Board of Directors. Fair value pricing may
require subjective determinations about the value of a security or other asset. As a result, there can be no assurance that fair
value pricing will result in adjustments to the prices of securities or other assets, or that fair value pricing will reflect actual
market value, and it is possible that the fair value determined for a security or other asset will be materially different from
quoted or published prices, from the prices used by others for the same security or other asset and/or from the value that actually
could be or is realized upon the sale of that security or other asset. Where market quotations are not readily available, valuation
may require more research than for more liquid investments. In addition, elements of judgment may play a greater role in valuation
in such cases than for investments with a more active secondary market because there is less reliable objective data available.
Risks
Associated With Status as a Regulated Investment Company. The Fund intends to qualify for federal income tax purposes
as a regulated investment company under Subchapter M of the Code. Qualification requires, among other things, compliance by the
Fund with certain distribution requirements. Statutory limitations on distributions on the common shares if the Fund is leveraged
and fails to satisfy the 1940 Act’s asset coverage requirements could jeopardize the Fund’s ability to meet such distribution
requirements. The Fund presently intends, however, to purchase or redeem any outstanding leverage to the extent necessary in order
to maintain compliance with such asset coverage requirements.
Risks
Associated with Recent Commodity Futures Trading Commission Rulemaking. The Investment Adviser has claimed an exclusion
from definition of the term “commodity pool operator” in accordance with Rule 4.5 promulgated by the CFTC with
respect to The Fund, so that the Investment Adviser is not subject to registration or regulation as a commodity pool operator under
the CEA. In order to maintain the exclusion for the Investment Adviser, the Fund must invest no more than a prescribed level of
its liquidation value in futures, swaps and certain other derivative instruments subject to CEA jurisdiction and the Fund must
not market itself as providing investment exposure to such instruments. If the Fund’s investments no longer qualify for the
exclusion, the Investment Adviser may be subject to the CFTC registration requirement, and the disclosure and operations of the
Fund would need to comply with all applicable regulations governing commodity pools and commodity pool operators. Compliance with
these additional registration and regulatory requirements may increase operating expenses. Other potentially adverse regulatory
requirements may develop.
Exchange-Traded
Fund Risk. ETFs are typically open-end investment companies that are bought and sold on a national securities exchange.
When the Fund invests in an ETF, it will bear additional expenses based on its pro rata share of the ETF’s operating expenses,
including the potential duplication of management fees. The risk of owning an ETF generally reflects the risks of owning the underlying
securities it holds. Many ETFs seek to replicate a specific benchmark index. However, an ETF may not fully replicate the performance
of its benchmark index for many reasons, including because of the temporary unavailability of certain index securities in the secondary
market or discrepancies between the ETF and the index with respect to the weighting of securities or the number of stocks held.
Inverse ETFs are subject to the risk that their performance will fall as the value of their benchmark indices rises. Lack of liquidity
in an ETF could result in an ETF being more volatile than the underlying portfolio of securities it holds. In addition, because
of ETF expenses, compared to owning the underlying securities directly, it may be more costly to own an ETF. The Fund also will
incur brokerage costs when it purchases ETFs.
If the Fund invests in shares of another
mutual fund, shareholders will indirectly bear fees and expenses charged by the underlying mutual funds in which the Fund invests
in addition to the Fund’s direct fees and expenses. Furthermore, investments in other mutual funds could affect the timing,
amount and character of distributions to shareholders and therefore may increase the amount of taxes payable by investors in the
Fund.
Exchange-Traded
Note Risk. ETNs are subject to the credit risk of the issuer. The value of an ETN will vary and will be influenced by
its time to maturity, level of supply and demand for the ETN, volatility and lack of liquidity in underlying securities, currency
and commodities markets as well as changes in the applicable interest rates, changes in the issuer’s credit rating, and economic,
legal, political, or geographic events that affect the referenced index. There may be restrictions on the Fund’s right to
redeem its investment in an ETN, which is meant to be held until maturity. The Fund’s decision to sell its ETN holdings may
be limited by the availability of a secondary market.
Brexit
Risk. In a public referendum in June 2016, the United Kingdom voted to leave the European Union in a process now
commonly referred to as “Brexit”. On January 31, 2020, the United Kingdom officially withdrew from the European
Union and entered into a transition period until December 31, 2020, during which the United Kingdom will effectively remain
in the European Union from an economic perspective but will no longer have political representation in the European Union parliament.
During the transition period, the United Kingdom and European Union has sought to negotiate and finalize a new trade agreement,
but the parties have yet to agree on a deal. It is possible that the transition period could be extended for up to two years. There
is considerable uncertainty surrounding the outcome of the negotiations for a new trade agreement, including whether that parties
will be able to agree and implement a new trade agreement or what the nature of such trade arrangement will be and the impact of
Brexit on the United Kingdom, the European Union and the broader global economy may be significant. As a result of the political
divisions within the United Kingdom and between the United Kingdom and the European Union that the referendum vote and the negotiations
have highlighted and the uncertain consequences of Brexit, the United Kingdom and European economies and the broader global economy
could be significantly impacted, which may result in increased volatility and illiquidity and potentially lower economic growth
on markets in the United Kingdom, Europe and globally, which could potentially have an adverse effect on the value of the Fund’s
investments. In addition to concerns related to the effect of Brexit, that referendum may inspire similar initiatives in other
European Union member countries, producing further risks for global financial markets.
Small-
and Mid-Capitalization Risk. The Fund may invest across large-, mid-, and small-capitalization stocks. From time to
time, the Fund may invest its assets in small- and medium-size companies. Such investments entail greater risk than investments
in larger, more established companies. Small- and medium-size companies may have narrower markets and more limited managerial and
financial resources than larger, more established companies. As a result of these risks and uncertainties, the returns from these
small- and medium-size stocks may trail returns from the overall stock market. Historically, these stocks have been more volatile
in price than the large-capitalization stocks.
Defensive
Investments. When adverse market or economic conditions occur, the Fund may temporarily invest all or a portion of its
assets in defensive investments that are short-term and liquid. Such investments include U.S. government securities, certificates
of deposit, banker’s acceptances, time deposits, repurchase agreements, and other high quality debt instruments. When following
a defensive strategy, the Fund will be less likely to achieve its investment objective.
Portfolio
Selection Risk. The Investment Adviser’s judgment about the quality, relative yield, relative value or market
trends affecting a particular sector or region, market segment, security or about interest rates generally may prove to be incorrect.
Portfolio
Turnover Risk. A high portfolio turnover rate (100% or more) has the potential to result in the realization and distribution
to shareholders of higher capital gains, which may subject you to a higher tax liability. A high portfolio turnover rate also leads
to higher transaction costs.
MLP Risk.
An MLP that invests in a particular industry (e.g. oil and gas) will be harmed by detrimental economic events within that
industry. Recently, the energy sector has experienced significant volatility as a result of fluctuations in the price of oil and
such volatility may continue in the future. As a result, MLPs that invest in the oil industry are subject to greater volatility
than MLPs which do not invest in the oil sector. As partnerships, MLPs may be subject to less regulation (and less protection for
investors) under state laws than corporations. In addition, MLPs may be subject to state taxation in certain jurisdictions, which
may reduce the amount of income an MLP pays to its investors.
Real Estate
Market Risk. The Fund will not invest in real estate directly, but only in securities issued by real estate companies.
However, because the Fund has significant exposure to the real estate sector, the Fund is also subject to the risks associated
with the direct ownership of real estate. These risks include:
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declines in the value of real estate;
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risks related to general and local economic conditions;
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possible lack of availability of mortgage funds;
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extended vacancies of properties;
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increases in property taxes and operating expenses;
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changes in zoning laws;
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losses due to costs resulting from the clean-up of environmental problems;
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liability to third parties for damages resulting from environmental problems;
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casualty or condemnation losses;
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changes in neighborhood values and the appeal of properties to tenants; and
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changes in interest rates.
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Thus, the value of the Fund’s shares
may change at different rates compared to the value of shares of the Fund with investments in a mix of different industries.
Concentration
Risk. Concentration risk is the risk that The Fund’s investments in the securities of companies in one industry
will cause the Fund to be more exposed to developments affecting a single industry or market sector than a more broadly diversified
fund would be. The Fund may be subject to greater volatility with respect to its portfolio securities than the Fund that is more
broadly diversified.
Fixed
Income Risk. The prices of fixed income securities react to economic developments, particularly interest rate changes,
as well as to perceptions about the credit risk of individual issuers. Increases in interest rates can cause the prices of the
Fund’s fixed income securities to decline, and the level of current income from a portfolio of fixed income securities may
decline in certain interest rate environments. These risks may be greater in the current market environment because interest rates
are near historically low levels. It is likely that there will be less governmental action in the near future to maintain low interest
rates. The negative impact on fixed income securities from the resulting rate increases for that and other reasons may be swift
and significant.
Following the financial crisis of 2008,
the Federal Reserve Board lowered the target range for the federal funds rate to near zero and implemented quantitative easing
programs. Quantitative easing ended in 2014. In a statement issued in March 2015, the Federal Open Market Committee stated
that it anticipated that it would be appropriate to raise the target range for the federal funds rate when it had seen some further
improvement in the labor market and was reasonably confident that inflation would move back to its two percent objective over
the medium term. In December 2015, the Federal Open Market Committee decided to raise the target range for the federal funds
rate to one-quarter to one-half percent and addressed how it would determine the timing and size of future adjustments to the
target range for the federal funds rate.
Investment
Risk. An investment in the Fund is subject to investment risk, including the possible loss of the entire principal amount
that you invest.
Return
of Capital Risk. The Fund expects to make quarterly distributions at a level percentage rate regardless of its quarterly
performance. All or a portion of such distributions may represent a return of capital. A return of capital is the portion of the
distribution representing the return of your investment in the Fund. A return of capital is tax-free to the extent of a shareholder’s
basis in the Fund’s shares and reduces the shareholder’s basis to that extent.
Commercial
Paper Risk. Commercial paper includes short-term unsecured promissory notes, variable rate demand notes, and variable
rate master demand notes issued by domestic and foreign bank holding companies, corporations, and financial institutions as well
as similar taxable and tax-exempt instruments issued by government agencies and instrumentalities. These instruments are generally
unsecured, which increases the credit risk associated with this type of investment.
Stapled
Security Risk. A stapled security is a security that is comprised of two parts that cannot be separated from one another.
The two parts of a stapled security are a unit of a trust and a share of a company. The resulting security is influenced by both
parts, and must be treated as one unit at all times, such as when buying or selling a security. The value of stapled securities
and the income derived from them may fall as well as rise. Stapled securities are not obligations of, deposits in, or guaranteed
by the Fund. The listing of stapled securities on a domestic or foreign exchange does not guarantee a liquid market for stapled
securities.
Investment
Grade Securities Risk. Investment grade corporate securities are securities rated BBB- or above by Standard and Poor’s
Corporation or Fitch IBCA or Baa3 or above by Moody’s Investors Service, Inc. or, if non-rated, are determined by the
Investment Adviser to be of comparable credit quality. Investment grade corporate securities are fixed income securities issued
by U.S. corporations, including debt securities, convertible securities and preferred stock. Ratings are only the opinions of the
companies issuing them and are not guarantees as to quality.
Short-term
Debt Obligations Risk. The Fund may invest in certain bank obligations including certificates of deposit, bankers’
acceptances, time deposits and promissory notes that earn a specified rate of return and may be issued by (i) a domestic branch
of a domestic bank, (ii) a foreign branch of a domestic bank, (iii) a domestic branch of a foreign bank or (iv) a
foreign branch of a foreign bank. Bank obligations may be structured as fixed-, variable- or floating-rate obligations.
Certificates of deposit, or so-called CDs,
typically are interest-bearing debt instruments issued by banks and have maturities ranging from a few weeks to several years.
Yankee dollar certificates of deposit are negotiable CDs issued in the United States by branches and agencies of foreign banks.
Eurodollar certificates of deposit are CDs issued by foreign banks with interest and principal paid in U.S. dollars. Eurodollar
and Yankee Dollar CDs typically have maturities of less than two years and have interest rates that typically are pegged to the
London Interbank Offered Rate or LIBOR. Bankers’ acceptances are time drafts drawn on and accepted by banks, are a customary
means of effecting payment for merchandise sold in import-export transactions and are a general source of financing. A time deposit
can be either a savings account or CD that is an obligation of a financial institution for a fixed term. Typically, there are penalties
for early withdrawals of time deposits.
Promissory notes are written commitments
of the maker to pay the payee a specified sum of money either on demand or at a fixed or determinable future date, with or without
interest.
Bank investment contracts are issued by
banks. Pursuant to such contracts, the Fund may make cash contributions to a deposit fund of a bank. The bank then credits to the
Fund payments at floating or fixed interest rates. The Fund also may hold funds on deposit with its custodian for temporary purposes.
Certain bank obligations, such as some
CDs, are insured by the FDIC up to certain specified limits. Many other bank obligations, however, are neither guaranteed nor insured
by the FDIC or the U.S. Government. These bank obligations are “backed” only by the creditworthiness of the issuing
bank or parent financial institution. Domestic and foreign banks are subject to different governmental regulation. Accordingly,
certain obligations of foreign banks, including Eurodollar and Yankee dollar obligations, involve different and/or heightened investment
risks than those affecting obligations of domestic banks, including, among others, the possibilities that: (i) their liquidity
could be impaired because of political or economic developments; (ii) the obligations may be less marketable than comparable
obligations of domestic banks; (iii) a foreign jurisdiction might impose withholding and other taxes at high levels on interest
income; (iv) foreign deposits may be seized or nationalized; (v) foreign governmental restrictions such as exchange controls
may be imposed, which could adversely affect the payment of principal and/or interest on those obligations; (vi) there may
be less publicly available information concerning foreign banks issuing the obligations; and (vii) the reserve requirements
and accounting, auditing and financial reporting standards, practices and requirements applicable to foreign banks may differ (including,
less stringent) from those applicable to domestic banks. Foreign banks generally are not subject to examination by any U.S. Government
agency or instrumentality.
Income
and Distribution Risk. The income that shareholders receive from the Fund is expected to be based in part on income
from short-term gains that the Fund earns from dividends and other distributions received from its investments. If the distribution
rates or yields of the Fund’s holdings decrease, shareholders’ income from that Fund could decline. In selecting equity
income securities in which the Fund will invest, the Investment Adviser will consider the issuer’s history of making regular
periodic distributions (i.e., dividends) to its equity holders. An issuer’s history of paying dividends or other distributions,
however, does not guarantee that the issuer will continue to pay dividends or other distributions in the future. The dividend income
stream associated with equity income securities generally is not fixed but are elected and declared at the discretion of the issuer’s
board of directors and will be subordinate to payment obligations of the issuer on its debt and other liabilities. Accordingly,
an issuer may forgo paying dividends on its equity securities. In addition, because in most instances issuers are not obligated
to make periodic distributions to the holders of their equity securities, such distributions or dividends generally may be discontinued
at the issuer’s discretion. There can be no assurance that monthly distributions paid by the Fund to the shareholders will
be maintained at initial levels or increase over time.
Asset
Allocation Risk. The Fund is subject to the risk that the Investment Adviser’s selection and weighting of asset
classes may cause the Fund to fail to meet its investment objective, cause the Fund to underperform other funds with a similar
investment objective or cause an investor to lose money.
Commodity-Related
Investments Risk. The value of commodities investments will generally be affected by overall market movements and factors
specific to a particular industry or commodity, which may include weather, embargoes, tariffs, and health, political, international
and regulatory developments. Economic and other events (whether real or perceived) can reduce the demand for commodities, which
may reduce market prices and cause the value of Fund shares to fall. The frequency and magnitude of such changes cannot be predicted.
Exposure to commodities and commodities markets may subject a fund to greater volatility than investments in traditional securities.
No active trading market may exist for certain commodities investments, which may impair the ability of a fund to sell or to realize
the full value of such investments in the event of the need to liquidate such investments. In addition, adverse market conditions
may impair the liquidity of actively traded commodities investments. Certain types of commodities instruments (such as commodity
swaps) are subject to the risk that the counterparty to the instrument will not perform or will be unable to perform in accordance
with the terms of the instrument.
Construction
and Development Risk. Investments in new or development stage infrastructure projects, likely retain some risk that
the project will not be completed within budget, within the agreed time frame and to the agreed specification. During the construction
or development phase, the major risks of delay include political opposition, regulatory and permitting delays, delays in procuring
sites, strikes, disputes, environmental issues, force majeure, or failure by one or more of the infrastructure investment participants
to perform in a timely manner their contractual, financial or other commitments. These delays in the projected completion of a
project could result in delays in the commencement of cash flow and an increase in the capital needed to complete construction,
which may have a material adverse effect on the Fund’s financial performance.
Contingent
Convertible Securities Risk. Contingent convertible securities (“CoCos”) have no stated maturity, have fully
discretionary coupons and are typically issued in the form of subordinated debt instruments. CoCos generally either convert into
equity or have their principal written down upon the occurrence of certain triggering events (“triggers”) linked to
regulatory capital thresholds or regulatory actions relating to the issuer’s continued viability. As a result, an investment
by the Fund in CoCos is subject to the risk that coupon (i.e., interest) payments may be cancelled by the issuer or a regulatory
authority in order to help the issuer absorb losses. An investment by the Fund in CoCos is also subject to the risk that, in the
event of the liquidation, dissolution or winding-up of an issuer prior to a trigger event, the Fund’s rights and claims will
generally rank junior to the claims of holders of the issuer’s other debt obligations. In addition, if CoCos held by the
Fund are converted into the issuer’s underlying equity securities following a trigger event, the Fund’s holding may
be further subordinated due to the conversion from a debt to equity instrument. Further, the value of an investment in CoCos is
unpredictable and will be influenced by many factors and risks, including interest rate risk, credit risk, market risk and liquidity
risk. An investment by the Fund in CoCos may result in losses to the Fund.
Equity
Securities Risk. Equity securities represent an ownership interest in an issuer, rank junior in a company’s capital
structure to debt securities and consequently may entail greater risk of loss than debt securities. Equity securities are subject
to the risk that stock prices may rise and fall in periodic cycles and may perform poorly relative to other investments. This risk
may be greater in the short term.
Gold and
Other Precious Metals Risk. Investments related to gold and other precious metals are considered speculative and are
affected by a variety of worldwide economic, financial and political factors. The price of gold and other precious metals may fluctuate
sharply over short periods of time due to changes in inflation or expectations regarding inflation in various countries, the availability
of supplies of gold and other precious metals, changes in industrial and commercial demand, gold and other precious metals sales
by governments, central banks or international agencies, investment speculation, monetary and other economic policies of various
governments and government restrictions on private ownership of gold and other precious metals. No income is derived from holding
physical gold or other precious metals, which is unlike securities that may pay dividends or make other current payments. Although
the Fund has contractual protections with respect to the credit risk of their custodian, gold held in physical form (even in a
segregated account) involves the risk of delay in obtaining the assets in the case of bankruptcy or insolvency of the custodian.
This could impair disposition of the assets under those circumstances. If it holds physical gold, the Fund is also subject to an
increased risk of loss and expense in connection with the transportation of such assets to and from the Fund’s custodian.
In addition, income derived from trading in gold and other precious metals may result in negative tax consequences due to appreciation
in value, which could limit the ability of the Fund to sell its holdings of physical gold and certain ETFs at the desired time.
Infrastructure
Risk. The Fund’s investments in Infrastructure Securities involve risks. Infrastructure companies may be subject
to a variety of factors that may adversely affect their business or operations, including high interest costs in connection with
capital construction programs, high leverage, costs associated with environmental and other regulations, the effects of economic
slowdown, surplus capacity, increased competition from other providers of services, uncertainties concerning the availability of
fuel at reasonable prices, the effects of energy conservation policies and other factors. The following is a summary of specific
risks infrastructure companies may be particularly affected by or subject to:
Regulatory
Risk. Infrastructure companies may be subject to regulation by various governmental authorities and may also be affected
by governmental regulation of rates charged to services, the imposition of special tariffs and changes in tax laws, environmental
laws and regulations, regulatory policies, accounting standards and general changes in market sentiment towards infrastructure
assets. Infrastructure companies’ inability to predict, influence or respond appropriately to changes in law or regulatory
schemes could adversely impact their results of operations.
Technology
Risk. This risk arises where a change could occur in the way a service or product is delivered rendering the existing
technology obsolete. While the risk could be considered low in the infrastructure sector given the massive fixed costs involved
in constructing assets and the fact that many infrastructure technologies are well-established, any technology change that occurs
over the medium term could threaten the profitability of an infrastructure company. If such a change were to occur, these assets
may have very few alternative uses should they become obsolete.
Regional
or Geographic Risk. This risk arises where an infrastructure company’s assets are not movable. Should an event
that somehow impairs the performance of an infrastructure company’s assets occur in the geographic location where the issuer
operates those assets, the performance of the issuer may be adversely affected.
Natural
Disasters Risk. Natural risks, such as earthquakes, flood, lightning, hurricanes and wind, are risks facing certain
infrastructure companies. Extreme weather patterns, or the threat thereof, could result in substantial damage to the facilities
of certain companies located in the affected areas, and significant volatility in the products or services of infrastructure companies
could adversely impact the prices of the securities of such issuer.
Through-put
Risk. The revenue of many infrastructure companies may be impacted by the number of users who use the products or services
produced by the infrastructure company. A significant decrease in the number of users may negatively impact the profitability of
an infrastructure company.
Project
Risk. To the extent the Fund invests in infrastructure companies which are dependent to a significant extent on new
infrastructure projects, the Fund may be exposed to the risk that the project will not be completed within budget, within the agreed
time frame or to agreed specifications. Each of these factors may adversely affect the Fund’s return from that investment.
Strategic
Asset Risk. Infrastructure companies may control significant strategic assets. Strategic assets are assets that have
a national or regional profile, and may have monopolistic characteristics. The very nature of these assets could generate additional
risk not common in other industry sectors. Given the national or regional profile and/or their irreplaceable nature, strategic
assets may constitute a higher risk target for terrorist acts or political actions. Given the essential nature of the products
or services provided by infrastructure companies, there is also a higher probability that the services provided by such issuers
will be in constant demand. Should an infrastructure company fail to make such services available, users of such services may incur
significant damage and may, due to the characteristics of the strategic assets, be unable to replace the supply or mitigate any
such damage, thereby heightening any potential loss.
Operation
Risk. The long-term profitability of an infrastructure company may be partly dependent on the efficient operation and
maintenance of its infrastructure assets. Should an infrastructure company fail to efficiently maintain and operate the assets,
the infrastructure company’s ability to maintain payments of dividends or interest to investors may be impaired. The destruction
or loss of an infrastructure asset may have a major impact on the infrastructure company. Failure by the infrastructure company
to carry adequate insurance or to operate the asset appropriately could lead to significant losses and damages.
Customer
Risk. Infrastructure companies can have a narrow customer base. Should these customers or counterparties fail to pay
their contractual obligations, significant revenues could cease and not be replaceable. This would affect the profitability of
the infrastructure company and the value of any securities or other instruments it has issued.
Interest
Rate Risk. Infrastructure assets can be highly leveraged. As such, movements in the level of interest rates may affect
the returns from these assets more significantly than other assets in some instances. The structure and nature of the debt encumbering
an infrastructure asset may therefore be an important element to consider in assessing the interest risk of the infrastructure
asset. In particular, the type of facilities, maturity profile, rates being paid, fixed versus variable components and covenants
in place (including the manner in which they affect returns to equity holders) are crucial factors in assessing any interest rate
risk. Due to the nature of infrastructure assets, the impact of interest rate fluctuations may be greater for infrastructure companies
than for the economy as a whole in the country in which the interest rate fluctuation occurs.
Inflation
Risk. Many companies operating in the infrastructure sector may have fixed income streams and, therefore, be unable
to pay higher dividends. The market value of infrastructure companies may decline in value in times of higher inflation rates.
The prices that an infrastructure company is able to charge users of its assets may not be linked to inflation. In this case, changes
in the rate of inflation may affect the forecast profitability of the infrastructure company.
Developing
Industries Risk. Some infrastructure companies are focused on developing new technologies and are strongly influenced
by technological changes. Product development efforts by such companies may not result in viable commercial products. These companies
may bear high research and development costs, which can limit their ability to maintain operations during periods of organizational
growth or instability. Some infrastructure companies in which the Fund invests may be in the early stages of operations and may
have limited operating histories and smaller market capitalizations on average than companies in other sectors. As a result of
these and other factors, the value of investments in such issuers may be considerably more volatile than that in more established
segments of the economy.
Risks
of Investing in Pipelines. Pipeline companies are subject to the demand for natural gas, natural gas liquids, crude
oil or refined products in the markets they serve, changes in the availability of products for gathering, transportation, processing
or sale due to natural declines in reserves and production in the supply areas serviced by the companies’ facilities, sharp
decreases in crude oil or natural gas prices that cause producers to curtail production or reduce capital spending for exploration
activities, and environmental regulation and related cost-intensive integrity management and testing programs. Demand for gasoline,
which accounts for a substantial portion of refined product transportation, depends on price, prevailing economic conditions in
the markets served, and demographic and seasonal factors.
Companies that own interstate
pipelines that transport natural gas, natural gas liquids, crude oil or refined petroleum products are subject to regulation by
the Federal Energy Regulation Commission (“FERC”) with respect to the tariff rates they may charge for transportation
services. An adverse determination by FERC with respect to the tariff rates of such a company could have a material adverse effect
on its business, financial condition, results of operations and cash flows and its ability to pay cash distributions or dividends.
In addition, FERC has a tax allowance policy, which permits such companies to include in their cost of service an income tax allowance
to the extent that their owners have an actual or potential tax liability on the income generated by them.
The ability of interstate pipelines
held in tax-pass-through entities such as MLPs to include an allowance for income taxes as a cost-of-service element in their regulated
rates has been subject to extensive litigation before the FERC and the courts for a number of years. It has been FERC’s policy
to permit pipelines to include in cost-of-service a tax allowance to reflect actual or potential income tax liability on their
public utility income attributable to all partnership or limited liability company interests, if the ultimate owner of the interest
has an actual or potential income tax liability on such income. Whether a pipeline’s owners have such actual or potential
income tax liability has been reviewed by the FERC on a case-by-case basis.
In March 2018, FERC issued
a revised policy statement on treatment of income taxes, which announced that it will no longer allow MLPs to recover income tax
allowances from their expense calculations. The revised policy statement only applies to MLPs with regulated cost-of-service tariffs,
but FERC indicated that it will address income tax allowances for non-MLP partnerships in subsequent proceedings. As a result,
FERC-regulated cost-of-service pipelines may need to adjust their prices downwards to prevent over-earning their “just and
reasonable” return on equity. This may adversely impact the maximum tariff rates that such companies are permitted to charge
for their transportation services, which would in turn adversely affect such companies’ financial condition and ability to
pay distributions or dividends to their equity holders. Natural gas pipelines have been directed to review their rates by the end
of 2018, while oil pipelines will face a review of their pricing in 2020. The revised policy statement is subject to rehearing
at FERC and will likely be the subject of subsequent appellate court review.
Further, intrastate pipelines
are subject to regulation in many states, which, while less comprehensive than FERC regulation, makes intrastate pipeline tariffs
subject to protest and complaint and may adversely affect such intrastate pipelines’ financial condition, cash flows and
ability to pay distributions or dividends.
Financing
Risk. From time to time, infrastructure companies may encounter difficulties in obtaining financing for construction
programs during inflationary periods. Issuers experiencing difficulties in financing construction programs may also experience
lower profitability, which can result in reduced income to the Fund.
Other factors that may affect
the operations of infrastructure companies include difficulty in raising capital in adequate amounts on reasonable terms in periods
of high inflation and unsettled capital markets, inexperience with and potential losses resulting from a developing deregulatory
environment, increased susceptibility to terrorist acts or political actions, and general changes in market sentiment towards infrastructure
assets.
Natural
Resources Risk. The Fund’s investments in Natural Resources Securities involve risks. The market value of Natural
Resources Securities may be affected by numerous factors, including events occurring in nature, inflationary pressures and international
politics. Because the Fund invests significantly in Natural Resources Securities, there is the risk that the Fund will perform
poorly during a downturn in the natural resource sector. For example, events occurring in nature (such as earthquakes or fires
in prime natural resource areas) and political events (such as coups, military confrontations or acts of terrorism) can affect
the overall supply of a natural resource and the value of companies involved in such natural resource. Political risks and the
other risks to which foreign securities are subject may also affect domestic natural resource companies if they have significant
operations or investments in foreign countries. Rising interest rates and general economic conditions may also affect the demand
for natural resources.
Sector
Focus Risk. To the extent the Fund emphasizes, from time to time, investments in a market segment, the Fund will be
subject to a greater degree to the risks particular to that segment, and may experience greater market fluctuation than a fund
without the same focus. For example, industries in the financial segment, such as banks, insurance companies, broker-dealers and
REITs, may be sensitive to changes in interest rates and general economic activity and are generally subject to extensive government
regulation.
Industries in the materials segment, such
as chemicals, construction materials, containers and packaging, metals and mining and paper and forest products, may be significantly
affected by the level and volatility of commodity prices, currency rates, import controls and other regulations, labor relations,
global competition and resource depletion.
Industries in the industrials segment,
such as companies engaged in the production, distribution or service of products or equipment for manufacturing, agriculture, forestry,
mining and construction, can be significantly affected by general economic trends, including such factors as employment and economic
growth, interest rate changes, changes in consumer spending, legislative and governmental regulation and spending, import controls,
commodity prices, and worldwide competition.
Industries in the energy segment, such
as those engaged in the development, production and distribution of energy resources, can be significantly affected by supply and
demand both for their specific product or service and for energy products in general. The price of oil, gas and other consumable
fuels, exploration and production spending, government regulation, world events and economic conditions likewise will affect the
performance of companies in these industries. Recently, the energy sector has experienced significant volatility as a result of
fluctuations in the price of oil and such volatility may continue in the future. To the extent the Fund invests in companies in
the oil sector, it may be subject to greater volatility than funds that do not invest in the oil sector.
Small-
and Mid-Capitalization Risk. The risk that returns from small-
and mid-capitalization stocks may trail returns from the overall stock market. Historically, these stocks have been more
volatile in price than the large-capitalization stocks.
Management and Fees
Brookfield Public Securities Group LLC
serves as the Fund’s Investment Adviser and is compensated for its services and its related expenses at an annual rate of
1.00% of the Fund’s average daily Managed Assets payable monthly in arrears. The Investment Adviser provides the Fund with
a continuous investment program for the Fund’s portfolio.
The Investment Adviser provides administrative
services reasonably necessary for the Fund’s operations, other than those services that the Investment Adviser provides to
the Fund pursuant to the Investment Advisory Agreement (as defined below). As compensation for its administrative services and
the related expenses the Investment Adviser bears pursuant to the Administration Agreement (as defined below), the Investment Adviser
is contractually entitled to an administrative fee (an “administrative fee”), computed daily and payable monthly, at
an annual rate of 0.15% of the Fund’s average daily Managed Assets. The Investment Adviser currently utilizes and pays the
fees of a third party sub-administrator out of its administrative fee.
Repurchase of Common Shares
The Fund’s Board of Directors has
authorized the Fund to repurchase its common shares in the open market when the common shares are trading at a discount. Although
the Board of Directors has authorized such repurchases, the Fund is not required to repurchase its common shares. Such repurchases
may be subject to certain notices and any applicable requirements under the 1940 Act.
Custodian, Sub-Administrator, Fund Accountant,
Transfer Agent and Dividend Disbursing Agent
U.S. Bank National Association, located
at 1555 North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212, serves as the custodian (the “Custodian”)
of the Fund’s assets pursuant to a custody agreement. Under the custody agreement, the Custodian holds the Fund’s assets
in compliance with the 1940 Act. For its services, the Custodian will receive a monthly fee paid by the Fund based upon, among
other things, the average daily market value of the Fund’s portfolio assets, plus certain charges for securities transactions
and out-of-pocket expenses.
U.S. Bancorp Fund Services, LLC, located
at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as the Fund’s sub-administrator and is compensated for its
services by the Investment Adviser, as administrator to the Fund. U.S. Bancorp Fund Services, LLC, also serves as the Fund’s
accountant.
American Stock Transfer & Trust
Company, located at 6201 15th Avenue, Brooklyn, New York 11219, serves as the Fund’s transfer agent and dividend disbursing
agent with respect to the common shares of the Fund.
Summary of Fund Expenses
The
following table shows the Fund’s expenses, including preferred stock offering expenses, as a percentage of net assets
attributable to common stock.
|
|
|
|
|
|
|
|
|
Shareholder Transaction Expenses
|
|
|
|
|
|
|
|
|
Sales Load (as a percentage of offering price)
|
|
|
[●]
|
|
|
|
%
|
|
Offering Expenses (as a percentage of offering price)
|
|
|
[●]
|
|
|
|
%
|
|
Dividend Reinvestment Plan Fees
|
|
|
None
|
|
|
|
|
|
Management Fees
|
|
|
[●]
|
|
|
|
%
|
|
Interest Payments on Borrowed Funds
|
|
|
None
|
|
|
|
|
|
Other Expenses
|
|
|
[●]
|
|
|
|
%
|
|
Total Annual Expenses
|
|
|
[●]
|
|
|
|
%
|
|
An investor would directly or indirectly
pay the following expenses on a $1,000 investment in the Fund, assuming a 5% annual return. This example assumes that (i) all
dividends and other distributions are reinvested at NAV, (ii) the percentage amounts listed under “Total annual expenses”
above remain the same in the years shown, and (iii) the Offer is fully subscribed. This example reflects all recurring and
non-recurring fees, including payment of the [●]% sales load, the [●]% of offering expenses and other expenses incurred
in connection with the Offer.
The example should not be considered a
representation of future expenses or rate of return and actual Fund expenses may be greater or less than those shown.
|
1 year
|
|
|
|
3 years
|
|
|
|
5 years
|
|
|
|
10 years
|
|
$
|
[●]
|
|
|
$
|
[●]
|
|
|
$
|
[●]
|
|
|
$
|
[●]
|
|
Financial Highlights
The following financial highlights table
is intended to help you understand the Fund’s financial performance. The selected data below sets forth the per share operating
performance and ratios for the period presented. The financial information was derived from and should be read in conjunction with
the Financial Statements of the Fund and Notes thereto, which are incorporated by reference into this Prospectus and SAI. The financial
information has been audited by [●], the Fund’s independent registered public accounting firm, whose report on such
Financial Statements is incorporated by reference into the SAI.
Selected data for a share outstanding throughout
each period:
BROOKFIELD REAL ASSETS INCOME FUND INC.
Financial Highlights
|
|
For the
Six Months
Ended June 30,
2020
(Unaudited)
|
|
|
For the Year
Ended
December 31,
|
|
|
For the Year
Ended
December 31,
|
|
|
For the Year
Ended
December 31,
|
|
|
For the Period from
December 5, 20161 to
December 31,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Per Share Operating Performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
23.21
|
|
|
$
|
22.07
|
|
|
$
|
25.15
|
|
|
$
|
25.14
|
|
|
$
|
25.00
|
|
Net investment income2
|
|
|
0.42
|
|
|
|
1.10
|
|
|
|
1.52
|
|
|
|
1.74
|
|
|
|
0.15
|
|
Net realized and unrealized gain (loss) on
investment transactions
|
|
|
(3.61
|
)
|
|
|
2.43
|
|
|
|
(2.21
|
)
|
|
|
0.66
|
|
|
|
0.19
|
|
Net increase (decrease) in net asset value
resulting from operations
|
|
|
(3.19
|
)
|
|
|
3.53
|
|
|
|
(0.69
|
)
|
|
|
2.40
|
|
|
|
0.34
|
|
Distributions from net investment income
|
|
|
(1.19
|
)
|
|
|
(1.30
|
)
|
|
|
(1.53
|
)
|
|
|
(1.84
|
)
|
|
|
(0.15
|
)
|
Return of capital distributions
|
|
|
|
|
|
|
(1.09
|
)
|
|
|
(0.86
|
)
|
|
|
(0.55
|
)
|
|
|
(0.05
|
)
|
Total distributions paid*
|
|
|
(1.19
|
)
|
|
|
(2.39
|
)
|
|
|
(2.39
|
)
|
|
|
(2.39
|
)
|
|
|
(0.20
|
)
|
Net asset value, end of period
|
|
$
|
18.83
|
|
|
$
|
23.21
|
|
|
$
|
22.07
|
|
|
$
|
25.15
|
|
|
$
|
25.14
|
|
Market price, end of period
|
|
$
|
16.66
|
|
|
$
|
21.35
|
|
|
$
|
19.07
|
|
|
$
|
23.37
|
|
|
$
|
22.31
|
|
Total Investment Return based on Net Asset
Value#
|
|
|
-13.75
|
%5
|
|
|
16.42
|
%
|
|
|
-3.08
|
%
|
|
|
9.88
|
%
|
|
|
1.36
|
%5
|
Total Investment Return based on Market
Price†
|
|
|
-16.46
|
%5
|
|
|
24.79
|
%
|
|
|
-9.12
|
%
|
|
|
15.94
|
%
|
|
|
0.50
|
%3,5
|
Ratios to Average Net
Assets/Supplementary Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000s)
|
|
$
|
829,896
|
|
|
$
|
864,429
|
|
|
$
|
805,294
|
|
|
$
|
917,653
|
|
|
$
|
917,593
|
|
Operating expenses excluding interest expense
|
|
|
1.76
|
%6
|
|
|
1.61
|
%
|
|
|
1.63
|
%
|
|
|
1.60
|
%
|
|
|
1.70
|
%6
|
Interest expense
|
|
|
0.61
|
%6
|
|
|
0.93
|
%
|
|
|
0.93
|
%
|
|
|
0.58
|
%
|
|
|
0.60
|
%6
|
Total expenses8
|
|
|
2.37
|
%6
|
|
|
2.54
|
%
|
|
|
2.56
|
%
|
|
|
2.18
|
|
|
|
2.30
|
%6
|
Net expenses, including fee waivers and
reimbursement and excluding interest expense
|
|
|
1.76
|
%6
|
|
|
1.61
|
%
|
|
|
1.08
|
%
|
|
|
1.03
|
%
|
|
|
1.03
|
%6
|
Net expenses, including fee waivers and
reimbursement and interest expense
|
|
|
1.76
|
%6
|
|
|
2.54
|
%
|
|
|
2.00
|
%
|
|
|
1.61
|
%
|
|
|
1.63
|
%6
|
Net investment income
|
|
|
4.29
|
%6
|
|
|
4.69
|
%
|
|
|
6.31
|
%
|
|
|
6.84
|
%
|
|
|
8.13
|
%6
|
Net investment income, excluding the effect of
fee waivers and reimbursement
|
|
|
4.29
|
%5
|
|
|
4.69
|
%
|
|
|
5.76
|
%
|
|
|
6.27
|
%
|
|
|
7.46
|
%6
|
Portfolio turnover rate
|
|
|
49
|
%5
|
|
|
46
|
%
|
|
|
35
|
%
|
|
|
43
|
%
|
|
|
15
|
%4,5
|
Credit facility and reverse repurchase
agreements, end of period (000s)
|
|
$
|
289,612
|
|
|
$
|
242,192
|
|
|
$
|
280,800
|
|
|
$
|
259,395
|
|
|
$
|
302,682
|
|
Asset coverage per $1,000 unit of senior
indebtedness7
|
|
$
|
3,866
|
|
|
$
|
4,495
|
|
|
$
|
3,868
|
|
|
$
|
4,538
|
|
|
$
|
4,032
|
|
*
|
Distributions for annual periods determined in accordance with federal income tax regulations.
|
#
|
Total investment return based
on net asset value (“NAV”) is the combination of changes in NAV, reinvested dividend income at NAV and reinvested
capital gains distributions at NAV, if any. The actual reinvestment price for dividends declared in the period may often be based
on the Fund’s market price (and not its NAV), and therefore may be different from the price used in the calculation. Total
investment return excludes the effects of sales charges or contingent deferred sales charges, if applicable.
|
†
|
Total investment return based on market price is the combination of changes in the New York Stock Exchange ("NYSE") market price per share and the effect of reinvested dividend income and reinvested capital gains distributions, if any, at the average price paid per share at the time of reinvestment. The actual reinvestment for dividends declared in the period may take place over several days as described in the Fund’s dividend reinvestment plan, and in some instances may not be based on the market price. Total investment return excludes the effect of broker commissions.
|
1
|
Commencement of operations.
|
2
|
Per share amounts presented are based on average shares outstanding throughout the period indicated.
|
3
|
Total investment return based on market price is calculated based on first trade price of $22.40 on December 5, 2016.
|
4
|
For the portfolio turnover calculation, portfolio purchases and sales of the Brookfield Mortgage Opportunity Income Fund Inc., Brookfield High Income Fund Inc. and Brookfield Total Return Fund Inc. made prior to the Reorganizations into the Brookfield Real Assets Income Fund Inc. have been excluded from the numerator and the monthly average value of securities used in the denominator reflects the combined market value after the Reorganizations.
|
5
|
Not annualized.
|
6
|
Annualized.
|
7
|
Calculated by subtracting the Fund's total liabilities (not including borrowings) from the Fund's total assets and dividing by the total number of senior indebtedness units, where one unit equals $1,000 of senior indebtedness.
|
8
|
The operating expenses limitation agreement expired pursuant to its terms on December 4, 2018.
|
Incorporation by Reference
This prospectus
is part of a registration statement filed with the SEC. Pursuant to the final rule and form amendments adopted by the SEC on
April 8, 2020 to implement certain provisions of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the
Fund is permitted to “incorporate by reference” the information filed with the SEC, which means that the Fund
can disclose important information to you by referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information that the Fund files with the SEC will automatically update
and supersede this information.
The documents
listed below, and any reports and other documents subsequently filed with the SEC pursuant to Rule 30(b)(2) under the
1940 Act and Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering will be
incorporated by reference into this Prospectus and deemed to be part of this Prospectus from the date of the filing of such
reports and documents:
|
·
|
the Fund’s Statement of Additional Information, dated [ ], 2020, filed with this Prospectus;
|
You
may obtain copies of any information incorporated by reference into this prospectus, at no charge, by calling 1-855-244-4859, by
writing to the Fund or visiting the Fund’s website https://publicsecurities.brookfield.com/en.
In addition, the SEC maintains a website at www.sec.gov, free of charge, that contains these reports, the Fund’s proxy
and information statements, and other information relating to the Fund.
The Offer
Purpose of the Offer
We may offer, from time to time, in one
or more offerings or series, together or separately, up to $ [●] of our common shares, preferred shares or subscription rights
to purchase common shares or preferred shares, which we refer to, collectively, as the “securities.” We may sell our
securities through agents, underwriters or dealers, “at the market” to or through a market maker into an existing trading
market or otherwise directly to one or more purchasers, or through a combination of methods of sale. The identities of such agents,
underwriters, dealers, or market makers as the case may be, will be described in one or more supplements to this Prospectus. The
securities may be offered at prices and on terms to be described in one or more supplements to this Prospectus. In the event we
offer common shares, the offering price per share of our common shares exclusive of any underwriting commissions or discounts will
not be less than the net asset value per share of our common shares at the time we make the offering except as permitted by applicable
law. To the extent that the Fund issues common shares and current shareholders do not participate, those current shareholders may
experience a dilution of their voting rights as new stock is issued to the public. Depending on the facts, any issuance of new
common shares may also have the effect of reducing any premium to per share net asset value at which the shares might trade and
the market price at which the shares might trade.
We may offer our securities directly to
one or more purchasers, through agents that we or they designate from time to time, or to or through underwriters or dealers. The
Prospectus Supplement relating to the relevant offering will identify any agents, underwriters, dealers involved in the sale of
our securities, and will set forth any applicable purchase price, fee, commission or discount arrangement between us and such agents
or underwriters or among underwriters or dealers and the basis upon which such amount may be calculated. See “Plan of Distribution.”
Our securities may not be sold through agents, underwriters or dealers without delivery or deemed delivery of a Prospectus and
Prospectus Supplement describing the method and terms of the applicable offering of our securities.
There can be no assurance that the Offer
(or the investment of the proceeds of the Offer) will be successful, that by increasing the size of the Fund the Fund’s expense
ratio will be lowered, or that the trading volume of the Fund’s common shares on the New York Stock Exchange (“NYSE”)
will increase.
The Fund
Brookfield Real Assets Income Fund Inc.
(the “Fund”) is a diversified, closed-end management investment company registered under the Investment Company Act
of 1940, as amended (the “1940 Act”). The Fund was formed from the reorganizations of three closed-end funds, as further
described below, and commenced operations on December 5, 2016. The Fund’s shares are listed on the New York Stock Exchange
(“NYSE”) and trade under the ticker symbol “RA”. The Fund was incorporated under the laws of the State
of Maryland on October 6, 2015.
The Fund was formed from the reorganizations
of each of Brookfield Mortgage Opportunity Income Fund Inc. (NYSE: BOI), Brookfield High Income Fund Inc. (NYSE: HHY), and Brookfield
Total Return Fund Inc. (NYSE: HTR) (collectively, the “Target Funds”) into the Fund (each, a “Reorganization”
and together, the “Reorganizations”). As a result of the Reorganizations, common shareholders of HHY, HTR and BOI,
respectively, received an amount of RA common shares equal to the aggregate net asset value of their holdings of HHY, HTR and BOI
common shares, as applicable, as determined at the close of business on December 2, 2016. As a result of the Reorganizations,
the assets of the Target Funds were combined, and the shareholders of each Target Fund became shareholders of the Fund.
The Fund is treated as the survivor of
the Reorganizations for accounting and performance reporting purposes. Accordingly, all performance and other information shown
for the Fund is from its commencement of operations date on December 5, 2016, and there is no historical performance or other
information to present for the Target Funds.
Since
commencement of operations date, another fund, Brookfield Global Listed Infrastructure Income Fund Inc. (NYSE: INF) was
reorganized into the Fund. As a result of this reorganization, common shareholders of INF received newly issued common shares of
RA, par value $0.001 per share, the aggregate net asset value (not the market value) of which will equal the aggregate net asset
value (not the market value) of the common shares of INF you held immediately prior to the reorganization, less the costs of the
Reorganization.
Use of Proceeds
The net proceeds of an offering will be
invested in accordance with the Fund’s investment objective and investment policies as set forth below. It is presently anticipated
that the Fund will be able to invest substantially all of the net proceeds of an offering in accordance with its investment objective
and investment policies within approximately three months of receipt by the Fund of the proceeds from the offering, depending on
the amount and timing of proceeds available to the Fund, as well as the availability of investments consistent with the Fund’s
investment objective and investment policies, and except to the extent proceeds are held in cash to pay dividends or expenses,
or for temporary defensive purposes. See “Use of Proceeds.”
Description of Common Shares
The Fund is authorized to issue [●]
common shares. All common shares have equal voting, dividend, distribution and liquidation rights. The common shares outstanding
are, and the common shares issuable upon the exercise of the Rights, when issued and paid for pursuant to the terms of the Offer,
will be, fully paid and non-assessable. Common shares are not redeemable and have no preemptive rights, conversion rights, cumulative
voting rights or appraisal rights.
The number of common shares outstanding
as of [●], was [●]. The number of common shares adjusted to give effect to the Offer would be [●].
The following table sets forth the high
and low market prices for the common shares on the NYSE, for each full quarterly period during the last two fiscal years and during
the current fiscal year period, along with the NAV and discount or premium to NAV for each quotation.
|
|
Market
Price ($)
|
|
Net Asset
Value ($)
|
|
Premium/
(discount) to
net asset value
|
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
Period
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
%
|
|
[●]
|
%
|
June 30, 2020
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
%
|
|
[●]
|
%
|
March 31, 2020
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
%
|
|
[●]
|
%
|
December 31, 2019
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
%
|
|
[●]
|
%
|
September 30, 2019
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
%
|
|
[●]
|
%
|
June 30, 2019
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
%
|
|
[●]
|
%
|
March 31, 2019
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
%
|
|
[●]
|
%
|
December 31, 2018
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
%
|
|
[●]
|
%
|
September 30, 2018
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
%
|
|
[●]
|
%
|
June 30, 2018
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
|
|
[●]
|
%
|
|
[●]
|
%
|
Set forth below is information with respect
to the Fund’s outstanding securities as of June 30, 2020:
Title
of Class
|
|
Amount
Authorized
|
|
Amount Held
by the Fund or
for its Account
|
|
Amount
Outstanding
Exclusive of
Common Shares
Held by the
Fund or for
its Own Account
|
|
Common Shares
|
|
|
1,000,000,000
|
|
|
0
|
|
|
[●]
|
|
On [●], the Fund’s NAV was
$[●] and the last reported sale price of a common share on the NYSE was $[●], representing a [●]% discount to
such NAV.
Investment Objective and Investment Policies
Investment Objective
The Fund’s investment objective is
to seek high total return, primarily through high current income and secondarily, through growth of capital.
The Fund’s investment objective is
not fundamental and may be changed without shareholder approval. Shareholders will be provided with at least 60 days’ prior
written notice of any change in the Fund’s investment objective.
As a fundamental policy, the Fund will
not purchase a security if, as a result, with respect to 75% of its total assets, more than 5% of the Fund’s total assets
would be invested in securities of a single issuer or more than 10% of the outstanding voting securities of the issuer would be
held by the Fund. This policy may not be changed without a shareholder vote.
The Fund makes investments that will result
in the concentration (as that term is used in the 1940 Act) of its assets. Under normal market conditions, the Fund will invest
more than 25% of its total assets in the real estate industry. The policy of concentration is a fundamental policy. This fundamental
policy and the investment restrictions described in the Statement of Additional Information under the caption “Investment
Restrictions” cannot be changed without the approval of the holders of a majority of the Fund’s outstanding voting
securities. Such majority vote requires the approval of the lesser of (i) 67% of the Fund’s shares represented at a
meeting at which more than 50% of the Fund’s shares outstanding are represented, whether in person or by proxy, or (ii) more
than 50% of the outstanding shares.
Investment Policies
The Fund seeks to achieve its investment
objective by investing primarily in Real Asset Companies and Issuers. Under normal market conditions, the Fund will invest at least
80% of its Managed Assets (average daily net assets plus the amount of any borrowings for investment purposes) in the securities
and other instruments of Real Asset Companies and Issuers. The Fund may change the 80% Policy without shareholder approval upon
at least 60 days’ prior written notice to shareholders. The Fund normally expects to invest at least 65% of its Managed Assets
in fixed income securities of Real Asset Companies and Issuers and in derivatives and other instruments that have economic characteristics
similar to such securities. Real Asset Companies and Issuers includes the following categories:
The Fund actively trades portfolio investments.
The Fund may invest in securities and instruments of companies of any size market capitalization. The Fund will invest in companies
located throughout the world and there is no limitation on the Fund’s investments in foreign securities or instruments or
in emerging markets. An “emerging market” country is any country that is included in the MSCI Emerging Markets Index.
The amount invested outside the United States may vary, and at any given time, the Fund may have a significant exposure to non-U.S.
securities. The Fund may invest in securities of foreign companies in the form of American Depositary Receipts (“ADRs”),
Global Depositary Receipts (“GDRs”) and European Depositary Receipts (“EDRs”). Generally, ADRs in registered
form are dollar denominated securities designed for use in the U.S. securities markets, which represent and may be converted into
an underlying foreign security. GDRs, in bearer form, are designated for use outside the United States. EDRs, in bearer form, are
designed for use in the European securities markets.
The Fund has flexibility in the relative
weightings given to each of these categories. In addition, the Fund may, in the future, invest in additional investment categories
other than those listed herein, to the extent consistent with the Fund’s investment objective.
The Fund may also invest in infrastructure,
real estate and natural resources (“Real Assets”) investment categories other than those listed herein, to the extent
consistent with its name. The Fund may invest without limit in investment grade and below investment grade, high yield fixed income
securities (commonly referred to as “junk bonds”). The Fund may also invest in restricted (“144A”) or private
securities, asset-backed securities (“ABS”), including mortgage-related debt securities and other mortgage-related
instruments (collectively, “Mortgage-Related Investments”), collateralized loan obligations, bank loans (including
participations, assignments, senior loans, delayed funding loans and revolving credit facilities), exchange-traded notes, and securities
issued and/or guaranteed by the U.S. Government, its agencies or instrumentalities or sponsored corporations. The Fund considers
Mortgage-Related Investments to consist of, but not be limited to, mortgage-backed securities (“MBS”) of any kind;
interests in loans and/or whole loan pools of mortgages, loans or other instruments used to finance long-term infrastructure, industrial
projects and public services; mortgage REITs; ABS that are backed by interest in real estate, land or other types of assets; and
securities and other instruments issued by mortgage servicers. The Fund’s investments in MBS may include Residential Mortgage-Backed
Securities (“RMBS”) or Commercial Mortgage-Backed Securities (“CMBS”). Under normal market conditions,
the Fund will invest more than 25% of its total assets in the real estate industry.
The Fund defines a Real Estate Security
as any company or issuer that (i) derives at least 50% of its revenues from the ownership, operation, development, construction,
financing, management or sale of commercial, industrial or residential real estate and similar activities, or (ii) commits
at least 50% of its assets to activities related to real estate.
For purposes of selecting investments in
Real Estate Securities, the Fund defines the real estate sector broadly. It includes, but is not limited to, the following:
|
•
|
Real estate investment trusts (“REITs”);
|
|
•
|
Real estate operating companies (“REOCs”);
|
|
•
|
Brokers, developers and builders of residential, commercial, and industrial properties;
|
|
•
|
Property management firms;
|
|
•
|
Finance, mortgage, and mortgage servicing firms;
|
|
•
|
Construction supply and equipment manufacturing companies;
|
|
•
|
Firms dependent on real estate holdings for revenues and profits, including lodging, leisure, timber,
mining and agriculture companies; and
|
|
•
|
Debt securities, including securitized obligations, which are predominantly (i.e., at least
50%) supported by real estate assets.
|
REITs are companies that own interests
in real estate or in real estate related loans or other interests, and their revenue primarily consists of rent derived from owned,
income producing real estate properties and capital gains from the sale of such properties. A REIT in the United States is generally
not taxed on income distributed to shareholders so long as it meets tax-related requirements, including the requirement that it
distribute substantially all of its taxable income to its shareholders. Dividends from REITs are not “qualified dividends”
and therefore are taxed as ordinary income rather than at the reduced capital gains rate. REIT-like entities are organized outside
of the United States and maintain operations and receive tax treatment similar to that of U.S. REITs. The Fund retains the ability
to invest in real estate companies of any size market capitalization. The Fund will not invest in real estate directly.
REOCs are real estate companies that have
not elected to be taxed as REITs and therefore are not required to distribute taxable income and have fewer restrictions on what
they can invest in.
The Fund defines an Infrastructure Security
as, any company or issuer that (i) derives at least 50% of its revenue or profits, either directly or indirectly, from infrastructure
assets, or (ii) commits at least 50% of its assets to activities related to infrastructure.
For purposes of selecting investments in
Infrastructure Securities, the Fund defines the infrastructure sector broadly. It includes, but is not limited to, the physical
structures, networks and systems of transportation, energy, water and sewage, and communication. Infrastructure assets include:
|
•
|
toll roads, bridges and tunnels;
|
|
•
|
electricity generation and transmission and distribution lines;
|
|
•
|
gathering, treating, processing, fractionation, transportation and storage of hydrocarbon products;
|
|
•
|
water and sewage treatment and distribution pipelines;
|
|
•
|
communication towers and satellites;
|
|
•
|
other companies with direct and indirect involvement in infrastructure through the development,
construction or operation of infrastructure assets.
|
Infrastructure Securities also include
master limited partnerships (“MLPs”).
An MLP is a publicly traded company organized
as a limited partnership or limited liability company and treated as a partnership for federal income tax purposes. MLPs may derive
income and gains from the exploration, development, mining or production, processing, refining, transportation (including pipelines
transporting gas, oil, or products thereof), or the marketing of any mineral or natural resources. MLPs generally have two classes
of owners, the general partner and limited partners. The general partner of an MLP is typically owned by one or more of the following:
a major energy company, an investment fund, or the direct management of the MLP. The general partner may be structured as a private
or publicly traded corporation or other entity. The general partner typically controls the operations and management of the MLP
through an up to 2% equity interest in the MLP plus, in many cases, ownership of common units and subordinated units. Limited partners
own the remainder of the partnership, through ownership of common units, and have a limited role in the partnership’s operations
and management. From time to time, the energy sector will experience volatility as a result of fluctuations in the price of oil
and such volatility may continue in the future. As a result, MLPs that invest in the oil industry are subject to greater volatility
than MLPs which do not invest in the oil sector.
From time to time, the Fund may invest
in stapled securities to gain exposure to certain infrastructure companies. A stapled security is a security that is comprised
of two parts that cannot be separated from one another. The two parts of a stapled security are a unit of a trust and a share of
a company. The resulting security is influenced by both parts, and must be treated as one unit at all times, such as when buying
or selling a security. The value of stapled securities and the income derived from them may fall as well as rise. Stapled securities
are not obligations of, deposits in, or guaranteed by, the Fund. The listing of stapled securities on a domestic or foreign exchange
does not guarantee a liquid market for stapled securities.
The Fund defines a Natural Resources Security
as, any company or issuer that derives at least 50% of its revenues, profits or value, either directly or indirectly, from natural
resources assets including, but not limited to:
|
•
|
Timber and Agriculture assets and securities;
|
|
•
|
Commodities and Commodity-Linked assets and securities, including, but not limited to, precious
metals, such as gold, silver and platinum, ferrous and nonferrous metals, such as iron, aluminum and copper, metals such as uranium
and titanium, hydrocarbons such as coal, oil and natural gas, timberland, undeveloped real property and agricultural commodities;
and
|
|
•
|
Energy, including the exploration, production, processing and manufacturing of hydrocarbon-related
and chemical-related products.
|
Commodities are assets that have tangible properties, such as oil, coal, natural gas, agricultural products, industrial metals,
livestock and precious metals. In order to gain exposure to the commodities markets without investing directly in physical commodities,
the Fund may invest in commodity index-linked notes. Commodity index-linked notes are derivative debt instruments with principal
and/or coupon payments linked to the performance of commodity indices. These notes are sometimes referred to as “structured
notes” because the terms of these notes may be structured by the issuer and the purchaser of the note. The value of these
notes will rise or fall in response to changes in the underlying commodity index and will be subject to credit and interest rate
risks that typically affect debt securities.
The Fund may also invest up to 35% of its
Managed Assets in equities, including common stock, preferred stock, convertible stock, and open-end and closed-end investment
companies, including exchange-traded funds. The Fund may invest up to 20% of its Managed Assets in fixed income securities other
than those of Real Asset Companies and Issuers, including in TIPS and other inflation-linked fixed income securities.
The Investment Adviser will determine the
Fund’s strategic allocation with respect to its debt and equity investments as well as its strategic allocation with respect
to its investment sub-portfolios.
The Fund intends to use leverage to seek
to achieve its investment objective. The Fund currently anticipates obtaining leverage through reverse repurchase agreements and
through borrowings from banks and/or other financial institutions. As a non-fundamental policy that may be changed by the Fund’s
Board, the Fund may issue preferred shares or borrow money and issue debt securities (“traditional leverage”) with
an aggregate liquidation preference and aggregate principal amount up to 33 1/3% of the Fund’s total assets. The use of
borrowing techniques, preferred shares, debt or effective leverage (defined below) to leverage the common shares will involve
greater risk to common shareholders. The Fund will monitor interest rates and market conditions and anticipates that it will leverage
the common shares at some point in the future if the Fund’s Board determines that it is in the best interest of the Fund
and its common shareholders. The costs of leverage will be borne solely by the common shareholders. In addition, the Fund may
enter into reverse repurchase agreements, swaps, futures, securities lending, or short sales, that may provide leverage (collectively
referred to as “effective leverage”). Such effective leverage will be considered leverage for the Fund’s leverage
limits. The Fund may also engage in certain investment management techniques which may have effects similar to the leverage described
herein and may be considered senior securities for purposes of the 1940 Act unless the Fund segregates cash or other liquid securities
equal to the Fund ‘s daily marked-to-market obligations in respect of such techniques. The Fund may cover such transactions
using other methods currently or in the future permitted under the 1940 Act, the rules and regulations thereunder, or orders
issued by the SEC thereunder. For these purposes, interpretations and guidance provided by the SEC and its staff may be taken
into account when deemed appropriate by the Fund. These segregation and coverage requirements could result in the Fund maintaining
securities positions that it would otherwise liquidate, segregating assets at a time when it might be disadvantageous to do so,
or otherwise restricting portfolio management. Such segregation and cover requirements will not limit or offset losses on related
positions. The Fund’s total leverage, either through traditional leverage or effective leverage, will not exceed 38% of
the Fund’s Managed Assets. The use of leverage may magnify the impact of changes in net asset value on the common shareholders.
In addition, the cost of leverage could exceed the return on the securities acquired with the proceeds of the leverage, thereby
diminishing returns to the common shareholders.
The Investment Adviser utilizes a fundamental,
bottom-up, value-based selection methodology, taking into account short-term considerations, such as temporary market mispricing,
and long-term considerations, such as values of assets and cash flows. The Investment Adviser also draws upon the expertise and
knowledge within Brookfield Asset Management Inc. and its affiliates, which provides extensive owner/operator insights into industry
drivers and trends. Brookfield Asset Management Inc. is a global alternative asset manager with approximately $575 billion in assets
under management as of September 30, 2020, and over 100 years of experience owning and operating Real Assets, including property,
infrastructure, renewable power, timberland and agricultural lands. The Investment Adviser takes a balanced approach to investing,
seeking to mitigate risk through diversification, credit analysis, economic analysis and review of sector and industry trends.
The Investment Adviser uses credit research to select individual securities that it believes can add value from income and/or the
potential for capital appreciation. The credit research may include an assessment of an issuer’s general financial condition,
its competitive positioning and management strength, as well as industry characteristics and other factors. The Investment Adviser
may sell a security due to changes in credit characteristics or outlook, as well as changes in portfolio strategy or cash flow
needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile.
The Fund may invest in, among other things,
the types of instruments described below:
Fixed
Income Securities. Fixed income securities obligate the issuer to pay to the holder of the security a specified return,
which may be either fixed or reset periodically in accordance with the terms of the security. Fixed income securities generally
are senior to an issuer’s common stock and their holders generally are entitled to receive amounts due before any distributions
are made to common shareholders. Common stocks, on the other hand, generally do not obligate an issuer to make periodic distributions
to holders.
The market value of fixed income securities,
especially those that provide a fixed rate of return, may be expected to rise and fall inversely with interest rates and in general
is affected by the credit rating of the issuer, the issuer’s performance and perceptions of the issuer in the marketplace.
The market value of callable or redeemable fixed income securities may also be affected by the issuer’s call and redemption
rights. In addition, it is possible that the issuer of fixed income securities may not be able to meet its interest or principal
obligations to holders. Further, holders of non-convertible fixed income securities do not participate in any capital appreciation
of the issuer.
The Fund may also invest in obligations
of government-sponsored instrumentalities. Unlike non-U.S. government securities, obligations of certain agencies and instrumentalities
of the U.S. government, such as the Government National Mortgage Association, are supported by the “full faith and credit”
of the U.S. government; others, such as those of the Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the U.S. Treasury; others, such as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. government to purchase the agency’s obligations; and still others, such as those of the
Student Loan Marketing Association, are supported only by the credit of the instrumentality. No assurance can be given that the
U.S. government would provide financial support to U.S. government sponsored instrumentalities if it is not obligated to do so
by law.
Below
Investment Grade (High Yield or “Junk Bond”) Securities. Selection and supervision of high yield securities,
by the Investment Adviser, involves continuous analysis of individual issuers, general business conditions and other factors which
may be too time-consuming or too costly for the average investor. The furnishing of these services does not, of course, guarantee
successful results. The Investment Adviser’s analysis of issuers includes, among other things, historic and current financial
conditions, current and anticipated cash flow and borrowing requirements, value of assets in relation to historical costs, strength
of management, responsiveness to business conditions, credit standing, and current and anticipated results of operations. Analysis
of general conditions and other factors may include anticipated changes in economic activity and interest rates, the availability
of new investment opportunities and the economic outlook for specific industries.
The ratings of Moody’s, S&P and
the other Rating Agencies represent their opinions as to the quality of the obligations which they undertake to rate. Ratings are
relative and subjective and, although ratings may be useful in evaluating the safety of interest and principal payments, they do
not evaluate the market value risk of such obligations. While the Investment Adviser considers as one factor in its credit analysis
the ratings assigned by the rating services, the Investment Adviser performs its own independent credit analysis of issuers and,
consequently, the Fund may invest, without limit, in unrated securities. As a result, the Fund’s ability to achieve its investment
objectives may depend to a greater extent on the Investment Adviser’s own credit analysis than investment companies which
invest in investment grade securities. The Fund may continue to hold securities that are downgraded after the Fund purchases them
and will sell such securities only if, in the Investment Adviser’s judgment, it is advantageous to sell such securities.
Investments in high yield securities generally
provide greater income and increased opportunity for capital appreciation than investments in investment grade fixed income securities,
but they also typically entail greater price volatility and principal and income risk, including the possibility of issuer default
and bankruptcy. High yield securities are regarded as being predominantly speculative as to the issuer’s ability to make
repayments of principal and payments of interest. Investment in such securities involves substantial risk. Issuers of high yield
securities may be highly leveraged and may not have available to them more traditional methods of financing. Therefore, the risks
associated with acquiring the securities of such issuers generally are greater than is the case with investment grade securities.
For example, during an economic downturn or a sustained period of rising interest rates, issuers of high yield securities may be
more likely to experience financial stress, especially if such issuers are highly leveraged. During periods of economic downturn,
such issuers may not have sufficient revenues to meet their interest payment obligations. The issuer’s ability to service
its debt obligations also may be adversely affected by specific issuer developments, or the issuer’s inability to meet specific
projected business forecasts or the unavailability of additional financing. Therefore, there can be no assurance that in the future
there will not exist a higher default rate relative to the rates currently existing in the high yield market. If an issuer of high
yield securities defaults, in addition to risking non-payment of all or a portion of interest and principal, the Fund may incur
additional expenses to seek recovery. The market prices of high yield securities structured as zero-coupon, step-up or payment-in-kind
securities will normally be affected to a greater extent by interest rate changes, and therefore tend to be more volatile than
the prices of securities that pay interest currently and in cash. Other than with respect to Distressed Securities (which are discussed
below), the high yield securities in which the Fund may invest do not include securities which, at the time of investment, are
in default or the issuers of which are in bankruptcy. However, there can be no assurance that such events will not occur after
the Fund purchases a particular security, in which case the Fund may experience losses and incur costs.
High yield securities tend to be more volatile
than investment grade fixed income securities, so that adverse events may have a greater impact on the prices of high yield securities
than on investment grade fixed income securities. Factors adversely affecting the market value of such securities are likely to
affect adversely the Fund’s net asset value.
Like investment grade fixed income securities,
high yield securities are generally purchased and sold through dealers who make a market in such securities for their own accounts.
There are fewer dealers, however, in the high yield market, and thus the market may be less liquid than the market for investment
grade fixed income securities, even under normal economic conditions. In addition, there may be significant disparities in the
prices quoted for high yield securities by various dealers and the spread between the bid and asked price is generally much larger
than for investment grade securities. As a result, the Fund may experience difficulty acquiring appropriate high yield securities
for investment.
Adverse conditions and investor perceptions
thereof (whether or not based on economic fundamentals) may impair liquidity in the high yield market and may cause the prices
the Fund receives for its high yield securities to be reduced. In addition, the Fund may experience difficulty in liquidating a
portion of its portfolio when necessary to meet the Fund’s liquidity needs or in response to a specific economic event such
as a deterioration in the creditworthiness of the issuer. Under such conditions, judgment may play a greater role in valuing certain
of the Fund’s portfolio securities than in the case of securities trading in a more liquid market. In addition, the Fund
may incur additional expenses if it is forced to seek recovery upon a default of a portfolio holding or if it participates in the
restructuring of the obligation.
The risk of loss due to default by an issuer
is significantly greater for the holders of junk bonds because such securities are often unsecured and subordinated to other creditors
of the issuer. In addition, junk bonds may have call or redemption features that permit an issuer to repurchase the securities
from the Fund. If a call were to be exercised by an issuer during a period of declining interest rates, the Fund would likely have
to replace such called securities with lower yielding securities, thereby decreasing the net investment income to the Fund and
dividends to shareholders.
The high yield securities in which the
Fund invests may include credit linked notes, structured notes or other instruments evidencing interests in special purpose vehicles
or trusts that hold interests in high yield securities.
Structured notes and other related instruments
are privately negotiated debt obligations in which the principal and/or interest is determined by reference to the performance
of a benchmark asset, market or interest rate (an “embedded index”), such as selected securities, an index of securities
or specified interest rates, or the differential performance of two assets or markets. Structured instruments may be issued by
corporations, including banks, as well as by governmental agencies. Structured instruments frequently are assembled in the form
of medium-term notes, but a variety of forms are available and may be used in particular circumstances. The terms of such structured
instruments normally provide that their principal and/or interest payments are to be adjusted upwards or downwards (but ordinarily
not below zero) to reflect changes in the embedded index while the structured instruments are outstanding. As a result, the interest
and/or principal payments that may be made on a structured product may vary widely, depending on a variety of factors, including
the volatility of the embedded index and the effect of changes in the embedded index on principal and/or interest payments. The
rate of return on structured notes may be determined by applying a multiplier to the performance or differential performance of
the referenced index(es) or other asset(s). Application of a multiplier involves leverage that will serve to magnify the potential
for gain and the risk of loss.
Structured instruments may be less liquid
than other fixed income securities and the price of structured instruments may be more volatile. In some cases, depending on the
terms of the embedded index, a structured instrument may provide that the principal and/or interest payments may be adjusted below
zero. Structured instruments also may involve significant credit risk and risk of default by the counterparty. Structured instruments
may also be illiquid. Like other sophisticated strategies, the Fund’s use of structured instruments may not work as intended.
The Fund may receive warrants or other
non-income producing equity securities in connection with its investments in high yield securities, including in unit offerings,
in an exchange offer, upon the conversion of a convertible security, or upon the restructuring or bankruptcy of investments owned
by the Fund.
Warrants are privileges issued by corporations
enabling the owners to subscribe to and purchase a specified number of shares of the corporation at a specified price during a
specified period of time. Subscription rights normally have a short life span to expiration. The purchase of warrants involves
the risk that the Fund could lose the purchase value of a right or warrant if the right to subscribe to additional shares is not
exercised prior to the warrants’ expiration. Also, the purchase of warrants involves the risk that the effective price paid
for the warrant added to the subscription price of the related security may exceed the value of the subscribed security’s
market price such as when there is no movement in the level of the underlying security.
Corporate
Loans. The Fund may invest in in Corporate Loans. The Fund considers Corporate Loans that are rated below investment
grade by the established rating services to be high yield securities.
The Corporate Loans in which the Fund will
invest primarily consist of direct obligations of a borrower and may include debtor in possession financings pursuant to Chapter
11 of the U.S. Bankruptcy Code, obligations of a borrower issued in connection with a restructuring pursuant to Chapter 11 of the
U.S. Bankruptcy Code, leveraged buy-out loans, leveraged recapitalization loans, receivables purchase facilities, and privately
placed notes. The Fund may invest in a Corporate Loan at origination as a co-lender or by acquiring in the secondary market participations
in, assignments of or novations of a Corporate Loan. By purchasing a participation, the Fund acquires some or all of the interest
of a bank or other lending institution in a loan to a borrower. The participations typically will result in the Fund having a contractual
relationship only with the lender, not the borrower. The Fund will have the right to receive payments of principal, interest and
any fees to which it is entitled only from the lender selling the participation and only upon receipt by the lender of the payments
from the borrower. Loan participations, therefore, involve a risk of insolvency of the lending bank or other financial intermediary.
Many Corporate Loans are secured, although some may be unsecured. Corporate Loans that are fully secured offer the Fund more protection
than an unsecured loan or high yield bond in the event of non-payment of scheduled interest or principal. However, there is no
assurance that the liquidation of collateral from a secured loan would satisfy the borrower’s obligation, or that the collateral
can be liquidated. The markets in loans are not regulated by federal securities laws or the SEC.
As in the case of junk bonds, such Corporate
Loans may be rated below investment grade or, if unrated, are considered by the Investment Adviser to be of comparable quality.
As in the case of junk bonds, such Corporate Loans can be expected to provide higher yields than lower yielding, investment grade
fixed income securities, but may be subject to greater risk of loss of principal and income. There are, however, some significant
differences between Corporate Loans and junk bonds. Corporate Loan obligations are frequently secured by pledges of liens and security
interests in the assets of the borrower, and the holders of Corporate Loans are frequently the beneficiaries of debt service subordination
provisions imposed on the borrower’s bondholders. Such security and subordination arrangements are designed to give Corporate
Loan investors preferential treatment over high yield bond investors in the event of a deterioration in the credit quality of the
issuer. Even when these arrangements exist, however, there can be no assurance that the principal and interest owed on the Corporate
Loan will be repaid in full. Corporate Loans generally bear interest at rates set at a margin above a generally recognized base
lending rate that may fluctuate on a day-to-day basis, in the case of the prime rate of a U.S. bank, or which may be adjusted periodically,
typically 30 days but generally not more than one year, in the case of the London Interbank Offered Rate. Consequently, the value
of Corporate Loans held by the Fund may be expected to fluctuate less than the value of other fixed rate high yield instruments
as a result of changes in the interest rate environment. On the other hand, the secondary dealer market for certain Corporate Loans
may not be as well developed as the secondary dealer market for high yield bonds, and therefore, positively correlate with increased
market risk relating to liquidity and pricing concerns.
Equity
Securities. The Fund may invest up to 35% of its total assets in equity securities, including preferred stocks, common
stocks, securities convertible into common stocks or rights or warrants to subscribe for or purchase any of the foregoing. The
Fund retains the ability to invest in companies of any size market capitalization.
Common
Stock. The Fund may invest in common stock. Common stock is issued by companies to raise cash for business purposes
and represents a proportionate interest in the issuing companies. Therefore, the Fund participates in the success or failure of
any company in which it holds stock. The market value of common stock can fluctuate significantly, reflecting the business performance
of the issuing company, investor perception and general economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of price volatility, however, common stocks also offer
a greater potential for gain on investment, compared to other classes of financial assets such as bonds or cash equivalents.
Convertible
Debt Securities and Preferred Securities. The Fund may invest in convertible debt securities. A convertible debt security
is a bond, debenture or note that may be converted into or exchanged for a prescribed amount of common stock or other securities
of the same or a different issuer within a particular period of time at a specified price or formula. A convertible debt security
entitles the holder to receive interest generally paid or accrued on debt until the convertible security matures or is redeemed,
converted or exchanged. Convertible securities, including convertible preferred securities, have several unique investment characteristics
such as (i) higher yields than common stocks, but lower yields than comparable nonconvertible securities, (ii) a lesser
degree of fluctuation in value than the underlying stock since they have fixed income characteristics, and (iii) the potential
for capital appreciation if the market price of the underlying common stock increases. Holders of convertible securities have a
claim on the assets of the issuer prior to the common shareholders, but may be subordinated to similar non-convertible securities
of the same issuer. A convertible security might be subject to redemption at the option of the issuer at a price established in
the convertible security’s governing instrument. If a convertible security held by the Fund is called for redemption, the
Fund may be required to permit the issuer to redeem the security, convert it into the underlying common stock or other securities
or sell it to a third party.
The Fund may invest in contingent convertible
securities (“CoCos”). CoCos have no stated maturity, have fully discretionary coupons and are typically issued in the
form of subordinated debt instruments. CoCos generally either convert into equity or have their principal written down upon the
occurrence of certain triggering events (“triggers”) linked to regulatory capital thresholds or regulatory actions
relating to the issuer’s continued viability. As a result, CoCos are subject to the risk that coupon (i.e., interest)
payments may be cancelled by the issuer or a regulatory authority in order to help the issuer absorb losses. Additionally, CoCos
are also subject to the risk that, in the event of the liquidation, dissolution or winding-up of an issuer prior to a trigger event,
a holder of CoCos will generally have rights and claims that rank junior to the claims of holders of the issuer’s other debt
obligations. In addition, if CoCos are converted into the issuer’s underlying equity securities following a trigger event,
the holding may be further subordinated due to the conversion from a debt to equity instrument. Further, the value of an investment
in CoCos is unpredictable and will be influenced by many factors and risks, including interest rate risk, credit risk, market risk
and liquidity risk.
The Fund may invest in preferred securities,
including preferred securities that may be converted into common shares or other securities of the same or a different issuer,
and non-convertible preferred securities. Generally, preferred securities receive dividends in priority to distributions on common
shares and usually have a priority of claim over common shareholders if the issuer of the shares is liquidated. Preferred securities
have certain characteristics of both debt and equity securities. Like debt securities, preferred securities’ rate of income
is generally contractually fixed. Like equity securities, preferred securities do not have rights to precipitate bankruptcy filings
or collection activities in the event of missed payments. Furthermore, preferred securities are generally in a subordinated position
in an issuer’s capital structure and their value are heavily dependent on the profitability of the issuer rather than on
any legal claims to specific assets or cash flows.
There are two basic types of preferred
securities. The first type, sometimes referred to as traditional preferred securities, consists of preferred stock issued by an
entity taxable as a corporation. The second type, sometimes referred to as trust preferred securities, are usually issued by a
trust or limited partnership and represent preferred interests in deeply subordinated debt instruments issued by the corporation
for whose benefit the trust or partnership was established.
Traditional preferred securities generally
pay fixed or adjustable rate dividends to investors and generally have a “preference” over common shares in the payment
of dividends and the liquidation of a company’s assets. This means that a company must pay dividends on preferred shares
before paying any dividends on its common shares. In order to be payable, distributions on such preferred securities must be declared
by the issuer’s board of directors. Income payments on typical preferred securities currently outstanding are cumulative,
causing dividends and distributions to accumulate even if not declared by the board of directors or otherwise made payable. In
such a case all accumulated dividends must be paid before any dividend on the common shares can be paid. However, some traditional
preferred stocks are non-cumulative, in which case dividends do not accumulate and need not ever be paid. A portion of the portfolio
may include investments in non-cumulative preferred securities, whereby the issuer does not have an obligation to make up any arrearages
to its shareholders. Should an issuer of a non-cumulative preferred stock held by the Fund determine not to pay dividends on such
stock, the amount of dividends the Fund pays may be adversely affected. There is no assurance that dividends or distributions on
the traditional preferred securities in which the Fund invests will be declared or otherwise made payable.
Preferred shareholders usually have no
right to vote for corporate directors or on other matters. Shares of traditional preferred securities have a liquidation value
that generally equals the original purchase price at the date of issuance. The market value of preferred securities may be affected
by favorable and unfavorable changes impacting companies in the utilities and financial services sectors, which are prominent issuers
of preferred securities, and by actual and anticipated changes in tax laws, such as changes in corporate income tax rates or the
“Dividends Received Deduction.” Because the claim on an issuer’s earnings represented by traditional preferred
securities may become onerous when interest rates fall below the rate payable on such securities, the issuer may redeem the securities.
Thus, in declining interest rate environments in particular, the Fund’s holdings of higher rate-paying fixed rate preferred
securities may be reduced and the Fund may be unable to acquire securities of comparable credit quality paying comparable rates
with the redemption proceeds.
Trust preferred securities are a comparatively
new asset class. Trust preferred securities are typically issued by corporations, generally in the form of interest-bearing notes
with preferred security characteristics, or by an affiliated business trust of a corporation, generally in the form of beneficial
interests in subordinated debentures or similarly structured securities. The trust preferred securities market consists of both
fixed and adjustable coupon rate securities that are either perpetual in nature or have stated maturity dates. Trust preferred
securities are typically junior and fully subordinated liabilities of an issuer or the beneficiary of a guarantee that is junior
and fully subordinated to the other liabilities of the guarantor. In addition, trust preferred securities typically permit an issuer
to defer the payment of income for eighteen months or more without triggering an event of default. Generally, the deferral period
is five years or more. Because of their subordinated position in the capital structure of an issuer, the ability to defer payments
for extended periods of time without default consequences to the issuer, and certain other features (such as restrictions on common
dividend payments by the issuer or ultimate guarantor when full cumulative payments on the trust preferred securities have not
been made), these trust preferred securities are often treated as close substitutes for traditional preferred securities, both
by issuers and investors. Trust preferred securities have many of the key characteristics of equity due to their subordinated position
in an issuer’s capital structure and because their quality and value are heavily dependent on the profitability of the issuer
rather than on any legal claims to specific assets or cash flows.
The Fund considers below investment grade
convertible debt securities and preferred securities to be high yield securities.
Distressed
Securities. The Fund may invest up to 10% of its total assets in securities of corporate issuers, that are the subject
of bankruptcy proceedings or otherwise in default as to the repayment of principal and/or interest or in significant risk of being
in such default, or that are rated in the lower rating categories (Ca or lower by Moody’s and CC or lower by S&P) or,
if unrated, are considered by the Investment Adviser to be of comparable quality (collectively, “Distressed Securities”).
Investment in Distressed Securities is speculative and involves significant risk. Distressed Securities frequently do not produce
income while they are outstanding and may require the Fund to bear certain extraordinary expenses in order to protect and recover
its investment. Therefore, to the extent the Fund seeks its secondary objective of capital appreciation through investment in Distressed
Securities, the Fund’s ability to achieve current income for its shareholders may be diminished. The Fund also will be subject
to significant uncertainty as to when and in what manner and for what value the obligations evidenced by the Distressed Securities
will eventually be satisfied (e.g., through a liquidation of the obligor’s assets, an exchange offer or plan of reorganization
involving the Distressed Securities or a payment of some amount in satisfaction of the obligation). In addition, even if an exchange
offer is made or a plan of reorganization is adopted with respect to Distressed Securities held by the Fund, there can be no assurance
that the securities or other assets received by the Fund in connection with such exchange offer or plan of reorganization will
not have a lower value or income potential than may have been anticipated when the investment was made. Moreover, any securities
received by the Fund upon completion of an exchange offer or plan of reorganization may be restricted as to resale. As a result
of the Fund’s participation in negotiations with respect to any exchange offer or plan of reorganization with respect to
an issuer of Distressed Securities, the Fund may be restricted from disposing of such securities.
Illiquid
Securities. The Fund may invest in junk bonds, Corporate Loans, convertible debt securities, preferred securities and
other securities that lack a secondary trading market or are otherwise considered illiquid. Liquidity of a security relates to
the ability to easily dispose of the security and the price to be obtained upon disposition of the security, which may be less
than would be obtained for a comparable more liquid security. The Fund has no limitation on the amount of its investments that
are not readily marketable or are subject to restrictions on resale. Illiquid securities may be subject to wide fluctuations in
market value. The Fund may be subject to significant delays in disposing of certain high yield securities. As a result, the Fund
may be forced to sell these securities at less than fair market value or may not be able to sell them when the Investment Adviser
believes that it is desirable to do so. Illiquid securities also may entail registration expenses and other transaction costs
that are higher than those for liquid securities. Such investments may affect the Fund’s ability to realize the net asset
value in the event of a voluntary or involuntary liquidation of its assets.
Unregistered
and Restricted Securities. The Combined Fund may invest in unregistered or restricted securities. The Combined Fund
may invest in unregistered or restricted securities of public and private issuers. The Combined Fund may acquire securities through
private placements under which it may agree to contractual restrictions on the resale of such securities. Such restrictions might
prevent their sale at a time when such sale would otherwise be desirable. Certain restricted securities may, however, be treated
as liquid and not subject to the foregoing restrictions pursuant to procedures adopted by the Board, which require consideration
of factors such as trading activity, availability of market quotations and number of dealers willing to purchase the security.
If the Combined Fund invests in restricted securities for which there is a limited trading market, such as Rule 144A securities,
the level of portfolio illiquidity may be increased to the extent that eligible buyers become uninterested in purchasing such securities.
Residential
Mortgage Backed Securities. RMBS are securities that directly or indirectly represent participations in, or are secured
by and payable from, mortgage loans secured by real property. RMBS include the following: those issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities, such as Ginnie Mae, Fannie Mae and Freddie Mac; those issued by private
issuers that represent interests in, or are collateralized by, MBS issued or guaranteed by the U.S. Government or one of its agencies
or instrumentalities; and those issued by private issuers that represent an interest in, or are collateralized by whole mortgage
loans or RMBS without a U.S. Government guarantee but usually with subordination or some other form of private credit enhancement.
The investment characteristics of RMBS
differ from traditional debt securities. The major differences include the fact that interest payments and principal repayments
on RMBS are made more frequently (usually monthly), and principal may be prepaid at any time because the underlying mortgage loans
or other assets generally may be prepaid at any time. These differences can result in significantly greater price and yield volatility
than is the case with traditional debt securities. The Investment Adviser will seek to manage these risks (and potential benefits)
by investing in a variety of such securities and by using hedging techniques.
Prepayments on a pool of mortgage loans
is influenced by a variety of economic, geographic, social and other factors, including changes in mortgagors’ housing needs,
job transfer, unemployment, mortgagors’ net equity in the mortgaged properties and servicing decisions. The timing and level
of prepayments cannot be predicted. Generally, however, prepayments on fixed rate mortgage loans will increase during a period
of falling mortgage interest rates and decrease during a period of rising mortgage interest rates.
Accordingly, amounts available for reinvestment
by the Fund are likely to be greater during a period of declining mortgage interest rates and, if general interest rates also decline,
are likely to be reinvested at lower interest rates than the Fund was earning on the RMBS that were prepaid. During a period of
rising interest rates, amounts available for reinvestment by the Fund are likely to be lower and the effective maturities of RMBS
may extend.
Commercial
Mortgage Backed Securities. CMBS are multi-class debt or pass-through or pay-through securities backed by a mortgage
loan or pool of mortgage loans on commercial real property, such as industrial and warehouse properties, office buildings, retail
space and shopping malls, single and multifamily properties and cooperative apartments, hotels and motels, nursing homes, hospitals
and senior living centers, mobile home parks, manufactured home communities, theaters, self-storage facilities, restaurants and
convenience stores.
Assets underlying CMBS may relate to many
properties, only a few properties, or to a single property. Each commercial mortgage loan that underlies a CMBS has certain distinct
characteristics.
Commercial mortgage loans are sometimes
not amortizing and often not fully amortizing. At their maturity date, repayment of the remaining principal balance or “balloon”
is due and is repaid through the attainment of an additional loan, the sale of the property or the contribution of additional capital.
Unlike most single family residential mortgages, commercial real property loans often contain provisions that substantially reduce
the likelihood that they will be prepaid. The provisions generally impose significant prepayment penalties on loans and, in some
cases, there may be prohibitions on principal prepayments for several years following origination. Changing real estate markets
may adversely affect both the value of the underlying collateral and the borrower’s ability to meet contractual obligations,
either of which may lead to delinquencies, defaults, modifications or foreclosure that in turn may lead to the realization of credit
losses in CMBS.
CMBS have been issued in public and private
transactions by a variety of public and private issuers. Non-governmental entities that have issued or sponsored CMBS offerings
include owners of commercial properties, originators of, and investors in, mortgage loans, savings and loan associations, mortgage
banks, commercial banks, insurance companies, investment banks and special purpose subsidiaries of the foregoing. The Fund may
from time to time purchase CMBS directly from issuers in negotiated or non-negotiated transactions or from a holder of such CMBS
in the secondary market.
Commercial mortgage securitizations generally
are senior/subordinated structures. The senior class investors are deemed to be protected against potential losses on the underlying
mortgage loans by the subordinated class investors who take the first loss if there are defaults on the underlying commercial mortgage
loans. Other protections, which may benefit all of the classes including the subordinated classes, may include issuer guarantees,
additional subordinated securities, cross-collateralization, over-collateralization and the equity investor in the underlying properties.
Asset
Backed Securities. Asset-backed securities (“ABS”) are collateralized by pools of such assets as home equity
loans and lines of credit, credit card receivables, automobile loans, loans to finance the purchase of manufactured housing, equipment
receivables, franchise loans, automobile dealer floor plan receivables, and other forms of indebtedness, leases or claims to identifiable
cash flows.
ABS present certain risks that are not
presented by MBS. ABS generally do not have the benefit of the same type of security interest in the related collateral, or may
not be secured by a specific interest in real property.
Subordinated classes of ABS may be entitled
to receive repayment of principal only after all required principal payments have been made to more senior classes, and also may
have subordinated rights as to receipt of interest distributions. Such subordinated classes are subject to a greater risk of non-payment
than are senior classes or ABS backed by third party credit enhancement.
U.S.
Government Securities. U.S. Government securities include issues of the U.S. Treasury, such as bills, certificates of
indebtedness, notes and bonds, as well as obligations of agencies and instrumentalities of the U.S. Government. U.S. Treasury securities
are backed by the full faith and credit of the U.S. Government. Obligations of agencies and instrumentalities of the U.S. Government
often are not backed by the full faith and credit of the U.S. Government.
Collateralized
Loan Obligations (“CLOs”). CLOs are types of asset-backed securities. A CLO is a trust typically collateralized
by a pool of loans, which may include, among others, domestic and foreign senior secured loans, senior unsecured loans and subordinate
corporate loans, including loans that may be rated below investment grade or equivalent unrated loans. CLOs may charge management
fees and administrative expenses.
REITs.
REITs are pooled investment vehicles that own, and typically operate, income-producing real estate or real estate-related assets.
If a REIT meets certain requirements, including distributing to shareholders substantially all of its taxable income (other than
net capital gains), then it is not taxed on the income distributed to shareholders. REITs are subject to management fees and other
expenses, and, to the extent the Fund invests in REITs, it will bear its proportionate share of the costs of the REITs’ operations.
There are three general categories of REITs:
Equity REITs, Mortgage REITs and Hybrid REITs. Equity REITs invest primarily in direct fee ownership or leasehold ownership of
real property; they derive most of their income from rents. Mortgage REITs invest mostly in mortgages on real estate, which may
secure construction, development or long-term loans, and the main source of their income is mortgage interest payments. Hybrid
REITs hold both ownership and mortgage interests in real estate.
Along with the risks common to different
types of real estate-related securities, REITs, no matter the type, involve additional risk factors. These include poor performance
by the REIT’s manager, changes to the tax laws, and failure by the REIT to qualify for tax-free distribution of income or
exemption under the 1940 Act. Furthermore, REITs are not diversified and are heavily dependent on cash flow.
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. 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 savings and loan associations, homebuilders, mortgage banks,
commercial banks, investment banks, partnerships, trusts and special purpose entities of the foregoing.
Repurchase
Agreements. Repurchase agreements may be seen as loans by the Fund collateralized by underlying debt securities. Under
the terms of a typical repurchase agreement, the Fund would acquire an underlying debt obligation for a relatively short period
(usually not more than one week) subject to an obligation of the seller to repurchase, and the Fund to resell, the obligation at
an agreed price and time. This arrangement results in a fixed rate of return to the Fund that is not subject to market fluctuations
during the holding period. The Fund bears a risk of loss in the event that the other party to a repurchase agreement defaults on
its obligations and the Fund is delayed in or prevented from exercising its rights to dispose of the collateral securities, including
the risk of a possible decline in the value of the underlying securities during the period in which it seeks to assert these rights.
The Investment Adviser, acting under the supervision of the Board of Directors, reviews the creditworthiness of those banks and
dealers with which the Fund enters into repurchase agreements to evaluate these risks and monitors on an ongoing basis the value
of the securities subject to repurchase agreements to ensure that the value is maintained at the required level. The Fund will
not enter into repurchase agreements with the Investment Adviser or any of its affiliates.
Bank
Loans, Assignments, and Participations. Loans (including “Senior Loans” (as described below), delayed funding
loans and revolving credit facilities) may be fixed- or floating-rate obligations. Loan interests may take the form of direct interests
acquired during a primary distribution and may also take the form of assignments of, novations of or participations in a bank loan
acquired in secondary markets.
Senior floating rate loans may be made
to or issued by U.S. or non-U.S. banks or other corporations (“Senior Loans”). Senior Loans include senior floating
rate loans and institutionally traded senior floating rate debt obligations issued by asset-backed pools and other issuers, and
interests therein. Loan interests may be acquired from U.S. or foreign commercial banks, insurance companies, finance companies
or other financial institutions who have made loans or are members of a lending syndicate or from other holders of loan interests.
Senior Loans typically pay interest at
rates which are re-determined periodically on the basis of a floating base lending rate (such as the London Inter-Bank Offered
Rate, “LIBOR”) plus a premium. Senior Loans are typically of below investment grade quality. Senior Loans generally
(but not always) hold the most senior position in the capital structure of a borrower and are often secured with collateral. A
Senior Loan is typically originated, negotiated and structured by a U.S. or foreign commercial bank, insurance company, finance
company or other financial institution (the “Agent”) for a lending syndicate of financial institutions (“Lenders”).
The Agent typically administers and enforces the Senior Loan on behalf of the other Lenders in the syndicate. In addition, an institution,
typically but not always the Agent, holds any collateral on behalf of the Lenders.
A fund that invests in senior loans may
be subject to greater levels of credit risk, call risk, settlement risk and liquidity risk than funds that do not invest in such
securities. Senior Loans and other types of direct indebtedness may not be readily marketable and may be subject to restrictions
on resale because, among other reasons, they may not be listed on any exchange, or a secondary market for such loans may not exist
or if a secondary market exists, it may be comparatively illiquid relative to markets for other more liquid fixed income securities.
As a result, in some cases, transactions in senior loans may involve greater costs than transactions in more actively traded securities.
Furthermore, restrictions on transfers in loan agreements, a lack of publicly-available information, irregular trading activity
and wide bid/ask spreads among other factors, may, in certain circumstances, make senior loans more difficult to sell at what the
Investment Adviser believes to be a fair price for such security. These factors may result in the Fund being unable to realize
full value for the senior loans and/or may result in the Fund not receiving the proceeds from a sale of a senior loan for an extended
period after such sale, each of which could result in losses to the Fund. Senior loans may have extended trade settlement periods
which may result in cash not being immediately available to the Fund. In addition, valuation of illiquid indebtedness involves
a greater degree of judgment in determining the Fund’s NAV than if that value were based on available market quotations,
and could result in significant variations in the Fund’s daily share price. At the same time, some loan interests are traded
among certain financial institutions and accordingly may be deemed liquid. The Investment Adviser will determine the liquidity
of the Fund’s investments by reference to market conditions and contractual provisions.
The Fund may also invest in stapled securities.
A stapled security is a security that is comprised of two parts that cannot be separated from one another. The two parts of a stapled
security are a unit of a trust and a share of a company. The resulting security is influenced by both parts, and must be treated
as one unit at all times, such as when buying or selling a security. The value of stapled securities and the income derived from
them may fall as well as rise. Stapled securities are not obligations of, deposits in, or guaranteed by, the Fund. The listing
of stapled securities on a domestic or foreign exchange does not guarantee a liquid market for stapled securities.
Assignments and participations in commercial
loans, as well as debtor-in-possession loans, may be secured or unsecured. Loan participations typically represent direct participations
in a loan to a borrower, and generally are offered by banks or other financial institutions or lending syndicates. An investor
that participates in such syndications, or buys part of a loan, becomes part lender. When purchasing loan participations, the Fund
assumes the credit risk associated with the corporate or other borrower and may assume the credit risk associated with an interposed
bank or other financial intermediary. The participation interests in which the Fund intends to invest may not be rated by any NRSRO.
A loan is often administered by an agent
bank acting as agent for all holders. The agent bank administers the terms of the loan, as specified in the loan agreement. In
addition, the agent bank is normally responsible for the collection of principal and interest payments from the borrower and the
apportionment of these payments to the credit of all institutions which are parties to the loan agreement. Unless, under the terms
of the loan or other indebtedness, the Fund has direct recourse against the borrower, the Fund may have to rely on the agent bank
or other financial intermediary to apply appropriate credit remedies against a borrower.
A financial institution’s employment
as agent bank might be terminated in the event that it fails to observe a requisite standard of care or becomes insolvent. A successor
agent bank would generally be appointed to replace the terminated agent bank, and assets held by the agent bank under the loan
agreement should remain available to holders of such indebtedness. However, if assets held by the agent bank for the benefit of
the Fund were determined to be subject to the claims of the agent bank’s general creditors, the Fund might incur certain
costs and delays in realizing payment on a loan or loan participation and could suffer a loss of principal and/or interest. In
situations involving other interposed financial institutions (e.g., an insurance company or governmental agency) similar
risks may arise.
Indebtedness of companies whose creditworthiness
is poor involves substantially greater risks, and may be highly speculative. Some companies may never pay off their indebtedness,
or may pay only a small fraction of the amount owed. Consequently, when investing in indebtedness of companies with poor credit,
the Fund bears a substantial risk of losing the entire amount invested.
In the case of loan participations where
a bank or other lending institution serves as a financial intermediary between the Fund and the corporate borrower, if the participation
does not shift to the Fund the direct debtor-creditor relationship with the borrower, Commission interpretations require the Fund
to treat both the lending bank or other lending institution and the borrower as “issuers.” Treating a financial intermediary
as an issuer of indebtedness may in certain circumstances restrict the Fund’s ability to invest in indebtedness related to
a single financial intermediary, or a group of intermediaries engaged in the same industry, even if the underlying borrowers represent
many different companies and industries.
The Fund has adopted certain investment
strategies as set forth below:
Leverage
The Fund intends to use leverage to seek
to achieve its investment objective. The Fund currently anticipates obtaining leverage through reverse repurchase agreements and
through borrowings from banks and/or other financial institutions. As a non-fundamental policy that may be changed by the Board
upon 60 days’ written notice to the Fund’s shareholders, the Fund may issue preferred shares or borrow money and issue
debt securities (“traditional leverage”) with an aggregate liquidation preference and aggregate principal amount up
to 33 1/3% of the Fund’s Managed Assets. However, the Board reserves the right to issue preferred shares or debt securities
or borrow to the extent permitted by the 1940 Act. The Fund generally will not issue preferred shares or debt securities or borrow
unless the Investment Adviser expects that the Fund will achieve a greater return on such leverage than the additional costs the
Fund incurs as a result of such leverage. The Fund also may borrow money as a temporary measure for extraordinary or emergency
purposes, including the payment of dividends and the settlement of securities transactions, which otherwise might require untimely
dispositions of the Fund’s holdings.
In addition, the Fund may enter into reverse
repurchase agreements, swaps, futures, securities lending, or short sales, that may provide leverage (collectively referred to
as “effective leverage”). Such effective leverage will be considered leverage for the Fund’s leverage limits.
The Fund’s total leverage, either through traditional leverage or effective leverage, will not exceed 38% of the Fund’s
Managed Assets.
The Fund expects to obtain leverage through
reverse repurchase agreements and through bank borrowings, representing approximately 27.50% of the Fund’s Managed Assets.
The Fund, with the approval of its Board, including its Independent Directors, has entered into a financing package that includes
the BNP Agreement that allows the Fund to borrow up to 33 1/3 of its total assets. Borrowings under the BNP Agreement are secured
by assets of the Fund that are held with the Fund’s custodian in a separate account. Interest is charged at .80% plus the
3 month LIBOR (London Inter-bank Offered Rate), i.e., .80% on the amount borrowed and .80% on the unused amount.
The Fund may not be leveraged at all times
and the amount of leverage, if any, may vary depending upon a variety of factors, including the Investment Adviser’s outlook
for the market and the costs that the Fund would incur as a result of such leverage. The Fund will pay (and common shareholders
will bear) any costs and expenses relating to any borrowings and to the issuance and ongoing maintenance of preferred shares or
debt securities (for example, the higher management and other fees resulting from the use of any such leverage, and interest and/or
dividend expense and ongoing maintenance). The Fund’s leveraging strategy may not be successful. By leveraging its investment
portfolio, the Fund creates an opportunity for increased net income or capital appreciation. However, the use of leverage also
involves risks to common shareholders, which can be significant. These risks include the possibility that the value of the assets
acquired with the proceeds of leverage decreases although the Fund’s liability to holders of preferred shares or other types
of leverage is fixed, greater volatility in the Fund’s NAV and the market price of, and distributions on, the Fund’s
common shares, and higher expenses. In addition, the rights of lenders, the preferred shareholders and the holders of debt securities
issued by the Fund will be senior to the rights of the common shareholders with respect to the payment of dividends or upon liquidation.
Preferred shareholders and holders of debt securities may have voting rights in addition to, and separate from, the voting rights
of common shareholders. The holders of preferred shares or debt, on the one hand, and the common shareholders, on the other, may
have interests that conflict with each other in certain situations.
Because the Investment Adviser’s
advisory and administration fees are based upon a percentage of the Fund’s Managed Assets, which include assets attributable
to any outstanding leverage, these fees are higher when the Fund is leveraged and the Investment Adviser will have a financial
incentive to leverage the Fund, which may create a conflict of interest between the Investment Adviser, on the one hand, and the
common shareholders, on the other hand. The Fund’s Board monitors any such potential conflicts of interest on an ongoing
basis.
The Fund’s use of leverage is premised
upon the expectation that the Fund’s leverage costs will be lower than the return the Fund achieves on its investments with
the leverage proceeds. Such difference in return may result from the Fund’s higher credit rating or the short-term nature
of its borrowing compared to the long-term nature of its investments. Because the Investment Adviser, subject to the supervision
of the Board, seeks to invest the Fund’s Managed Assets (including the assets obtained from leverage) in the higher yielding
portfolio investments or portfolio investments with the potential for capital appreciation, the common shareholders will be the
beneficiaries of any incremental return. Should the differential between the underlying assets and cost of leverage narrow, the
incremental return “pick up” will be reduced. Furthermore, if long-term interest rates rise without a corresponding
increase in the stated interest rate on the Fund’s portfolio investments or the Fund otherwise incurs losses on its investments,
the Fund’s NAV attributable to its common shareholders will reflect the decline in the value of portfolio holdings resulting
therefrom to a greater extent than if the Fund were not leveraged.
The Investment Adviser may determine to
maintain the Fund’s leveraged position if it expects that the long-term benefits to the Fund’s common shareholders
of maintaining the leveraged position will outweigh the current reduced return. Capital raised through the issuance of preferred
shares or debt securities or borrowing will be subject to dividend payments or interest costs that may or may not exceed the income
and appreciation on the assets purchased. The issuance of preferred shares or debt securities involves offering expenses and other
costs and may limit the Fund’s freedom to pay dividends on common shares or to engage in other activities. The Fund also
may be required to maintain minimum average balances in connection with borrowings 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 Fund will
pay (and common shareholders will bear) any costs and expenses relating to any borrowings and to the issuance and ongoing maintenance
of preferred shares or debt securities (for example, the higher management and other fees resulting from the use of any such leverage,
and interest and/or dividend expense and ongoing maintenance). NAV will be reduced immediately following any additional offering
of preferred shares or debt securities by the costs of that offering paid by the Fund.
Under the 1940 Act, the Fund is not permitted
to issue preferred shares unless immediately after such issuance the Fund has an asset coverage of at least 200% of the liquidation
value of the aggregate amount of outstanding preferred shares (i.e., such liquidation value may not exceed 50% of the value
of the Fund’s Managed Assets). Under the 1940 Act, the Fund may only issue one class of senior securities representing equity.
So long as preferred shares are outstanding, additional senior equity securities must rank on a parity with the preferred shares.
In addition, the Fund is not permitted to declare any cash dividend or other distribution on its common shares unless, at the time
of such declaration, the NAV of the Fund’s portfolio (determined after deducting the amount of such dividend or distribution)
is at least 200% of such liquidation value. Under the 1940 Act, the Fund is not permitted to incur indebtedness unless immediately
after such borrowing the Fund has an asset coverage of at least 300% of the aggregate outstanding principal balance of indebtedness
(i.e., such indebtedness may not exceed 33 1/3% of the value of the Fund’s total assets). Under the 1940 Act, the
Fund may only issue one class of senior securities representing indebtedness. Additionally, under the 1940 Act, the Fund may generally
not declare any dividend or other distribution upon any class of its shares, or purchase any such shares, unless the aggregate
indebtedness of the Fund has, at the time of the declaration of any such dividend or distribution or at the time of any such purchase,
an asset coverage of at least 300% after deducting the amount of such dividend, distribution, or purchase price, as the case may
be. This limitation does not apply to certain privately placed debt. In general, the Fund may declare dividends on preferred shares
as long as there is asset coverage of 200% after deducting the amount of the dividend.
The Fund may be subject to certain restrictions
on investments imposed by guidelines of rating agencies, which may issue ratings for any debt securities or preferred shares issued
by the Fund in the future. These guidelines may impose asset coverage and portfolio composition requirements that are more stringent
than those imposed by the 1940 Act. Certain types of borrowings may result in the Fund being subject to covenants in credit agreements,
including those relating to asset coverage, borrowing base and portfolio composition requirements and additional covenants that
may affect the Fund’s ability to pay dividends and distributions on common shares in certain instances. The Fund also may
be required to pledge its assets to the lenders in connection with certain types of borrowings. The Investment Adviser does not
anticipate that these covenants or restrictions will adversely affect its ability to manage the Fund’s portfolio in accordance
with the Fund’s investment objective and policies. Due to these covenants or restrictions, the Fund may be forced to liquidate
investments at times and at prices that are not favorable to the Fund, or the Fund may be forced to forgo investments that the
Investment Adviser otherwise views as favorable.
Effects
of Leverage. Assuming that leverage will represent approximately 22.12% of the Fund’s Managed Assets, the rate
of return on the Fund’s investments would need to exceed 0.70% in order to cover the leverage costs on the borrowings.
The following table is designed to illustrate
the effect, on the return to a common shareholder, of the leverage obtained by borrowings in the amount of approximately 22.12%
of the Fund’s total assets, assuming hypothetical annual returns on the Fund’s portfolio of minus 10% to plus 10%.
As the table shows, leverage generally increases the return to shareholders when portfolio return is positive and greater than
the cost of leverage and decreases the return when portfolio return is negative or less than the cost of leverage. The figures
appearing in the table are hypothetical and actual returns may be greater or less than those appearing in the table.
Assumed Return on Portfolio (Net of Expenses)
|
|
|
-10
|
%
|
|
-5
|
%
|
|
0
|
%
|
|
5
|
%
|
|
10
|
%
|
|
Corresponding Return to Common Shareholder
|
|
|
[●]
|
%
|
|
[●]
|
%
|
|
[●]
|
%
|
|
[●]
|
%
|
|
[●]
|
%
|
|
Indexed
and Inverse Floating Obligations. The Fund may invest in securities whose potential returns are directly related to
changes in an underlying index or interest rate, known as indexed securities. The return on indexed securities will rise when the
underlying index or interest rate rises and fall when the index or interest rate falls. The Fund also may invest in securities
whose return is inversely related to changes in an interest rate (“inverse floaters”). In general, inverse floaters
change in value in a manner that is opposite to most bonds—that is, interest rates on inverse floaters will decrease when
short term rates increase and increase when short term rates decrease. Changes in interest rates generally, or the interest rate
of the other security or index, inversely affect the interest rate paid on the inverse floater, with the result that the inverse
floater’s price will be considerably more volatile than that of a fixed rate bond. Inverse floaters are typically created
by depositing an income-producing instrument in a trust. The trust in turn issues a variable rate security and inverse floaters.
The interest rate for the variable rate security is typically determined by an index or an auction process, while the inverse floater
holder receives the balance of the income from the underlying income-producing instrument less an auction fee. The market prices
of inverse floaters may be highly sensitive to changes in interest rates and prepayment rates on the underlying securities, and
may decrease significantly when interest rates increase or prepayment rates change.
Investments in indexed securities and inverse
floaters may subject the Fund to the risk of reduced or eliminated interest payments. Investments in indexed securities also may
subject the Fund to loss of principal. In addition, certain indexed securities and inverse floaters may increase or decrease in
value at a greater rate than the underlying interest rate, which effectively leverages the Fund’s investment. As a result,
the market value of such securities will generally be more volatile than that of fixed rate securities. Both indexed securities
and inverse floaters can be derivative securities and can be considered speculative.
Interest
Rate Transactions. In order to seek to hedge the value of the Fund’s portfolio against interest rate fluctuations
or to seek to enhance the Fund’s return, the Fund may enter into various interest rate transactions such as interest rate
swaps and the purchase or sale of interest rate caps and floors. The Fund may enter into these transactions to preserve a return
or spread on a particular investment or portion of its portfolio, to protect against any increase in the price of securities the
Fund anticipates purchasing at a later date or to seek to enhance its return. However, the Fund also may invest in interest rate
swaps to seek to enhance income or increase the Fund’s yield, for example, during periods of steep interest rate yield curves
(i.e., wide differences between short term and long term interest rates). The Fund is not required to pursue these portfolio
strategies and may choose not to do so. The Fund cannot guarantee that any strategies it uses will work.
In an interest rate swap, the Fund exchanges
with another party their respective commitments to pay or receive interest (e.g., an exchange of fixed rate payments for
floating rate payments). For example, if the Fund holds a debt instrument with an interest rate that is reset only once each year,
it may swap the right to receive interest at this fixed rate for the right to receive interest at a rate that is reset every week.
This would enable the Fund to offset a decline in the value of the debt instrument due to rising interest rates but would also
limit its ability to benefit from falling interest rates. Conversely, if the Fund holds a debt instrument with an interest rate
that is reset every week and it would like to lock in what it believes to be a high interest rate for one year, it may swap the
right to receive interest at this variable weekly rate for the right to receive interest at a rate that is fixed for one year.
Such a swap would protect the Fund from a reduction in yield due to falling interest rates and may permit the Fund to seek to enhance
its income through the positive differential between one week and one year interest rates, but would preclude it from taking full
advantage of rising interest rates.
The Fund usually will enter into interest
rate swaps on a net basis (i.e., the two payment streams are netted out with the Fund receiving or paying, as the case may
be, only the net amount of the two payments). The net amount of the excess, if any, of the Fund’s obligations over its entitlements
with respect to each interest rate swap will be accrued on a daily basis, and an amount of cash or liquid instruments having an
aggregate net asset value at least equal to the accrued excess will be segregated by the Fund’s custodian. If the interest
rate swap transaction is entered into on other than a net basis, the full amount of the Fund’s obligations will be accrued
on a daily basis, and the full amount of the Fund’s obligations will be segregated by the Fund’s custodian.
The Fund also may engage in interest rate
transactions in the form of purchasing or selling interest rate caps or floors. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest rate, to receive payments of interest equal to
the difference of the index and the predetermined rate on a notional principal amount (i.e., the reference amount with respect
to which interest obligations are determined although no actual exchange of principal occurs) from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest at the difference of the index and the predetermined rate on a notional principal
amount from the party selling such interest rate floor. The Fund will not enter into caps or floors if, on a net basis, the aggregate
notional principal amount with respect to such agreements exceeds the net assets of the Fund.
Typically, the parties with which the Fund
will enter into interest rate transactions will be broker-dealers and other financial institutions. The Fund will not enter into
any interest rate swap, cap or floor transaction unless the unsecured senior debt or the claims-paying ability of the other party
thereto is rated investment grade quality by at least one nationally recognized statistical rating organization at the time of
entering into such transaction or whose creditworthiness is believed by the Investment Adviser to be equivalent to such rating.
If there is a default by the other party to an uncleared interest rate swap transaction, generally the Fund will have contractual
remedies pursuant to the agreements related to the transaction. With respect to interest rate swap transactions cleared through
a central clearing counterparty, a clearing organization will be substituted for each party and will guaranty the parties’
performance under the swap agreement. However, there can be no assurance that the clearing organization will satisfy its obligation
to the Fund. Certain federal income tax requirements may limit the Fund’s ability to engage in interest rate swaps. Payments
from transactions in interest rate swaps generally will be taxable as ordinary income to shareholders.
Credit
Default Swap Agreements. The Fund may enter into credit default swap agreements for hedging purposes or to enhance its
returns. The credit default swap agreement may have as reference obligations one or more securities that are not currently held
by the Fund. The protection “buyer” in a credit default contract may be obligated to pay the protection “seller”
an upfront or a periodic stream of payments over the term of the contract provided that no credit event on a reference obligation
has occurred. If a credit event occurs, the seller generally must pay the buyer the “par value” (full notional value)
of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the
seller may be required to deliver the related net cash amount, if the swap is cash settled. The Fund may be either the buyer or
seller in the transaction. If the Fund is a buyer and no credit event occurs, the Fund may recover nothing if the swap is held
through its termination date. However, if a credit event occurs, the buyer generally may elect to receive the full notional value
of the swap in exchange for an equal face amount of deliverable obligations of the reference entity that may have little or no
value. As a seller, the Fund generally receives an upfront payment or a fixed rate of income throughout the term of the swap, which
typically is between six months and three years, provided that there is no credit event. If a credit event occurs, generally the
seller must pay the buyer the full notional value of the swap in exchange for an equal face amount of deliverable obligations of
the reference entity that may have little or no value. As the seller, the Fund would effectively add leverage to its portfolio
because, in addition to its total assets, the Fund would be subject to investment exposure on the notional amount of the swap.
Credit default swap agreements generally
involve greater risks than if the Fund were to have invested in the reference obligation directly since in addition to general
market risks, credit default swaps are also subject to illiquidity risk, counterparty risk and credit risks. The Fund will enter
into credit default swap agreements only with counterparties who are rated investment grade quality by at least one nationally
recognized statistical rating organization at the time of entering into such transaction or whose creditworthiness is believed
by the Investment Adviser to be equivalent to such rating. A buyer generally also will lose its investment and recover nothing
should no credit event occur and the swap is held to its termination date. If a credit event were to occur, the value of any deliverable
obligation received by the seller, coupled with the upfront or periodic payments previously received, may be less than the full
notional value it pays to the buyer, resulting in a loss of value to the seller. The Fund’s obligations under a credit default
swap agreement will be accrued daily (offset against any amounts owing to the Fund). The Fund will, at all times, segregate with
its custodian in connection with each such transaction unencumbered liquid securities or cash with a value at least equal to the
Fund’s exposure (any accrued but unpaid net amounts owed by the Fund to any counterparty), on a marked-to-market basis (as
calculated pursuant to requirements of the SEC). If the Fund is a seller of protection in a credit default transaction, it will
designate on its books and records in connection with such transaction liquid assets or cash with a value at least equal to the
full notional amount of the contract. Such segregation will ensure that the Fund has assets available to satisfy its obligations
with respect to the transaction and will avoid any potential leveraging of the Fund’s portfolio. Such segregation will not
limit the Fund’s exposure to loss.
Options
Call
Options. The Fund may purchase call options on any of the types of securities in which it may invest. A purchased call
option gives the Fund the right to buy, and obligates the seller to sell, the underlying security at the exercise price at any
time during the option period. The Fund may also purchase and sell call options on indices. Index options are similar to options
on securities except that, rather than taking or making delivery of securities underlying the option at a specified price upon
exercise, an index option gives the holder the right to receive cash upon exercise of the option if the level of the index upon
which the option is based is greater than the exercise price of the option.
The Fund also is authorized to write (i.e.,
sell) covered call options on the securities in which it invests and to enter into closing purchase transactions with respect to
certain of such options. A covered call option is an option in which the Fund, in return for a premium, gives another party a right
to buy specified securities owned by the Fund at a specified future date and price set at the time of the contract. The principal
reason for writing call options is the attempt to realize, through the receipt of premiums, a greater return than would be realized
on the securities alone. By writing covered call options, the Fund gives up the opportunity, while the option is in effect, to
profit from any price increase in the underlying security above the option exercise price. In addition, the Fund’s ability
to sell the underlying security will be limited while the option is in effect unless the Fund enters into a closing purchase transaction.
A closing purchase transaction cancels out the Fund’s position as the writer of an option by means of an offsetting purchase
of an identical option prior to the expiration of the option it has written. Covered call options also serve as a partial hedge
to the extent of the premium received against the price of the underlying security declining.
The Fund also is authorized to write (i.e.,
sell) uncovered call options on securities in which it may invest but that are not currently held by the Fund. The principal reason
for writing uncovered call options is to realize income without committing capital to the ownership of the underlying securities.
When writing uncovered call options, the Fund must deposit and maintain sufficient margin with the broker dealer through which
it made the uncovered call option as collateral to ensure that the securities can be purchased for delivery if and when the option
is exercised. In addition, the Fund will segregate with its custodian in connection with each such transaction unencumbered liquid
securities or cash with a value at least equal to the Fund’s exposure (the difference between the unpaid amounts owed by
the Fund on such transaction minus any collateral deposited with the broker dealer), on a marked-to-market basis (as calculated
pursuant to requirements of the SEC). Such segregation will ensure that the Fund has assets available to satisfy its obligations
with respect to the transaction and will avoid any potential leveraging of the Fund’s portfolio. Such segregation will not
limit the Fund’s exposure to loss. During periods of declining securities prices or when prices are stable, writing uncovered
calls can be a profitable strategy to increase the Fund’s income with minimal capital risk. Uncovered calls are riskier than
covered calls because there is no underlying security held by the Fund that can act as a partial hedge. Uncovered calls have speculative
characteristics and the potential for loss is unlimited. When an uncovered call is exercised, the Fund must purchase the underlying
security to meet its call obligation. There is also a risk, especially with less liquid preferred and debt securities, that the
securities may not be available for purchase. If the purchase price exceeds the exercise price, the Fund will lose the difference.
Put
Options. The Fund is authorized to purchase put options to seek to hedge against a decline in the value of its securities
or to seek to enhance its return. By buying a put option, the Fund acquires a right to sell the underlying security at the exercise
price, thus limiting the Fund’s risk of loss through a decline in the market value of the security until the put option expires.
The amount of any appreciation in the value of the underlying security will be partially offset by the amount of the premium paid
for the put option and any related transaction costs. Prior to its expiration, a put option may be sold in a closing sale transaction
and profit or loss from the sale will depend on whether the amount received is more or less than the premium paid for the put option
plus the related transaction costs. A closing sale transaction cancels out the Fund’s position as the purchaser of an option
by means of an offsetting sale of an identical option prior to the expiration of the option it has purchased. The Fund also may
purchase uncovered put options.
The Fund also has authority to write (i.e.,
sell) put options on the types of securities that may be held by the Fund, provided that such put options are covered, meaning
that such options are secured by segregated, liquid instruments. The Fund will receive a premium for writing a put option, which
increases the Fund’s return. The Fund will not sell puts if, as a result, more than 50% of the Fund’s assets would
be required to cover its potential obligations under its hedging and other investment transactions.
The Fund is also authorized to write (i.e.,
sell) uncovered put options on securities in which it may invest but that the Fund does not currently have a corresponding short
position or has not deposited cash equal to the exercise value of the put option with the broker dealer through which it made the
uncovered put option as collateral. The principal reason for writing uncovered put options is to receive premium income and to
acquire a security at a net cost below the current market value. The Fund has the obligation to buy the securities at an agreed
upon price if the securities decrease below the exercise price. If the securities’ price increases during the option period,
the option will expire worthless and the Fund will retain the premium and will not have to purchase the securities at the exercise
price. The Fund will segregate with its custodian in connection with such transaction unencumbered liquid securities or cash with
a value at least equal to the Fund’s exposure, on a marked-to-market basis (as calculated pursuant to requirements of the
SEC). Such segregation will ensure that the Fund has assets available to satisfy its obligations with respect to the transaction
and will avoid any potential leveraging of the Fund’s portfolio. Such segregation will not limit the Fund’s exposure
to loss.
Financial
Futures and Options Thereon. The Fund is authorized to engage in transactions in financial futures contracts (“futures
contracts”) and related options on such futures contracts either as a hedge against adverse changes in the market value of
its portfolio securities or to seek to enhance the Fund’s income. A futures contract is an agreement between two parties
which obligates the purchaser of the futures contract, to buy and the seller of a futures contract to sell a security for a set
price on a future date or, in the case of an index futures contract, to make and accept a cash settlement based upon the difference
in value of the index between the time the contract was entered into and the time of its settlement. A majority of transactions
in futures contracts, however, do not result in the actual delivery of the underlying instrument or cash settlement, but are settled
through liquidation (i.e., by entering into an offsetting transaction). Futures contracts have been designed by boards of
trade which have been designated “contract markets” by the CFTC. Transactions by the Fund in futures contracts and
financial futures are subject to limitations as described under “—Restrictions on the Use of Futures Transactions.”
The Fund may sell financial futures contracts
in anticipation of an increase in the general level of interest rates. Generally, as interest rates rise, the market values of
securities that may be held by the Fund will fall, thus reducing the net asset value of the Fund. However, as interest rates rise,
the value of the Fund’s short position in the futures contract also will tend to increase, thus offsetting all or a portion
of the depreciation in the market value of the Fund’s investments which are being hedged. While the Fund will incur commission
expenses in selling and closing out futures positions, these commissions are generally less than the transaction expenses which
the Fund would have incurred had the Fund sold portfolio securities in order to reduce its exposure to increases in interest rates.
The Fund also may purchase financial futures contracts in anticipation of a decline in interest rates when it is not fully invested
in a particular market in which it intends to make investments to gain market exposure that may in part or entirely offset an increase
in the cost of securities it intends to purchase. It is anticipated that, in a substantial majority of these transactions, the
Fund will purchase securities upon termination of the futures contract.
The Fund also has authority to purchase
and write call and put options on futures contracts. Generally, these strategies are utilized under the same market and market
sector conditions (i.e., conditions relating to specific types of investments) in which the Fund enters into futures transactions.
The Fund may purchase put options or write call options on futures contracts rather than selling the underlying futures contract
in anticipation of a decrease in the market value of securities or an increase in interest rates. Similarly, the Fund may purchase
call options, or write put options on futures contracts, as a substitute for the purchase of such futures to hedge against the
increased cost resulting from an increase in the market value or a decline in interest rates of securities which the Fund intends
to purchase.
The Fund may engage in options and futures
transactions on exchanges and options in the over-the-counter markets (“OTC options”). In general, exchange-traded
contracts are third-party contracts (i.e., performance of the parties’ obligation is guaranteed by an exchange or
clearing corporation) with standardized strike prices and expiration dates. OTC options transactions are two-party contracts with
price and terms negotiated by the buyer and seller. See “—Restrictions on OTC Options” below for information
as to restrictions on the use of OTC options.
Restrictions
on the Use of Futures Transactions. Under regulations of the CFTC, the futures trading activity described herein will
not result in the Fund being deemed a “commodity pool,” as defined under such regulations, provided that the Fund adheres
to certain restrictions. In particular, the Fund may purchase and sell futures contracts and options thereon (i) for bona
fide hedging purposes and (ii) for non-hedging purposes, if the aggregate initial margin and premiums required to establish
positions in such contracts and options does not exceed 5% of the liquidation value of the Fund’s portfolio, after taking
into account unrealized profits and unrealized losses on any such contracts and options. Margin deposits may consist of cash or
securities acceptable to the broker and the relevant contract market.
When the Fund purchases a futures contract
or writes a put option or purchases a call option thereon, an amount of cash or liquid instruments will be segregated with the
Fund’s custodian so that the amount so segregated, plus the amount of variation margin held in the account of its broker,
equals the market value of the futures contract, thereby ensuring that the use of such futures is unleveraged.
Restrictions
on OTC Options. The Fund will engage in transactions in OTC options only with banks or dealers which have capital of
at least $50 million or whose obligations are guaranteed by an entity having capital of at least $50 million. OTC options and assets
used to cover OTC options written by the Fund are considered by the staff of the SEC to be illiquid. The illiquidity of such options
or assets may prevent a successful sale of such options or assets, result in a delay of sale, or reduce the amount of proceeds
that might otherwise be realized.
Risk Factors in Interest Rate Transactions,
Options and Futures Transactions
The use of interest rate transactions is
a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio
securities transactions. Interest rate transactions involve the risk of an imperfect correlation between the index used in the
hedging transaction and that pertaining to the securities that are the subject of such transaction. If the Investment Adviser is
incorrect in its forecasts of market values, interest rates and other applicable factors, the investment performance of the Fund
would diminish compared with what it would have been if these investment techniques were not used. In addition, interest rate transactions
that may be entered into by the Fund do not involve the delivery of securities or other underlying assets or principal. Accordingly,
the risk of loss with respect to interest rate swaps is limited to the net amount of interest payments that the Fund is contractually
obligated to make. If the security underlying an interest rate swap is prepaid and the Fund continues to be obligated to make payments
to the other party to the swap, the Fund would have to make such payments from another source. If the other party to an interest
rate swap defaults, the Fund’s risk of loss consists of the net amount of interest payments that the Fund contractually is
entitled to receive. In the case of a purchase by the Fund of an interest rate cap or floor, the amount of loss is limited to the
fee paid. Since interest rate transactions are individually negotiated, the Investment Adviser expects to achieve an acceptable
degree of correlation between the Fund’s rights to receive interest on securities and its rights and obligations to receive
and pay interest pursuant to interest rate swaps.
Use of options and futures transactions
to hedge the portfolio involves the risk of imperfect correlation in movements in the price of options and futures and movements
in the prices of the securities that are the subject of the hedge. If the price of the options or futures moves more or less than
the price of the subject of the hedge, the Fund will experience a gain or loss which will not be completely offset by movements
in the price of the subject of the hedge. The risk particularly applies to the Fund’s use of futures and options thereon
when it uses such instruments as a so-called “cross-hedge,” which means that the security that is the subject of the
futures contract is different from the security being hedged by the contract. Use of options and futures and options thereon through
uncovered call options and uncovered put options are highly speculative strategies. If the price of the uncovered option moves
in the direction not anticipated by the Fund, the Fund’s losses will not be limited.
Prior to exercise or expiration, an exchange-traded
option position can only be terminated by entering into a closing purchase or sale transaction, which requires a secondary market
on an exchange for call or put options of the same series. The Fund intends to enter into options and futures transactions, on
an exchange or in the over-the-counter market, only if there appears to be a liquid secondary market for such options and futures.
There can be no assurance, however, that a liquid secondary market will exist at any specific time. Thus, it may not be possible
to close an options or futures position. The inability to close options and futures positions also could have an adverse impact
on the Fund’s ability to effectively hedge its portfolio. There is also the risk of loss, by the Fund, of margin deposits
or collateral in the event of the bankruptcy of a broker with whom the Fund has an open position in an option, a futures contract
or an option related to a futures contract.
Short
Sales. The Fund may from time to time make short sales of securities, including short sales “against the box.”
A short sale is a transaction in which the Fund sells a security it does not own in anticipation that the market price of that
security will decline. A short sale against the box occurs when the Fund contemporaneously owns, or has the right to obtain at
no added cost, securities identical to those sold short.
Except for short sales against the box,
the Fund will not sell short more than 10% of the Fund’s net assets (plus the amount of any borrowing for investment purposes)
and the market value for the securities sold short of any one issuer will not exceed 5% of such issuer’s voting securities.
In addition, the Fund may not make short sales or maintain a short position if it would cause more than 25% of the Fund’s
net assets (plus the amount of any borrowing for investment purposes), taken at market value, to be held as collateral for such
sales. The Fund may make short sales against the box without respect to such limitations.
The Fund may make short sales in order
to hedge against market risks when it believes that the price of a security may decline, causing a decline in the value of a security
owned by the Fund or a security convertible into, or exchangeable for, such security, or when the Fund does not want to sell the
security it owns. Such short sale transactions may be subject to special tax rules, one of the effects of which may be to accelerate
income to the Fund. Additionally, the Fund may use short sales in conjunction with the purchase of a convertible security when
it is determined that the convertible security can be bought at a small conversion premium and has a yield advantage relative to
the underlying common shares sold short.
When the Fund makes a short sale, it will
often borrow the security sold short and deliver it to the broker-dealer through which it made the short sale as collateral for
its obligation to deliver the security upon conclusion of the sale. In connection with such short sales, the Fund may pay a fee
to borrow securities or maintain an arrangement with a broker to borrow securities, and is often obligated to pay over any accrued
interest and dividends on such borrowed securities. In a short sale, the Fund does not immediately deliver the securities sold
or receive the proceeds from the sale. The Fund may close out a short position by purchasing and delivering an equal amount of
the securities sold short, rather than by delivering securities already held by the Fund, because the Fund may want to continue
to receive interest and dividend payments on securities in its portfolio that are convertible into the securities sold short.
If the price of the security sold short
increases between the time of the short sale and the time that the Fund replaces the borrowed security, the Fund will incur a loss;
conversely, if the price declines, the Fund will realize a capital gain. Any gain will be decreased, and any loss, increased, by
the transaction costs described above. The successful use of short selling may be adversely affected by imperfect correlation between
movements in the price of the security sold short and the securities being hedged.
To the extent that the Fund engages in
short sales, it will provide collateral to the broker-dealer and (except in the case of short sales against the box) will maintain
additional asset coverage in the form of segregated or “earmarked” assets on the records of the Investment Adviser
or with the Fund’s Custodian, consisting of cash, U.S. government securities, or other liquid securities that is equal to
the current market value of the securities sold short, or (in the case of short sales against the box) will ensure that such positions
are covered by offsetting positions, until the Fund replaces the borrowed security. The Fund will engage in short selling to the
extent permitted by the federal securities laws and rules and interpretations thereunder, subject to the percentage limitations
set forth above. To the extent the Fund engages in short selling in foreign (non-U.S.) jurisdictions, the Fund will do so to the
extent permitted by the laws and regulations of such jurisdiction.
Investments in Non-U.S. Securities.
The Fund may invest, without limitation,
in securities of issuers that are denominated in various foreign currencies and multinational foreign currency units, including
in emerging markets. Investment in such securities involves certain risks not involved in domestic investments.
Public
Information. Many of the non-U.S. securities held by the Fund will not be registered with the SEC nor will the issuers
thereof be subject to the reporting requirements of such agency. Accordingly, there may be less publicly available information
about the foreign issuer of such securities than about a U.S. issuer, and such foreign issuers may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to those of U.S. issuers. Traditional investment measurements,
such as price/earnings ratios, as used in the United States, may not be applicable to such securities, particularly those issued
in certain smaller, emerging foreign capital markets. Foreign issuers, and issuers in smaller, emerging capital markets in particular,
generally are not subject to uniform accounting, auditing and financial reporting standards or to practices and requirements comparable
to those applicable to domestic issuers.
Trading
Volume, Clearance and Settlement. Foreign financial markets, while often growing in trading volume have, for the most
part, substantially less volume than U.S. markets, and securities of many foreign companies are less liquid and their prices may
be more volatile than securities of comparable domestic companies. Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have failed to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Further, satisfactory custodial services for investment securities
may not be available in some countries having smaller, emerging capital markets, which may result in the Fund incurring additional
costs and delays in transporting and custodying such securities outside such countries. Delays in settlement could result in periods
when assets of the Fund are uninvested and no return is earned thereon. The inability of the Fund to make intended security purchases
due to settlement problems or the risk of intermediary counterparty failures could cause the Fund to miss attractive investment
opportunities. The inability to dispose of a portfolio security due to settlement problems could result either in losses to the
Fund due to subsequent declines in the value of such portfolio security, or if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.
Government
Supervision and Regulation. There generally is less governmental supervision and regulation of exchanges, brokers and
issuers in foreign countries than there is in the United States. For example, there may be no comparable provisions under certain
foreign laws to insider trading and similar investor protection securities laws that apply with respect to securities transactions
consummated in the United States. Further, brokerage commissions and other transaction costs on non-U.S. securities exchanges generally
are higher than in the United States.
Restrictions
on Foreign Investment. Some countries prohibit or impose substantial restrictions on investments in their capital markets,
particularly their equity markets, by foreign entities such as the Fund. As illustrations, certain countries require governmental
approval prior to investments by foreign persons, or limit the amount of investment by foreign persons in a particular company,
or limit the investment by foreign persons in a company to only a specific class of securities that may have less advantageous
terms than securities of the company available for purchase by nationals. Certain countries may restrict investment opportunities
in issuers or industries deemed important to national interests.
A number of countries have authorized the
formation of closed-end investment companies to facilitate indirect foreign investment in their capital markets. In accordance
with the 1940 Act, the Fund may invest up to 10% of its total assets in securities of closed-end investment companies, not more
than 5% of which may be invested in any one such company. This restriction on investments in securities of closed-end investment
companies may limit opportunities for the Fund to invest indirectly in certain smaller capital markets. Shares of certain closed-end
investment companies may at times be acquired only at market prices representing premiums to their net asset values. If the Fund
acquires shares in closed-end investment companies, shareholders would bear both their proportionate share of the Fund’s
expenses (including investment advisory fees) and, indirectly, the expenses of such closed-end investment companies. The Fund also
may seek, at its own cost, to create its own investment entities under the laws of certain countries.
In some countries, banks or other financial
institutions may constitute a substantial number of the leading companies or companies with the most actively traded securities.
The 1940 Act limits the Fund’s ability to invest in any security of an issuer which, in its most recent fiscal year, derived
more than 15% of its revenues from “securities related activities,” as defined by the rules thereunder. These
provisions may also restrict the Fund’s investments in certain foreign banks and other financial institutions.
Foreign
Sub-Custodians and Securities Depositories. Rules adopted under the 1940 Act permit the Fund to maintain its non-U.S.
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
may not be eligible sub-custodians for the Fund, in which event the Fund may be precluded from purchasing securities in certain
foreign countries in which it otherwise would invest or the Fund may incur additional costs and delays in providing transportation
and custody services for such securities outside of such countries. The Fund may encounter difficulties in effecting on a timely
basis portfolio transactions with respect to any securities of issuers held outside their countries. Other banks that are eligible
foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain countries
there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by foreign sub-custodians
in the event of the bankruptcy of the sub-custodian.
Other Investment Strategies
Repurchase
Agreements and Purchase and Sale Contracts. The Fund may invest in securities pursuant to repurchase agreements and
purchase and sale contracts. Repurchase agreements and purchase and sale contracts may be entered into only with a member bank
of the Federal Reserve System or primary dealer in U.S. Government securities. Under such agreements, the bank or primary dealer
agrees, upon entering into the contract, to repurchase the security at a mutually agreed upon time and price, thereby determining
the yield during the term of the agreement. This results in a fixed rate of return insulated from market fluctuations during such
period. In the case of repurchase agreements, the prices at which the trades are conducted do not reflect accrued interest on the
underlying obligations; whereas, in the case of purchase and sale contracts, the prices take into account accrued interest. Such
agreements usually cover short periods, such as under one week. Repurchase agreements may be construed to be collateralized loans
by the purchaser to the seller secured by the securities transferred to the purchaser. In the case of a repurchase agreement, the
Fund will require the seller to provide additional collateral if the market value of the securities falls below the repurchase
price at any time during the term of the repurchase agreement; the Fund does not have the right to seek additional collateral in
the case of purchase and sale contracts. In the event of default by the seller under a repurchase agreement construed to be a collateralized
loan; the underlying securities are not owned by the Fund but only constitute collateral for the seller’s obligation to pay
the repurchase price. Therefore, the Fund may suffer time delays and incur costs or possible losses in connection with the disposition
of the collateral. A purchase and sale contract differs from a repurchase agreement in that the contract arrangements stipulate
that the securities are owned by the Fund. In the event of a default under such a repurchase agreement or a purchase and sale contract,
instead of the contractual fixed rate of return, the rate of return to the Fund shall be dependent upon intervening fluctuations
of the market value of such security and the accrued interest on the security. In such event, the Fund would have rights against
the seller for breach of contract with respect to any losses arising from market fluctuations following the failure of the seller
to perform.
Reverse
Repurchase Agreements. The Fund may enter into reverse repurchase agreements with respect to its portfolio investments,
subject to the investment restrictions set forth herein. Reverse repurchase agreements involve the sale of securities held by the
Fund with an agreement by the Fund to repurchase the securities at an agreed upon price, date and interest payment. The use by
the Fund of reverse repurchase agreements involves many of the same risks of leverage described under “Risk Factors and Special
Considerations—Leverage” and “Additional Investment Policies—Leverage” above since the proceeds derived
from such reverse repurchase agreements may be invested in additional securities. At the time the Fund enters into a reverse repurchase
agreement, it may segregate with the custodian liquid instruments having a value not less than the repurchase price (including
accrued interest). If the Fund segregates such liquid instruments, a reverse repurchase agreement will not be considered a senior
security under the 1940 Act and therefore will not be considered a borrowing by the Fund, however, under circumstances in which
the Fund does not segregate such liquid instruments, such reverse repurchase agreement will be considered a borrowing for the purpose
of the Fund’s limitation on borrowings. Reverse repurchase agreements involve the risk that the market value of the securities
acquired in connection with the reverse repurchase agreement may decline below the price of the securities the Fund has sold but
is obligated to repurchase. Also, reverse repurchase agreements involve the risk that the market value of the securities retained
in lieu of sale by the Fund in connection with the reverse repurchase agreement may decline in price. In the event the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, such buyer or its trustee or receiver
may receive an extension of time to determine whether to enforce the Fund’s obligation to repurchase the securities, and
the Fund’s use of the proceeds of the reverse repurchase agreement may effectively be restricted pending such decision. In
addition, to the extent that the proceeds of the reverse purchase agreement are less than the value of the securities subject to
such an agreement, the Fund would bear the risk of loss.
Lending
of Portfolio Securities. The Fund may lend securities with a value not exceeding 33 1/3% of its total assets or the
limit prescribed by applicable law to banks, brokers and other financial institutions. In return, the Fund receives collateral
in cash, securities issued or guaranteed by the U.S. Government or its agencies or irremovable letters of credit, which will be
maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities.
The Fund maintains the ability to obtain
the right to vote or consent on proxy proposals involving material events affecting securities loaned. The Fund receives the income
on the loaned securities. Where the Fund receives securities as collateral, the Fund receives a fee for its loans from the borrower
and does not receive the income on the collateral. Where the Fund receives cash collateral, it may invest such collateral and retain
the amount earned, net of any amount rebated to the borrower. As a result, the Fund’s yield may increase. Loans of securities
are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period
for settlement of securities transactions. The Fund is obligated to return the collateral to the borrower at the termination of
the loan. The Fund could suffer a loss in the event the Fund must return the cash collateral and there are losses on investments
made with the cash collateral. In the event the borrower defaults on any of its obligations with respect to a securities loan,
the Fund could suffer a loss where there are losses on investments made with the cash collateral or, where the value of the securities
collateral falls below the market value of the borrowed securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund may pay reasonable finders, lending agent, administrative and custodial fees in connection with
its loans.
When-Issued
and Forward Commitment Securities. The Fund may purchase securities on a “when-issued” basis, and may purchase
or sell securities on a “forward commitment” basis. When such transactions are negotiated, the price, which generally
is expressed in yield terms, is fixed at the time the commitment is made, but delivery and payment for the securities take place
at a later date. When-issued securities and forward commitments may be sold prior to the settlement date, but the Fund will enter
into when-issued and forward commitment transactions only with the intention of actually receiving or delivering the securities,
as the case may be. If the Fund disposes of the right to acquire a when-issued security or disposes of its right to deliver or
receive against a forward commitment, it can incur a gain or loss. At the time the Fund enters into a transaction on a when-issued
or forward commitment basis, it will segregate with the custodian cash or other liquid instruments with a value not less than the
value of the when-issued or forward commitment securities. The value of these assets will be monitored daily to ensure that their
marked to market value at all times will exceed the corresponding obligations of the Fund. There is always a risk that the securities
may not be delivered, and the Fund may incur a loss. Settlements in the ordinary course, which may take substantially more than
five business days for mortgage-related securities, are not treated by the Fund as when-issued or forward commitment transactions,
and accordingly are not subject to the foregoing restrictions.
Standby
Commitment Agreements. The Fund from time to time may enter into standby commitment agreements. Such agreements commit
the Fund, for a stated period of time, to purchase a stated amount of a fixed income security that may be issued and sold to the
Fund at the option of the issuer. The price and coupon of the security is fixed at the time of the commitment. At the time of entering
into the agreement the Fund may be paid a commitment fee, regardless of whether or not the security ultimately is issued. The Fund
will enter into such agreements only for the purpose of investing in the security underlying the commitment at a yield and price
which is considered advantageous to the Fund. The Fund at all times will segregate with the custodian cash or other liquid instruments
with a value equal to the purchase price of the securities underlying the commitment.
There can be no assurance that securities
subject to a standby commitment will be issued, and the value of the security, if issued, on the delivery date may be more or less
than its purchase price. Since the issuance of the security underlying the commitment is at the option of the issuer, the Fund
may bear the risk of decline in the value of such security and may not benefit from an appreciation in the value of the security
during the commitment period.
The purchase of a security subject to a
standby commitment agreement and the related commitment fee will be recorded on the date on which the security reasonably can be
expected to be issued and the value of the security thereafter will be reflected in the calculation of the Fund’s net asset
value. The cost basis of the security will be adjusted by the amount of the commitment fee. In the event the security is not issued,
the commitment fee will be recorded as income on the expiration date of the standby commitment.
The Fund may in the future employ new or
additional investment strategies and hedging instruments if those strategies and instruments are consistent with the Fund’s
investment objectives and are permissible under applicable regulations governing the Fund.
Registered
Investment Companies/Exchange-Traded Funds. The Fund may invest in registered investment companies, including ETFs,
in accordance with the Investment Company Act of 1940, as amended, and consistent with the Fund’s investment objective. Most
ETFs are similar to index funds in that they seek to achieve the same return as a particular market index and will primarily invest
in the securities of companies that are included in that index. Unlike index funds, however, ETFs are traded on stock exchanges.
ETFs are a convenient way to invest in both broad market indexes and market sector indexes, particularly since ETFs can be bought
and sold at any time during the day, like stocks. ETFs, like mutual funds, charge asset-based fees. When the Fund invests in ETFs,
the Fund will pay a proportionate share of the management fee and the operating expenses of the ETF. The Fund will not invest in
actively managed or leveraged ETFs.
In general, under the 1940 Act, an investment
company such as the Fund may not (i) own more than 3% of the outstanding voting securities of any one registered investment
company, (ii) invest more than 5% of its total assets in the securities of any single registered investment company or (iii) invest
more than 10% of its total assets in securities of other registered investment companies. Notwithstanding the limits discussed
above, the Fund may invest in other investment companies without regard to the limits set forth above provided that the Fund complies
with Rules 12d1-1, 12d1-3, 12d1-4 (subject to effectiveness of the rule) promulgated by the SEC under the 1940 Act.
Exchange-Traded
Notes. The Fund may invest in ETNs. ETNs are designed to provide investors with a way to access the returns of market
benchmarks or strategies. ETNs are not equities or index funds, but they do share several characteristics. For example, like equities,
they trade on an exchange and can be shorted. Like an index fund, they are linked to the return of a benchmark index.
When
Issued, Delayed Delivery Securities and Forward Commitments. The Fund may enter into forward commitments for the purchase
or sale of securities, including on a “when issued” or “delayed delivery” basis, in excess of customary
settlement periods for the type of security involved. In some cases, a forward commitment may be conditioned upon the occurrence
of a subsequent event, such as approval and consummation of a merger, corporate reorganization or debt restructuring (i.e.,
a when, as and if issued security). When such transactions are negotiated, the price is fixed at the time of the commitment, with
payment and delivery taking place in the future, generally a month or more after the date of the commitment. While it will only
enter into a forward commitment with the intention of actually acquiring the security, the Fund may sell the security before the
settlement date if it is deemed advisable.
Securities purchased under a forward commitment
are subject to market fluctuation, and no interest (or dividends) accrues to the Fund prior to the settlement date. The Fund will
segregate with its custodian cash or liquid securities in an aggregate amount at least equal to the amount of its outstanding forward
commitments.
Risk Factors and Special Considerations
An investment in the common shares may
be speculative in that it involves a high degree of risk and should not constitute a complete investment program. Before making
an investment decision, you should carefully consider the following risk factors, together with the other information contained
in this Prospectus and the SAI. At any point in time, an investment in the common shares may be worth less than the original amount
invested, even after taking into account the distributions paid, if any, and the ability of shareholders to reinvest dividends.
If any of the risks discussed in this Prospectus occurs, the Fund’s results of operations could be materially and adversely
affected. If this were to happen, the price of Fund common shares could decline significantly and you could lose all or a part
of your investment. There is no assurance that the Fund will achieve its investment objective.
General Risks of Investing in the Fund
An investment in the Fund may not be appropriate
for all investors. The Fund is not intended to be a complete investment program and, due to the uncertainty inherent in all investments,
there can be no assurance that the Fund will achieve its investment objective. Investors should consider their long-term investment
goals and financial needs when making an investment decision with respect to the Fund. An investment in the Fund is intended to
be a long-term investment, and you should not view the Fund as a trading vehicle. Your shares at any point in time may be worth
less than your original investment, even after taking into account the reinvestment of Fund dividends and distributions, if applicable.
Market
Discount Risk. Whether investors will realize gains or losses upon the sale of the Fund’s common shares will depend
upon the market price of the shares at the time of sale, which may be less or more than the Fund’s NAV per share. Since the
market price of the Fund’s common shares will be affected by various factors such as the Fund’s dividend and distribution
levels (which are in turn affected by expenses), dividend and distribution stability, NAV, market liquidity, the relative demand
for and supply of the common shares in the market, unrealized gains, general market and economic conditions and other factors beyond
the control of the Fund, it is impossible to predict whether the Fund’s common shares will trade at, below or above NAV or
at, below or above the public offering price. Common shares of closed-end funds often trade at a discount from their NAVs and the
Fund’s common shares may trade at such a discount. This risk may be greater for investors expecting to sell their common
shares soon after completion of the public offering. The common shares of the Fund are designed primarily for long -term investors,
and investors in the Fund’s common shares should not view the Fund as a vehicle for trading purposes.
Health
Crisis Risk. The global pandemic outbreak of an infectious respiratory illness caused by a novel coronavirus known as
COVID-19 has resulted in substantial market volatility and global business disruption, impacting the global economy and the financial
health of individual companies in significant and unforeseen ways. The duration and future impact of COVID-19 are currently unknown,
which may exacerbate other types of risks that apply to the Fund and negatively impact Fund performance and the value of your investment
in the Fund.
High
Yield (“Junk”) Securities Risk. Investors should recognize that below investment grade and unrated securities
in which the Fund will invest subject Fund shareholders to greater levels of credit risk, call risk and liquidity risk than funds
that do not invest in such securities. Generally, lower rated or unrated securities of equivalent credit quality offer a higher
return potential than higher rated securities but involve greater volatility of price and greater risk of loss of income and principal,
including the possibility of a default or bankruptcy of the issuers of such securities. Lower rated securities and comparable unrated
securities will likely have larger uncertainties or major risk exposure to adverse conditions and are predominantly speculative.
The occurrence of adverse conditions and uncertainties would likely reduce the value of securities held by the Fund, with a commensurate
effect on the value of the Fund’s common shares.
While the market values of lower rated
securities and unrated securities of equivalent credit quality tend to react less to fluctuations in interest rate levels than
do those of higher rated securities, the market value of certain of these lower rated securities also tend to be more sensitive
to changes in economic conditions, including unemployment rates, inflation rates and negative investor perception than higher -rated
securities. In addition, lower-rated securities and unrated securities of equivalent credit quality generally present a higher
degree of credit risk, and may be less liquid than certain other fixed income securities. High yield securities in which the Fund
invests may not be listed on any exchange and a secondary market for such securities may be comparatively illiquid relative to
markets for other more liquid fixed income securities. Furthermore, there are fewer dealers in the market for high yield securities
than for investment grade obligations. The prices quoted by different dealers may vary significantly, and the spread between the
bid and asked price is generally much larger for high yield securities than for higher quality instruments. Consequently, transactions
in high yield securities may involve greater costs than transactions in more actively traded securities. A lack of publicly-available
information, irregular trading activity and wide bid/ask spreads among other factors, may, in certain circumstances, make high
yield debt more difficult to sell at an advantageous time or price than other types of securities or instruments. These factors
may result in the Fund being unable to realize full value for these securities and/or may result in the Fund not receiving the
proceeds from a sale of a high yield security for an extended period after such sale, each of which could result in losses to the
Fund. The Fund may incur additional expenses to the extent that it is required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings.
High yield securities structured as zero-coupon
bonds or pay-in-kind securities tend to be especially volatile as they are particularly sensitive to downward pricing pressures
from rising interest rates or widening spreads and may require the Fund to make taxable distributions of imputed income without
receiving the actual cash currency. Issuers of high yield securities may have the right to “call” or redeem the issue
prior to maturity, which may result in the Fund having to reinvest the proceeds in other high yield securities or similar instruments
that may pay lower interest rates.
Securities which are rated Ba by Moody’s,
BB by S&P, or BB by Fitch IBCA (“Fitch”) have speculative characteristics with respect to capacity to pay interest
and repay principal. Securities which are rated B generally lack the characteristics of a desirable investment, and assurance of
interest and principal payments over any long period of time may be small. Securities which are rated Caa1 or CCC+ or below are
of poor standing and highly speculative. Those issues may be in default or present elements of danger with respect to principal
or interest. Securities rated C by Moody’s, D by S&P, or the equivalent by Fitch are in the lowest rating class. Such
ratings indicate that payments are in default, or that a bankruptcy petition has been filed with respect to the issuer or that
the issuer is regarded as having extremely poor prospects. It is unlikely that future payments of principal or interest will be
made to the Fund with respect to these highly speculative securities other than as a result of the sale of the securities or the
foreclosure or other forms of liquidation of the collateral underlying the securities.
In general, the ratings of the nationally
recognized statistical rating organizations (“NRSROs”) represent the opinions of these agencies as to the quality of
securities that they choose to rate. Such ratings, however, are relative and subjective, and are not absolute standards of quality
and do not evaluate the market value risk of the securities. It is possible that an agency might not change its rating of a particular
issue to reflect subsequent events. These ratings may be considered by the Fund in the selection of portfolio securities, but the
Fund also will rely upon the independent advice of the Investment Adviser to evaluate potential investments.
Zero
Coupon, Payment In-Kind and Deferred Payment Securities Risk. The Fund may invest in zero coupon bonds, deferred interest
bonds, and bonds on which the interest is payable in -kind (“PIK securities”). Zero coupon and deferred interest bonds
are debt obligations which are issued at a significant discount from face value. The discount approximates the total amount of
interest the bonds will accrue and compound over the period until maturity or the first interest accrual date at a rate of interest
reflecting the market rate of the security at the time of issuance. While zero coupon bonds do not require the periodic payment
of interest, deferred interest bonds provide for a period of delay before the regular payment of interest begins. Although this
period of delay is different for each deferred interest bond, a typical period is approximately one-third of the bond’s term
to maturity. PIK securities are debt obligations which provide that the issuer thereof may, at its option, pay interest on such
bonds in cash or in the form of additional debt obligations. Such investments benefit the issuer by mitigating its need for cash
to meet debt service, but also require a higher rate of return to attract investors who are willing to defer receipt of such cash.
Such investments experience greater volatility in market value due to changes in interest rates than debt obligations which provide
for regular payments of interest. The Fund will accrue income on such investments based on an effective interest method, which
is distributable to shareholders and which, because no cash is received at the time of accrual, may require the liquidation of
other portfolio securities to satisfy the Fund’s dividend and distribution obligations. As a result, the Fund may have to
sell securities at a time when it may be disadvantageous to do so.
Stripped
Securities Risk. Stripped securities are created when the issuer separates the interest and principal components of
an instrument and sells them as separate securities. In general, one security is entitled to receive the interest payments on the
underlying assets (the interest only or “IO” security) and the other to receive the principal payments (the principal
only or “PO” security). Some stripped securities may receive a combination of interest and principal payments. The
yields to maturity on IOs and POs are sensitive to the expected or anticipated rate of principal payments (including prepayments)
on the related underlying assets, and principal payments may have a material effect on yield to maturity. If the underlying assets
experience greater than anticipated prepayments of principal, the Fund may not fully recoup its initial investment in IOs. Conversely,
if the underlying assets experience less than anticipated prepayments of principal, the yield on POs could be adversely affected.
Stripped securities may be highly sensitive to changes in interest rates and rates of prepayment.
Distressed
Securities Risk. An investment in the securities of financially distressed issuers can involve substantial risks. These
securities may present a substantial risk of default or may be in default at the time of investment. The Fund may incur additional
expenses to the extent it is required to seek recovery upon a default in the payment of principal or interest on its portfolio
holdings. In any reorganization or liquidation proceeding relating to a portfolio company, the Fund may lose its entire investment
or may be required to accept cash or securities with a value less than its original investment. Among the risks inherent in investments
in a troubled entity is the fact that it frequently may be difficult to obtain information as to the true financial condition of
such issuer. The Investment Adviser’s judgment about the credit quality of the issuer and the relative value and liquidity
of its securities may prove to be wrong.
Collateralized
Loan Obligation (“CLO”) Risk. CLOs and other similarly structured securities are types of asset-backed securities.
The cash flows from the CLO trust are split into two or more portions, called tranches, varying in risk and yield. The riskiest
portion is the “equity” tranche which bears the bulk of defaults from the loans in the trust and serves to protect
the other, more senior tranches from default in all but the most severe circumstances. Since it is partially protected from defaults,
a senior tranche from a CLO trust typically has higher ratings and lower yields than the underlying securities, and can be rated
investment grade. Despite the protection from the equity tranche, CLO tranches can experience substantial losses due to actual
defaults, increased sensitivity to defaults due to collateral default and disappearance of protecting tranches, market anticipation
of defaults and aversion to CLO securities as a class. The risks of an investment in a CLO depend largely on the collateral and
the class of the CLO in which the Fund invests. Normally, CLOs and other similarly structured securities are privately offered
and sold, and thus are not registered under the securities laws. As a result, investments in CLOs may be characterized by the Fund
as illiquid securities; however, an active dealer market, or other relevant measures of liquidity, may exist for CLOs allowing
a CLO potentially to be deemed liquid by the Investment Adviser under liquidity policies approved by the Fund’s Board of
Directors. In addition to the risks associated with debt instruments (e.g., interest rate risk and credit risk), CLOs carry
additional risks including, but not limited to: (i) the possibility that distributions from collateral securities will not
be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or default; (iii) the
possibility that the Fund may invest in CLOs that are subordinate to other classes; and (iv) the complex structure of the
security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment
results.
Mortgage
and Asset-Backed Securities. The Fund may invest in a variety of mortgage related and other asset-backed securities,
including both commercial and residential mortgage securities and other mortgage backed instruments issued on a public or private
basis. Mortgage backed securities represent the right to receive a portion of principal and/or interest payments made on a pool
of residential or commercial mortgage loans. When interest rates fall, borrowers may refinance or otherwise repay principal on
their mortgages earlier than scheduled. When this happens, certain types of mortgage backed securities will be paid off more quickly
than originally anticipated and the Fund will have to invest the proceeds in securities with lower yields. This risk is known as
“prepayment risk.”
When interest rates rise, certain types
of mortgage backed securities will be paid off more slowly than originally anticipated and the value of these securities will fall.
This risk is known as “extension risk.”
Because of prepayment risk, mortgage backed
securities react differently to changes in interest rates than other fixed income securities. Small movements in interest rates
(both increases and decreases) may quickly and significantly reduce the value of certain mortgage backed securities.
Like more traditional fixed income securities,
the value of asset-backed securities typically increases when interest rates fall and decreases when interest rates rise. Certain
asset-backed securities may also be subject to the risk of prepayment. In a period of declining interest rates, borrowers may pay
what they owe on the underlying assets more quickly than anticipated. Prepayment reduces the yield to maturity and the average
life of the asset-backed securities. In addition, when the Fund reinvests the proceeds of a prepayment it may receive a lower interest
rate than the rate on the security that was prepaid. In a period of rising interest rates, prepayments may occur at a slower rate
than expected. As a result, the average maturity of the Fund’s portfolio may increase. The value of longer term securities
generally changes more widely in response to changes in interest rates than shorter term securities.
Residential
Mortgage Backed Securities Risk. The investment characteristics of RMBS differ from those of traditional debt securities.
The major differences include the fact that, on certain RMBS, prepayments of principal may be made at any time. Prepayment rates
are influenced by changes in current interest rates and a variety of economic, geographic, social and other factors and cannot
be predicted with certainty. Subordinated classes of CMOs are entitled to receive repayment of principal in many cases only after
all required principal payments have been made to more senior classes and also have subordinated rights as to receipt of interest
distributions. Such subordinated classes are subject to a greater risk of non-payment than are senior classes of CMOs guaranteed
by an agency or instrumentality of the U.S. Government.
Commercial
Mortgage Backed Securities Risk. CMBS may involve the risks of delinquent payments of interest and principal, early
prepayments and potentially unrecoverable principal loss from the sale of foreclosed property. Subordinated classes of CMBS are
entitled to receive repayment of principal only after all required principal payments have been made to more senior classes and
also have subordinated rights as to receipt of interest distributions. Such subordinated classes are subject to a greater risk
of non-payment than are senior classes.
Prepayment
or Call Risk. For certain types of MBS, prepayments of principal may be made at any time. Prepayment rates are influenced
by changes in current interest rates and a variety of economic, geographic, social and other factors and cannot be predicted with
certainty. During periods of declining mortgage interest rates, prepayments on MBS generally increase. If interest rates in general
also decline, the amounts available for reinvestment by the Fund during such periods are likely to be reinvested at lower interest
rates than the Fund was earning on the MBS that were prepaid, resulting in a possible decline in the Fund’s income and distributions
to shareholders. If interest rates fall, it is possible that issuers of fixed income securities with high interest rates will prepay
or “call” their securities before their maturity date. Under certain interest rate or prepayment scenarios, the Fund
may fail to recoup fully its investment in such securities.
Inflation, Interest
Rate and Bond Market Risk. The value of certain fixed income securities in the Fund’s portfolio could be affected
by interest rate fluctuations. Generally, when market interest rates fall, fixed rate securities prices rise, and vice versa. Interest
rate risk is the risk that the securities in the Fund’s portfolio will decline in value because of increases in market interest
rates. The prices of longer -term securities fluctuate more than prices of shorter -term securities as interest rates change. These
risks may be greater in the current market environment because certain interest rates are near historically low levels. The Fund’s
use of leverage, as described herein, will tend to increase common stock interest rate risk. The Fund utilizes certain strategies,
including taking positions in futures or interest rate swaps, for the purpose of reducing the interest rate sensitivity of fixed
income securities held by the Fund and decreasing the Fund’s exposure to interest rate risk. The Fund is not required to
hedge its exposure to interest rate risk and may choose not to do so. To the extent the Fund holds variable or floating rate instruments,
a decrease (or, in the case of inverse floating rate securities, an increase) in market interest rates will adversely affect the
income received from such securities, which may adversely affect the Fund’s NAV. It is likely that there will be less governmental
action in the near future to maintain low interest rates. The negative impact on fixed income securities from the resulting rate
increases for that and other reasons could be swift and significant, including falling market values and reduced liquidity. Substantial
redemptions from bond and other income funds may worsen that impact. Other types of securities also may be adversely affected from
an increase in interest rates.
Inflation risk is the risk that the value
of assets or income from investments will be worth less in the future as inflation decreases the value of money over time. As inflation
increases, the real value of the common stock and distributions can decline. In addition, debt securities that have longer maturities
tend to fluctuate more in price in response to changes in market interest rates. A decline in the prices of the portfolio securities
owned by the Fund would cause a decline in the Fund’s NAV, which in turn is likely to cause a corresponding decline in the
market price of the common stock. This risk is more pronounced given the current market environment because certain interest rates
are near historically low levels.
Similarly, the yield spreads of the MBS
and ABS in which the Fund invests, or yield differentials between the Fund’s securities and Treasury or Agency securities
with comparable maturities, may widen, causing the Fund’s assets to underperform Treasury or Agency securities. The amount
of public information available about MBS and ABS in the Fund’s portfolio is generally less than that for corporate equities
or bonds, and the investment performance of the Fund may therefore be more dependent on the analytical capabilities of the Investment
Adviser than if the Fund were a stock or corporate bond fund. Additionally, the secondary market for certain types of MBS and ABS
may be less well- developed or liquid than many other securities markets, which may adversely affect the Fund’s ability to
sell its bonds at attractive prices.
Variable
and Floating Rate Securities Risk. Variable and floating rate securities provide for adjustment in the interest rate
paid on the obligations. The terms of such obligations typically provide that interest rates are adjusted based upon an interest
or market rate adjustment as provided in the respective obligations. The adjustment intervals may be regular, and range from daily
up to annually, or may be event-based, such as based on a change in the prime rate. Variable rate obligations typically provide
for a specified periodic adjustment in the interest rate, while floating rate obligations typically have an interest rate which
changes whenever there is a change in the external interest or market rate. Because of the interest rate adjustment feature, variable
and floating rate securities provide the Fund with a certain degree of protection against rises in interest rates, although the
Fund will participate in any declines in interest rates as well. Generally, changes in interest rates will have a smaller effect
on the market value of variable and floating rate securities than on the market value of comparable fixed-income obligations. Thus,
investing in variable and floating rate securities generally allows less opportunity for capital appreciation and depreciation
than investing in comparable fixed-income securities.
Corporate
Bonds Risk. Corporate debt securities are subject to the risk of the issuer’s inability to meet principal and
interest payments on the obligation and may also be subject to price volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer and general market liquidity. When interest rates rise, the value of corporate
debt can be expected to decline. Debt securities with longer maturities tend to be more sensitive to interest rate movements than
those with shorter maturities.
Credit
Risk. Credit risk is the risk that one or more bonds in the Fund’s portfolio will (1) decline in price due
to deterioration of the issuer’s or underlying pool’s financial condition or other events or (2) fail to pay interest
or principal when due. The prices of non-investment grade quality securities (that is, securities rated Ba or lower by Moody’s
or BB or lower by S&P or Fitch) are generally more sensitive to negative developments, such as a general economic downturn
or an increase in delinquencies in the pool of underlying mortgages that secure an MBS, than are the prices of higher grade securities.
Non-investment grade quality securities are regarded as having predominantly speculative characteristics with respect to the issuer’s
or pool’s capacity to pay interest and repay principal when due and as a result involve a greater risk of default. The market
for lower-graded securities may also have less information available than the market for other securities.
Systemic
Risk. Credit risk may arise through a default by one of several large institutions that are dependent on one another
to meet their liquidity or operational needs, so that a default by one institution causes a series of defaults by the other institutions.
This is sometimes referred to as a “systemic risk” and may adversely affect financial intermediaries, such as clearing
agencies, clearing houses, securities firms and exchanges, with which the Fund interacts on a daily basis.
Issuer
Risk. The value of fixed income securities may decline for a number of reasons which directly relate to the issuer,
such as management performance, financial leverage, reduced demand for the issuer’s goods and services, historical and prospective
earnings of the issuer and the value of the assets of the issuer.
Event
Risk. Event risk is the risk that corporate issuers may undergo restructurings, such as mergers, leveraged buyouts,
takeovers, or similar events financed by increased debt. As a result of the added debt, the credit quality and market value of
a company’s bonds and/or other debt securities may decline significantly.
Bank
Loan Risk. Bank loans (including senior loans) are usually rated below investment grade. The market for bank loans may
be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods. Investments in bank loans
are typically in the form of an assignment or participation. Investors in a loan participation assume the credit risk associated
with the borrower and may assume the credit risk associated with an interposed financial intermediary. Accordingly, if a lead lender
becomes insolvent or a loan is foreclosed, the Fund could experience delays in receiving payments or suffer a loss. In an assignment,
the Fund effectively becomes a lender under the loan agreement with the same rights and obligations as the assigning bank or other
financial intermediary. Accordingly, if the loan is foreclosed, the Fund could become part owner of any collateral, and would bear
the costs and liabilities associated with owning and disposing of the collateral. Due to their lower place in the borrower’s
capital structure and possible unsecured status, junior loans involve a higher degree of overall risk than senior loans of the
same borrower. In addition, the floating rate feature of loans means that bank loans will not generally experience capital appreciation
in a declining interest rate environment. Declines in interest rates may also increase prepayments of debt obligations and require
the Fund to invest assets at lower yields.
The Fund that invests in senior loans may
be subject to greater levels of credit risk, call risk, settlement risk and liquidity risk than funds that do not invest in such
securities. Senior Loans and other types of direct indebtedness may not be readily marketable and may be subject to restrictions
on resale because, among other reasons, they may not be listed on any exchange, or a secondary market for such loans may not exist
or if a secondary market exists, it may be comparatively illiquid relative to markets for other more liquid fixed income securities.
As a result, in some cases, transactions in senior loans may involve greater costs than transactions in more actively traded securities.
Furthermore, restrictions on transfers in loan agreements, a lack of publicly-available information, irregular trading activity
and wide bid/ask spreads among other factors, may, in certain circumstances, make senior loans more difficult to sell at what the
Investment Adviser believes to be a fair price for such security. These factors may result in the Fund being unable to realize
full value for the senior loans and/or may result in the Fund not receiving the proceeds from a sale of a senior loan for an extended
period after such sale, each of which could result in losses to the Fund. Senior loans may have extended trade settlement periods
which may result in cash not being immediately available to the Fund. In addition, valuation of illiquid indebtedness involves
a greater degree of judgment in determining the Fund’s NAV than if that value were based on available market quotations,
and could result in significant variations in the Fund’s daily share price. At the same time, some loan interests are traded
among certain financial institutions and accordingly may be deemed liquid. The Investment Adviser will determine the liquidity
of the Fund’s investments by reference to market conditions and contractual provisions.
Leverage
Risk. The Fund currently intends to use leverage to seek to achieve its investment objectives. Although the Fund may
issue preferred stock or debt securities, it has no current intention to do so within the next one year of operations. The borrowing
of money or issuance of debt securities and preferred stock represents the leveraging of the Fund’s common stock. In addition,
the Fund may also leverage its common stock through investment techniques, such as reverse repurchase agreements, writing credit
default swaps, futures or engaging in short sales. Leverage creates risks which may adversely affect the return for the holders
of common stock, including:
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the likelihood of greater volatility of NAV and market price of and distributions in the Fund’s
common stock;
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fluctuations in the dividend rates on any preferred stock or in interest rates on borrowings and
short-term debt;
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increased operating costs, which are effectively borne by common shareholders, may reduce the Fund’s
total return; and
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the potential for a decline in the value of an investment acquired with borrowed funds, while the
Fund’s obligations under such borrowing or preferred stock remain fixed.
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In addition, the rights of lenders and
the holders of preferred stock and debt securities issued by the Fund will be senior to the rights of the holders of common stock
with respect to the payment of dividends or to the distribution of assets upon liquidation. Holders of preferred stock have voting
rights in addition to and separate from the voting rights of common shareholders. The holders of preferred stock, on the one hand,
and the holders of the common stock, on the other, may have interests that conflict in certain situations.
Leverage is a speculative technique that
could adversely affect the returns to common shareholders. Leverage can cause the Fund to lose money and can magnify the effect
of any losses. To the extent the income or capital appreciation derived from securities purchased with funds received from leverage
exceeds the cost of leverage, the Fund’s return will be greater than if leverage had not been used. Conversely, if the income
or capital appreciation from the securities purchased with such funds is not sufficient to cover the cost of leverage or if the
Fund incurs capital losses, the return of the Fund will be less than if leverage had not been used, and therefore the amount available
for distribution to common shareholders as dividends and other distributions will be reduced or potentially eliminated (or, in
the case of distributions, will consist of return of capital).
The Fund will pay (and the common shareholders
will bear) all costs and expenses relating to the Fund’s use of leverage, which will result in the reduction of the NAV of
the common stock.
The Fund’s leverage strategy may
not work as planned or achieve its goals. In addition, the amount of fees paid to the Investment Adviser will be higher if the
Fund uses leverage because the fees will be calculated on the Fund’s total assets minus the sum of accrued liabilities (other
than the aggregate indebtedness constituting financial leverage), which may create an incentive for the Investment Adviser to leverage
the Fund.
Certain types of borrowings may result
in the Fund being subject to covenants in credit agreements, including those relating to asset coverage, borrowing base and portfolio
composition requirements and additional covenants that may affect the Fund’s ability to pay dividends and distributions on
common stock in certain instances. The Fund may also be required to pledge its assets to the lenders in connection with certain
types of borrowings. The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more rating
agencies which may issue ratings for any preferred shares or short-term debt instruments issued by the Fund. These guidelines may
impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act.
Risks
of Recent Market and Economic Developments. Investing in the Fund involves market risk, which is the risk that securities
held by the Fund will fall in market value due to adverse market and economic conditions, perceptions regarding the industries
in which the issuers of securities held by the Fund participate and the particular circumstances and performance of particular
companies whose securities the Fund holds. An investment in the Fund represents an indirect economic stake in the securities owned
by the Fund. The market value of these securities, like other market investments, may move up or down, sometimes rapidly and unpredictably.
The NAV of the Fund may at any point in time be worth less than the amount at the time the shareholder invested in the Fund, even
after taking into account any reinvestment of distributions.
The global pandemic outbreak of an infectious
respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has now
been detected globally. On March 11, 2020, the World Health Organization announced that it had made the assessment that COVID-19
can be characterized as a pandemic. COVID-19 and concern about its spread has resulted in severe disruptions to global financial
markets, border closings, restrictions on travel and gatherings of any measurable amount of people, “shelter in place”
orders (or the equivalent) for states, cities, metropolitan areas and countries, expedited and enhanced health screenings, quarantines,
cancellations, business and school closings, disruptions to employment and supply chains, reduced productivity, severely impacted
customer and client activity in virtually all markets and sectors, and a virtual cessation of normal economic activity. These events
have contributed to severe market volatility, which may result in reduced liquidity, heightened volatility and negatively impact
Fund performance and the value of your investment in the Fund.
Common
Stock Risk. Common stock of an issuer in the Fund’s portfolio may decline in price for a variety of reasons, including
if the issuer fails to make anticipated dividend payments. Common stock in which the Fund will invest is structurally subordinated
to preferred stock, bonds and other debt instruments in a company’s capital structure, in terms of priority to corporate
income, and therefore will be subject to greater dividend risk than preferred stock or debt instruments of such issuers. In addition,
while common stock has historically generated higher average returns over time than fixed income securities, common stock has also
experienced significantly more volatility in those returns.
Preferred
Securities Risk. There are special risks associated with investing in preferred securities, including:
Deferral
and Omission. Preferred securities may include provisions that permit the issuer, at its discretion, to defer or omit
distributions for a stated period without any adverse consequences to the issuer.
Subordination.
Preferred securities are subordinated to bonds and other debt instruments in a company’s capital structure in terms of priority
to corporate income and liquidation payments, and therefore will be subject to greater credit risk than more senior debt instruments.
Liquidity.
Preferred securities may be substantially less liquid than many other securities, such as common stock or U.S. government securities.
Limited
Voting Rights. Generally, preferred securities offer no voting rights with respect to the issuing company unless preferred
dividends have been in arrears for a specified number of periods, at which time the preferred security holders may elect a number
of directors to the issuer’s board.
Special
Redemption Rights. In certain varying circumstances, an issuer of preferred securities may redeem the securities prior
to a specified date. As with call provisions, a redemption by the issuer may negatively impact the return of the security held
by the Fund.
Convertible
Securities Risk. Convertible securities generally offer lower interest or dividend yields than non-convertible securities
of similar quality. The market values of convertible securities tend to decline as interest rates increase and, conversely, to
increase as interest rates decline. In the absence of adequate anti-dilutive provisions in a convertible security, dilution in
the value of the Fund’s holding may occur in the event the underlying stock is subdivided, additional equity securities are
issued for below market value, a stock dividend is declared or the issuer enters into another type of corporate transaction that
has a similar effect.
Foreign
Securities Risk. Investments in foreign securities involve certain considerations and risks not ordinarily associated
with investments in securities of U.S. issuers. Foreign companies are not generally subject to the same accounting, auditing and
financial standards and requirements as those applicable to U.S. companies. Foreign securities exchanges, brokers and listed companies
may be subject to less government supervision and regulation than exists in the United States. Dividend and interest income may
be subject to withholding and other foreign taxes, which may adversely affect the net return on such investments. There may be
difficulty in obtaining or enforcing a court judgment abroad, and it may be difficult to effect repatriation of capital invested
in certain countries.
In addition, with respect to certain countries,
there are risks of expropriation, confiscatory taxation, political or social instability or diplomatic developments that could
affect assets of the Fund held in foreign countries.
There may be less publicly available information
about a foreign company than a U.S. company. Foreign securities markets may have substantially less volume than U.S. securities
markets and some foreign company securities are less liquid than securities of otherwise comparable U.S. companies. A portfolio
of foreign securities may also be adversely affected by fluctuations in the rates of exchange between the currencies of different
nations and by exchange control regulations. Foreign markets also have different clearance and settlement procedures that could
cause the Fund to encounter difficulties in purchasing and selling securities on such markets and may result in the Fund missing
attractive investment opportunities or experiencing loss. In addition, a portfolio that includes foreign securities can expect
to have a higher expense ratio because of the increased transaction costs on non-U.S. securities markets and the increased costs
of maintaining the custody of foreign securities.
Investments in foreign securities will
expose the Fund to the direct or indirect consequences of political, social or economic changes in the countries that issue the
securities or in which the issuers are located. Certain countries in which the Fund may invest have historically experienced, and
may continue to experience, high rates of inflation, high interest rates, exchange rate fluctuations, large amounts of external
debt, balance of payments and trade difficulties and extreme poverty and unemployment. Many of these countries are also characterized
by political uncertainty and instability. The cost of servicing external debt will generally be adversely affected by rising international
interest rates because many external debt obligations bear interest at rates which are adjusted based upon international interest
rates.
Emerging
Markets Risk. The Fund may invest in securities of companies in an “emerging market.” An “emerging
market” country is any country that is considered to be an emerging or developing country by the World Bank. Investments
in emerging market securities involve a greater degree of risk than, and special risks in addition to the risks associated with,
investments in domestic securities or in securities of foreign, developed countries. Foreign investment risk may be particularly
high to the extent that the Fund invests in securities of issuers based or doing business in emerging market countries or invests
in securities denominated in the currencies of emerging market countries. Investing in securities of issuers based or doing business
in emerging markets entails all of the risks of investing in securities of foreign issuers noted above, but to a heightened degree.
These heightened risks include: (i) greater risks of expropriation, confiscatory taxation, nationalization and less social,
political and economic stability; (ii) the smaller size of the market for such securities and a lower volume of trading, resulting
in a lack of liquidity and in price volatility; (iii) certain national policies which may restrict the Fund’s investment
opportunities, including restrictions on investing in issuers or industries deemed sensitive to relevant national interests and
requirements that government approval be obtained prior to investment by foreign persons; (iv) certain national policies that
may restrict the Fund’s repatriation of investment income, capital or the proceeds of sales of securities, including temporary
restrictions on foreign capital remittances; (v) the lack of uniform accounting and auditing standards and/or standards that
may be significantly different from the standards required in the United States; (vi) less publicly available financial and
other information regarding issuers; (vii) potential difficulties in enforcing contractual obligations; and (viii) higher
rates of inflation, higher interest rates and other economic concerns. Also, investing in emerging market countries may entail
purchases of securities of issuers that are insolvent, bankrupt, in default or otherwise of questionable ability to satisfy their
payment obligations as they become due, subjecting the Fund to a greater amount of credit risk and/or high yield risk.
Foreign
Currency Risk. The Fund may invest in companies whose securities are denominated or quoted in currencies other than
U.S. dollars or have significant operations or markets outside of the United States. In such instances, the Fund will be exposed
to currency risk, including the risk of fluctuations in the exchange rate between U.S. dollars (in which the Fund’s shares
are denominated and the distributions are paid by the Fund) and such foreign currencies. Therefore, to the extent the Fund does
not hedge its foreign currency risk or the hedges are ineffective, the value of the Fund’s assets and income could be adversely
affected by currency rate movements.
Certain non-U.S. currencies have been devalued
in the past and might face devaluation in the future. Currency devaluations generally have a significant and adverse impact on
the devaluing country’s economy in the short and intermediate term and on the financial condition and results of companies’
operations in that country. Currency devaluations may also be accompanied by significant declines in the values and liquidity of
equity and debt securities of affected governmental and private sector entities generally. There can be no assurance that current
or future developments with respect to foreign currency devaluations will not impair the Fund’s investment flexibility, its
ability to achieve its investment objective or the value of certain of its foreign currency denominated investments.
REIT
Risk. An investment in a REIT may be subject to risks similar to those associated with direct ownership of real estate,
including losses from casualty or condemnation and environmental liabilities, and changes in local and general economic conditions,
market value, supply and demand, interest rates, zoning laws, regulatory limitations on rents, property taxes and operating expenses.
In addition, an investment in a REIT is subject to additional risks, such as poor performance by the manager of the REIT, adverse
changes to the tax laws, changes in the cost or availability of credit, or the failure by the REIT to qualify for tax-free pass-through
of income under the Code, and to the risk of general declines in stock prices. In addition, some REITs have limited diversification
because they invest in a limited number of properties, a narrow geographic area, or a single type of property. Also, the organizational
documents of a REIT may contain provisions that make changes in control of the REIT difficult and time-consuming. As a shareholder
in a REIT, the Fund, and indirectly the Fund’s shareholders, would bear its ratable share of the REIT’s expenses and
would at the same time continue to pay its own fees and expenses.
Special
Risks of Derivative Transactions. The Fund may participate in derivative transactions. Such transactions entail certain
execution, market, counterparty liquidity, hedging and tax risks. Participation in the options or futures markets, in currency
transactions and in other derivatives transactions involves investment risks and transaction costs to which the Fund would not
be subject absent the use of these strategies. If the Investment Adviser’s prediction of movements in the direction of the
securities, foreign currency, interest rate or other referenced instruments or markets is inaccurate, the consequences to the Fund
may leave the Fund in a worse position than if it had not used such strategies. Valuation may be more difficult in times of market
turmoil since many investors and market makers may be reluctant to purchase complex instruments or quote prices for them. Risks
inherent in the use of options, foreign currency, futures contracts and options on futures contracts, securities indices and foreign
currencies include:
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dependence on the Investment Adviser’s ability to predict correctly movements in the direction
of the relevant measure;
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imperfect correlation between the price of the derivative instrument and movements in the prices
of the referenced assets;
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the fact that skills needed to use these strategies are different from those needed to select portfolio
securities;
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the possible absence of a liquid secondary market for any particular instrument at any time could
expose the Fund to losses;
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certain derivative transactions involve substantial leverage risk and may expose the Fund to potential
losses that exceed the amount originally invested;
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the possible need to defer closing out certain hedged positions to avoid adverse tax consequences;
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the possible inability of the Fund to purchase or sell a security or instrument at a time that
otherwise would be favorable for it to do so, or the possible need for the Fund to sell a security or instrument at a disadvantageous
time due to a need for the Fund to maintain “cover” or to segregate securities in connection with the hedging techniques;
and
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the creditworthiness of counterparties.
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In October 2020, the SEC adopted Rule 18f-4
under the 1940 Act, which regulates the ability of registered investment companies to use derivatives and other transactions that
create future payment or delivery obligations. Under the newly adopted Rule 18f-4, a closed-end fund that is not a limited
user of derivatives, as defined under the rule, generally must comply with an outer limit on fund leverage risk based on value-at-risk,
or “VaR.” This outer limit is based on a relative VaR test that compares a fund’s VaR to the VaR of a “designated
reference portfolio” for that fund. A fund generally can use either an index that meets certain requirements or the fund’s
own securities portfolio (excluding derivatives transactions) as its designated reference portfolio. If a fund’s derivatives
risk manager reasonably determines that a designated reference portfolio would not provide an appropriate reference portfolio for
purposes of the relative VaR test, the fund would be required to comply with an absolute VaR test. A closed-end fund’s VaR
is not permitted to exceed 250% of the VaR of the fund’s designated reference portfolio under the relative VaR test or 25%
of the fund’s net assets under the absolute VaR test.
In addition, under the newly adopted rule,
unless the Fund qualifies as a limited user of derivatives, it will need to implement a written derivatives risk management program.
The program must include risk guidelines as well as stress testing, backtesting, internal reporting and escalation, and program
review elements. A derivatives risk manager approved by the Fund’s board of directors will administer the program. The Fund’s
derivatives risk manager will have to report to the Fund’s Board on the derivatives risk management program’s implementation
and effectiveness to facilitate the Board’s oversight of the Fund’s derivatives risk management. Rule 18f-4 also
provides that a fund will be permitted to engage in reverse repurchase agreements and similar financing transactions so long as
the fund meets the asset coverage requirements under section 18; that is, the value of the Fund’s total assets less all liabilities
and indebtedness not represented by senior securities (for these purposes, “total net assets”) is at least 300% of
the senior securities representing indebtedness (effectively limiting the use of leverage through senior securities representing
indebtedness to 33 1/3% of the Fund’s total net assets, including assets attributable to such leverage). Thus, if a fund
also borrows from a bank or issues bonds, for example, these senior securities as well as the reverse repurchase agreement would
be required to comply with the asset coverage requirements under the 1940 Act. This approach provides the same asset coverage requirements
under section 18 for reverse repurchase agreements and similar financing transactions, bank borrowings, and other borrowings permitted
under the 1940 Act. Notwithstanding the foregoing, the Fund also will be permitted to enter into these transactions by electing
to treat reverse repurchase agreements as derivatives transactions under Rule 18f-4 and thus be subject to the VaR thresholds
applicable to closed-end funds. This alternative approach will permit the Fund to apply a consistent set of requirements to its
derivatives transactions and any reverse repurchase agreements or similar financing transactions. The Fund will be required to
implement and comply with new Rule 18f-4 by the third quarter of 2022.
Counterparty
Risk. The Fund will be subject to credit risk with respect to the counterparties to the derivative contracts purchased
by the Fund. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the
Fund may experience significant delays in obtaining any recovery in bankruptcy or other reorganization proceedings. The Fund may
obtain only a limited recovery, or may obtain no recovery, in such circumstances. The counterparty risk for cleared derivatives
is generally lower than for uncleared over-the-counter derivative transactions since generally a clearing organization becomes
substituted for each counterparty to a cleared derivative contract and, in effect, guarantees the parties’ performance under
the contract as each party to a trade looks only to the clearing organization for performance of financial obligations under the
derivative contract. However, there can be no assurance that a clearing organization, or its members, will satisfy its obligations
to the Fund.
Liquidity
Risk. Although both over-the-counter and exchange-traded derivatives markets may experience the lack of liquidity, over-the-counter
non-standardized derivative transactions are generally less liquid than cleared or exchange-traded instruments. The illiquidity
of the derivatives markets may be due to various factors, including congestion, disorderly markets, limitations on deliverable
supplies, the participation of speculators, government regulation and intervention, and technical and operational or system failures.
In addition, the liquidity of a secondary market in an exchange-traded derivative contract may be adversely affected by “daily
price fluctuation limits” established by the exchanges which limit the amount of fluctuation in an exchange-traded contract
price during a single trading day. Once the daily limit has been reached in the contract, no trades may be entered into at a price
beyond the limit, thus preventing the liquidation of open positions. Prices have in the past moved beyond the daily limit on a
number of consecutive trading days. If it is not possible to close an open derivative position entered into by the Fund, the Fund
would continue to be required to make daily cash payments of variation margin in the event of adverse price movements. In such
a situation, if the Fund has insufficient cash, it may have to sell portfolio securities to meet daily variation margin requirements
at a time when it may be disadvantageous to do so. The absence of liquidity may also make it more difficult for the Fund to ascertain
a market value for such instruments. The inability to close options and futures positions also could have an adverse impact on
the Fund’s ability to effectively hedge its portfolio.
Risks
Associated with Position Limits Applicable to Derivatives. The Fund’s investments in regulated derivatives instruments,
such as swaps, futures and options, are or may in the future be subject to maximum position limits established by the U.S. Commodity
Futures Trading Commission (the “CFTC”) and U.S. and foreign futures exchanges. Under the exchange rules, all accounts
owned or managed by advisers, such as the Investment Adviser, their principals and affiliates would be combined for position limit
purposes. In order to comply with the position limits, the Investment Adviser may in the future reduce the size of positions that
would otherwise be taken for the Fund or not trade in certain markets on behalf of the Fund in order to avoid exceeding such limits.
A violation of position limits by the Investment Adviser could lead to regulatory action resulting in mandatory liquidation of
certain positions held by the Investment Adviser on behalf of the Fund. There can be no assurance that the Investment Adviser will
liquidate positions held on behalf of all the Investment Adviser’s accounts in a proportionate manner or at favorable prices,
which may result in substantial losses to the Fund.
Risks
Related to the Fund’s Clearing Broker and Central Clearing Counterparty. The Commodity Exchange Act (the “CEA”)
requires swaps and futures clearing brokers registered as “futures commission merchants” to segregate all funds received
from customers with respect to any orders for the purchase or sale of U.S. domestic futures contracts and cleared swaps from the
brokers’ proprietary assets. Similarly, the CEA requires each futures commission merchant to hold in a separate secure account
all funds received from customers with respect to any orders for the purchase or sale of foreign futures contracts and segregate
any such funds from the funds received with respect to domestic futures contracts. However, all funds and other property received
by a clearing broker from its customers are held by the clearing broker on a commingled basis in an omnibus account and may be
freely accessed by the clearing broker, which may also invest any such funds in certain instruments permitted under the applicable
regulation. There is a risk that assets deposited by the Fund with any swaps or futures clearing broker as margin for futures contracts
or cleared swaps may, in certain circumstances and to varying degrees for swaps and options contracts, be used to satisfy losses
of other clients of the Fund’s clearing broker. In addition, the assets of the Fund might not be fully protected in the event
of the Fund’s clearing broker’s bankruptcy, as the Fund would be limited to recovering only a pro rata share of all
available funds segregated on behalf of the clearing broker’s combined domestic customer accounts.
Similarly, the CEA requires a clearing
organization approved by the CFTC as a derivatives clearing organization to segregate all funds and other property received from
a clearing member’s clients in connection with domestic futures, swaps and options contracts from any funds held at the clearing
organization to support the clearing member’s proprietary trading. Nevertheless, with respect to futures and options contracts,
a clearing organization may use assets of a non-defaulting customer held in an omnibus account at the clearing organization to
satisfy payment obligations of a defaulting customer of the clearing member to the clearing organization. With respect to cleared
swaps, a clearing organization generally cannot use assets of a non-defaulting customer with limited exceptions. As a result, in
the event of a default or the clearing broker’s other clients or the clearing broker’s failure to extend own funds
in connection with any such default, the Fund would not be able to recover the full amount of assets deposited by the clearing
broker on behalf of the Fund with the clearing organization.
Swaps.
Swap agreements are types of derivatives. In order to seek to hedge the value of the Fund’s portfolio, to hedge against increases
in the Fund’s cost associated with the interest payments on its outstanding borrowings or to seek to increase the Fund’s
return, the Fund may enter into interest rate or credit default swap transactions. In interest rate swap transactions, there is
a risk that yields will move in the direction opposite of the direction anticipated by the Fund, which would cause the Fund to
make payments to its counterparty in the transaction that could adversely affect Fund performance. In addition to the risks applicable
to swaps generally, credit default swap transactions involve special risks because they are difficult to value, are highly susceptible
to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual
default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty).
Credit default swaps may in some cases be illiquid, and they increase credit risk since the Fund has exposure to both the issuer
of the referenced obligation and the counterparty to the credit default swap. Additionally, to the extent the Fund sells credit
default swap contracts, the Fund effectively adds economic leverage to its portfolio because, in addition to its total net assets,
the Fund is subject to investment exposure on the notional amount of the swap in the event of a default of the referenced debt
obligation. The Fund is not required to enter into interest rate or credit default swap transactions for hedging purposes or to
enhance its return, and may choose not to do so.
Over-the-Counter
Trading Risk. Derivative instruments, such as swap agreements, that may be purchased or sold by the Fund may include
instruments not traded on an exchange. The risk of nonperformance by the counterparty to an instrument is generally greater than,
and the ease with which the Fund can dispose of or enter into closing transactions with respect to an instrument is generally less
than, the risk associated with an exchange traded instrument. In addition, greater disparities may exist between “bid”
and “asked” prices for derivative instruments that are not traded on an exchange. Derivative instruments not traded
on exchanges also are not subject to the same type of government regulation as exchange traded instruments, and many of the protections
afforded to participants in a regulated environment may not be available in connection with the transactions.
Tracking
Risk. The value of the derivatives that the Fund uses to gain commodities exposure may not correlate to the values of
the underlying commodities. When used for hedging purposes, an imperfect or variable degree of correlation between price or rate
movements of the derivative instrument and the underlying investment sought to be hedged may prevent the Fund from achieving the
intended hedging effect or expose the Fund to risk of loss.
Short
Sales Risk. The Fund may from time to time make short sales of securities, including short sales “against the
box.” A short sale is a transaction in which the Fund sells a security it does not own in anticipation that the market price
of that security will decline. A short sale against the box occurs when the Fund contemporaneously owns, or has the right to obtain
at no added cost, securities identical to those sold short.
Except for short sales against the box,
the Fund will not sell short more than 10% of the Fund’s Managed Assets and the market value for the securities sold short
of any one issuer will not exceed 5% of such issuer’s voting securities. In addition, the Fund may not make short sales or
maintain a short position if it would cause more than 25% of the Fund’s Managed Assets, taken at market value, to be held
as collateral for such sales. The Fund may make short sales against the box without respect to such limitations.
The Fund may make short sales in order
to hedge against market risks when it believes that the price of a security may decline, causing a decline in the value of a security
owned by the Fund or a security convertible into, or exchangeable for, such security, or when the Fund does not want to sell the
security it owns. Such short sale transactions may be subject to special tax rules, one of the effects of which may be to accelerate
income to the Fund. Additionally, the Fund may use short sales in conjunction with the purchase of a convertible security when
it is determined that the convertible security can be bought at a small conversion premium and has a yield advantage relative to
the underlying common stock sold short.
When the Fund makes a short sale, it will
often borrow the security sold short and deliver it to the broker-dealer through which it made the short sale as collateral for
its obligation to deliver the security upon conclusion of the sale. In connection with such short sales, the Fund may pay a fee
to borrow securities or maintain an arrangement with a broker to borrow securities, and is often obligated to pay over any accrued
interest and dividends on such borrowed securities. In a short sale, the Fund does not immediately deliver the securities sold
or receive the proceeds from the sale. The Fund may close out a short position by purchasing and delivering an equal amount of
the securities sold short, rather than by delivering securities already held by the Fund, because the Fund may want to continue
to receive interest and dividend payments on securities in its portfolio that are convertible into the securities sold short.
If the price of the security sold short
increases between the time of the short sale and the time that the Fund replaces the borrowed security, the Fund will incur a loss;
conversely, if the price declines, the Fund will realize a capital gain. Any gain will be decreased, and any loss, increased, by
the transaction costs described above. The successful use of short selling may be adversely affected by imperfect correlation between
movements in the price of the security sold short and the securities being hedged.
To the extent that the Fund engages in
short sales, it will provide collateral to the broker-dealer and (except in the case of short sales against the box) will maintain
additional asset coverage in the form of segregated or “earmarked” assets on the records of the Investment Adviser
or with the Fund’s Custodian, consisting of cash, U.S. government securities, or other liquid securities that is equal to
the current market value of the securities sold short, or (in the case of short sales against the box) will ensure that such positions
are covered by offsetting positions, until the Fund replaces the borrowed security. The Fund will engage in short selling to the
extent permitted by the federal securities laws and rules and interpretations thereunder, subject to the percentage limitations
set forth above. To the extent the Fund engages in short selling in foreign (non-U.S.) jurisdictions, the Fund will do so to the
extent permitted by the laws and regulations of such jurisdiction.
Securities
Lending Risk. The Fund may lend its portfolio securities to banks or dealers which meet the creditworthiness standards
established by the Board of Directors. Securities lending is subject to the risk that loaned securities may not be available to
the Fund on a timely basis and the Fund may therefore lose the opportunity to sell the securities at a desirable price. Any loss
in the market price of securities loaned by the Fund that occurs during the term of the loan would be borne by the Fund and would
adversely affect the Fund’s performance. Also, there may be delays in recovery, or no recovery, of securities loaned or even
a loss of rights in the collateral should the borrower of the securities fail financially while the loan is outstanding.
Repurchase
Agreements Risk. Subject to its investment objectives and policies, the Fund may invest in repurchase agreements for
leverage or investment purposes. Repurchase agreements typically involve the acquisition by the Fund of fixed income securities
from a selling financial institution such as a bank, savings and loan association or broker-dealer. The agreement provides that
the Fund will sell the securities back to the institution at a fixed time in the future. The Fund does not bear the risk of a decline
in the value of the underlying security unless the seller defaults under its repurchase obligation. In the event of the bankruptcy
or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying securities
and losses, including possible decline in the value of the underlying security during the period in which the Fund seeks to enforce
its rights thereto; possible lack of access to income on the underlying security during this period; and expenses of enforcing
its rights. While repurchase agreements involve certain risks not associated with direct investments in fixed income securities,
the Fund follows procedures approved by the Board of Directors that are designed to minimize such risks. In addition, the value
of the collateral underlying the repurchase agreement will be at least equal to the repurchase price, including any accrued interest
earned on the repurchase agreement. In the event of a default or bankruptcy by a selling financial institution, the Fund generally
will seek to liquidate such collateral. However, the exercise of the Fund’s right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a default of the obligation to repurchase were less
than the repurchase price, the Fund could suffer a loss.
Reverse
Repurchase Agreements Risk. Reverse repurchase agreements involve the risks that the interest income earned on the investment
of the proceeds will be less than the interest expense of the Fund, that the market value of the securities sold by the Fund may
decline below the price at which the Fund is obligated to repurchase the securities and that the securities may not be returned
to the Fund. There is no assurance that reverse repurchase agreements can be successfully employed.
Illiquid
and Restricted Securities Risk. The Fund may invest in restricted securities and otherwise illiquid investments. Restricted
securities are securities that cannot be offered for public resale unless registered under the applicable securities laws or that
have a contractual restriction that prohibits or limits their resale such as Rule 144A securities. They may include private
placement securities that have not been registered under the Securities Act of 1933, as amended (the “Securities Act”).
Restricted securities may not be listed on an exchange and may or may not have an active trading market. The Fund may not be able
to dispose readily of illiquid securities when that would be beneficial at a favorable time or price or at prices approximating
those at which the Fund then values them. Restricted securities often can be resold only in privately negotiated transactions with
a limited number of purchasers or in a public offering registered under the Securities Act. Considerable delay could be encountered
in either event and, unless otherwise contractually provided for, the Fund’s proceeds upon sale may be reduced by the costs
of registration or underwriting discounts. The difficulties and delays associated with such transactions could result in the Fund’s
inability to realize a favorable price upon disposition of restricted securities, and at times might make disposition of such securities
impossible. In addition, the Fund may be unable to sell other illiquid investments when it desires to do so, resulting in the Fund’s
obtaining a lower price or being required to retain the investment. Illiquid investments generally must be valued at fair value,
which is inherently less precise than utilizing market values for liquid investments, and may lead to differences between the price
at which a security is valued for determining the Fund’s NAV and the price the Fund actually receives upon sale.
LIBOR
Risk. London Interbank Offered Rate (“LIBOR”). The Fund may invest in certain instruments including, but
not limited to, repurchase agreements, collateralized loan obligations and mortgage-backed securities, that rely in some fashion
upon LIBOR. The Fund also utilizes leverage primarily based on LIBOR. LIBOR is an average interest rate, determined by the ICE
Benchmark Administration (“IBA”), that banks charge one another for the use of short-term money. The United Kingdom’s
Financial Conduct Authority, which regulates LIBOR, has announced plans to phase out the use of LIBOR by the end of 2021. In November 2020, IBA
announced that it will consult on its intention to cease publication of (i) euro, sterling, Swiss franc and yen LIBORs after
December 31, 2021, (ii) one-week and two-week U.S. dollar LIBORs after December 31, 2021 and (iii) all other
tenors of U.S. dollar LIBORs after June 30, 2023. Acknowledging IBA’s announcement regarding U.S. dollar LIBOR, the
Federal Reserve Board, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency noted that extending
the publication of U.S. dollar LIBOR until June 30, 2023 would allow most legacy U.S. dollar LIBOR contracts to mature before
LIBOR experiences disruptions and cautioned that banks entering into new contracts that use U.S. dollar LIBOR as a reference rate
after December 31, 2021 would create safety and soundness risks.
At this time, no consensus exists as to
what rate or rates will become accepted alternatives to LIBOR, although the U.S. Federal Reserve, in connection with the Alternative
Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar
LIBOR with the Secured Overnight Financing Rate (“SOFR”). Given the inherent differences between LIBOR and SOFR, or
any other alternative benchmark rate that may be established, there remains uncertainty regarding the future utilization of LIBOR
and the nature of any replacement rate. Any potential effects of the transition away from LIBOR on the Fund or on certain instruments
in which the Fund invests can be difficult to ascertain, and they may vary depending on factors that include, but are not limited
to: (i) existing fallback or termination provisions in individual contracts and (ii) whether, how, and when industry
participants develop and adopt new reference rates and fallbacks for both legacy and new products and instruments. For example,
certain of the Fund’s investments may involve individual contracts that have no existing fallback provision or language that
contemplates the discontinuation of LIBOR, and those investments could experience increased volatility or illiquidity as a result
of the transition process. In addition, interest rate provisions included in such contracts may need to be renegotiated in contemplation
of the transition away from LIBOR. The transition may also result in a reduction in the value of certain instruments held by the
Fund, including those described in this paragraph, or a reduction in the effectiveness of related Fund transactions such as hedges.
Any such effects of the transition away from LIBOR, as well as other unforeseen effects, could result in losses to the Fund.
Corporate
Loans Risk. In furtherance of its primary investment objective and subject to its investment policies and limitations,
the Fund may also invest in primary or secondary market purchases of loans or participation interests in loans extended to corporate
borrowers or sovereign governmental entities by commercial banks and other financial institutions (“Corporate Loans”).
As in the case of lower grade securities, the Corporate Loans in which the Fund may invest may be rated below investment grade
(lower than Baa by Moody’s and lower than BBB by S&P) or may be unrated but of comparable quality in the judgment of
the Investment Adviser. As in the case of lower grade securities, such Corporate Loans can be expected to provide higher yields
than lower-yielding, higher-rated fixed income securities but may be subject to greater risk of loss of principal and income. The
risks of investment in such Corporate Loans are similar in many respects to those of investment in lower grade securities. There
are, however, some significant differences between Corporate Loans and lower grade securities. Corporate Loans are frequently secured
by pledges of liens and security interests in the assets of the borrower, and the holders of Corporate Loans are frequently the
beneficiaries of debt service subordination provisions imposed on the borrower’s bondholders. These arrangements are designed
to give Corporate Loan investors preferential treatment over investors in lower grade securities in the event of a deterioration
in the credit quality of the issuer. Even when these arrangements exist, however, there can be no assurance that the principal
and interest owed on the Corporate Loans will be repaid in full. Corporate Loans generally bear interest at rates set at a margin
above a generally recognized base lending rate that may fluctuate on a day to day basis, in the case of the prime rate of a U.S.
bank, or which may be adjusted on set dates, typically every 30 days but generally not more than one year, in the case of LIBOR.
Consequently, the value of Corporate Loans held by the Fund may be expected to fluctuate significantly less than the value of fixed
rate lower grade securities as a result of changes in the interest rate environment. On the other hand, the secondary dealer market
for Corporate Loans is not as well developed as the secondary dealer market for lower grade securities, and therefore presents
increased market risk relating to liquidity and pricing concerns.
Municipal
Securities Risk. The amount of public information available about municipal securities is generally less than that for
corporate equities or bonds, and the investment performance of the Fund’s municipal securities investments may therefore
be more dependent on the analytical abilities of the Investment Adviser. The secondary market for municipal securities, particularly
below investment grade municipal securities, also tends to be less well-developed or liquid than many other securities markets,
which may adversely affect the Fund’s ability to sell such securities at prices approximating those at which the Fund may
currently value them. In addition, many state and municipal governments that issue securities are under significant economic and
financial stress and may not be able to satisfy their obligations. The ability of municipal issuers to make timely payments of
interest and principal may be diminished during general economic downturns and as governmental cost burdens are reallocated among
federal, state and local governments. Issuers of municipal securities might seek protection under bankruptcy laws. In the event
of bankruptcy of such an issuer, holders of municipal securities could experience delays in collecting principal and interest and
such holders may not be able to collect all principal and interest to which they are entitled.
Mezzanine
Loan Risk. Mezzanine loans involve certain considerations and risks. For example, the terms of mezzanine loans may restrict
transfer of the interests securing such loans (including an involuntary transfer upon foreclosure) or may require the consent of
the senior lender or other members or partners of or equity holders in the related real estate company, or may otherwise prohibit
a change of control of the related real estate company. These and other limitations on realization on the collateral securing a
mezzanine loan or the practical limitations on the availability and effectiveness of such a remedy may affect the likelihood of
repayment in the event of a default.
When-Issued,
Forward Commitment and Delayed Delivery Transactions Risk. When-issued, forward commitment and delayed delivery transactions
occur when securities are purchased or sold by the Fund with payment and delivery taking place in the future to secure an advantageous
yield or price. Securities purchased on a when-issued, forward commitment or delayed delivery basis may expose the Fund to counterparty
risk of default as well as the risk that securities may experience fluctuations in value prior to their actual delivery. The Fund
will not accrue income with respect to a when-issued, forward commitment or delayed delivery security prior to its stated delivery
date. Purchasing securities on a when-issued, forward commitment or delayed delivery basis can involve the additional risk that
the price or yield available in the market when the delivery takes place may not be as favorable as that obtained in the transaction
itself.
Risks
Associated With Long-Term Objective; Not a Complete Investment Program. The Fund is intended for investors seeking a
high level of total return, with an emphasis on income. The Fund is not meant to provide a vehicle for those who wish to exploit
short-term swings in the stock market and is intended for long-term investors. An investment in shares of the Fund should not be
considered a complete investment program. Each shareholder should take into account the Fund’s investment objective as well
as the shareholder’s other investments when considering an investment in the Fund.
Management
Risk. The Fund is subject to management risk because its portfolio will be actively managed. The Investment Adviser
will apply investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee that
these will produce the desired results.
Potential
Conflicts of Interest Risk. The Investment Adviser and its affiliates are involved worldwide with a broad spectrum of
financial services and asset management activities and may engage in the ordinary course of business in activities in which their
interests or the interests of their clients may conflict with those of the Fund. The Investment Adviser and its affiliates may
provide investment management services to other funds and discretionary managed accounts that follow an investment program similar
to that of the Fund. Subject to the requirements of the 1940 Act, the Investment Adviser and its affiliates intend to engage in
such activities and may receive compensation from third parties for their services. Neither the Investment Adviser nor its affiliates
are under any obligation to share any investment opportunity, idea or strategy with the Fund. As a result, the Investment Adviser
and its affiliates may compete with the Fund for appropriate investment opportunities. The results of the Fund’s investment
activities, therefore, may differ from those of other accounts managed by the Investment Adviser and its affiliates, and it is
possible that the Fund could sustain losses during periods in which one or more of the proprietary or other accounts managed by
the Investment Adviser or its affiliates achieve profits. The Investment Adviser has informed the Fund’s Board of Directors
that the investment professionals associated with the Investment Adviser are actively involved in other investment activities not
concerning the Fund and will not be able to devote all of their time to the Fund’s business and affairs. The Investment Adviser
and its affiliates have adopted policies and procedures designed to address potential conflicts of interests and to allocate investments
among the accounts managed by the Investment Adviser and its affiliates in a fair and equitable manner.
Anti-Takeover
Provisions Risk. The Fund’s charter and Bylaws contain provisions that may delay, defer or prevent a transaction
or a change in control that might otherwise be in the best interests of the shareholders. Such provisions may discourage outside
parties from seeking control of the Fund or seeking to change the composition of its Board of Directors, which could result in
shareholders not having the opportunity to realize a price greater than the current market price for their shares at some time
in the future.
The Fund’s charter classifies the
Fund’s Board of Directors into three classes, with each class of directors serving until the third annual meeting following
their election and until their successors are duly elected and qualified, and authorizes the Board of Directors to cause the Fund
to issue additional shares of stock. The Board of Directors of The Fund also may classify or reclassify any unissued common shares
into one or more classes or series of stock, including preferred stock, may set the terms of each class or series and may authorize
the Fund to issue the newly-classified or reclassified shares, in each such instance without shareholder approval. The Board of
Directors may, without any action by the shareholders, amend the charter of the Fund, from time to time, to increase or decrease
the aggregate number of shares or the number of shares of any class or series that the Fund has the authority to issue.
These provisions could have the effect
of depriving common shareholders of opportunities to sell their common shares at a premium over the then current market price of
the common shares.
Unrated
Securities Risk. Because the Fund may purchase securities that are not rated by any rating organization, the Investment
Adviser may internally assign ratings to certain of those securities, after assessing their credit quality, in categories of those
similar to those of rating organizations. Some unrated securities may not have an active trading market or may be difficult to
value, which means the Fund might have difficulty selling them promptly at an acceptable price.
Valuation
Risk. The Investment Adviser may use an independent pricing service or prices provided by dealers to value certain fixed
income securities at their market value. Because the secondary markets for certain investments may be limited, they may be difficult
to value. When market quotations are not readily available or are deemed to be unreliable, The Fund values its investments at fair
value as determined in good faith pursuant to policies and procedures approved by the Board of Directors. Fair value pricing may
require subjective determinations about the value of a security or other asset. As a result, there can be no assurance that fair
value pricing will result in adjustments to the prices of securities or other assets, or that fair value pricing will reflect actual
market value, and it is possible that the fair value determined for a security or other asset will be materially different from
quoted or published prices, from the prices used by others for the same security or other asset and/or from the value that actually
could be or is realized upon the sale of that security or other asset. Where market quotations are not readily available, valuation
may require more research than for more liquid investments. In addition, elements of judgment may play a greater role in valuation
in such cases than for investments with a more active secondary market because there is less reliable objective data available.
Risks
Associated With Status as a Regulated Investment Company. The Fund intends to qualify for federal income tax purposes
as a regulated investment company under Subchapter M of the Code. Qualification requires, among other things, compliance by the
Fund with certain distribution requirements. Statutory limitations on distributions on the common shares if the Fund is leveraged
and fails to satisfy the 1940 Act’s asset coverage requirements could jeopardize the Fund’s ability to meet such distribution
requirements. The Fund presently intends, however, to purchase or redeem any outstanding leverage to the extent necessary in order
to maintain compliance with such asset coverage requirements.
Commodity
Pool Operator Risk.. The Investment Adviser has claimed an exclusion from definition of the term “commodity pool
operator” in accordance with Rule 4.5 promulgated by the CFTC with respect to The Fund, so that the Investment Adviser
is not subject to registration or regulation as a commodity pool operator under the CEA. In order to maintain the exclusion for
the Investment Adviser, the Fund must invest no more than a prescribed level of its liquidation value in futures, swaps and certain
other derivative instruments subject to CEA jurisdiction and the Fund must not market itself as providing investment exposure to
such instruments. If the Fund’s investments no longer qualify for the exclusion, the Investment Adviser may be subject to
the CFTC registration requirement, and the disclosure and operations of the Fund would need to comply with all applicable regulations
governing commodity pools and commodity pool operators. Compliance with these additional registration and regulatory requirements
may increase operating expenses. Other potentially adverse regulatory requirements may develop.
Exchange-Traded
Fund Risk. ETFs are typically open-end investment companies that are bought and sold on a national securities exchange.
When the Fund invests in an ETF, it will bear additional expenses based on its pro rata share of the ETF’s operating expenses,
including the potential duplication of management fees. The risk of owning an ETF generally reflects the risks of owning the underlying
securities it holds. Many ETFs seek to replicate a specific benchmark index. However, an ETF may not fully replicate the performance
of its benchmark index for many reasons, including because of the temporary unavailability of certain index securities in the secondary
market or discrepancies between the ETF and the index with respect to the weighting of securities or the number of stocks held.
Inverse ETFs are subject to the risk that their performance will fall as the value of their benchmark indices rises. Lack of liquidity
in an ETF could result in an ETF being more volatile than the underlying portfolio of securities it holds. In addition, because
of ETF expenses, compared to owning the underlying securities directly, it may be more costly to own an ETF. The Fund also will
incur brokerage costs when it purchases ETFs.
If the Fund invests in shares of another
mutual fund, shareholders will indirectly bear fees and expenses charged by the underlying mutual funds in which the Fund invests
in addition to the Fund’s direct fees and expenses. Furthermore, investments in other mutual funds could affect the timing,
amount and character of distributions to shareholders and therefore may increase the amount of taxes payable by investors in the
Fund.
Exchange-Traded
Note Risk. ETNs are subject to the credit risk of the issuer. The value of an ETN will vary and will be influenced by
its time to maturity, level of supply and demand for the ETN, volatility and lack of liquidity in underlying securities, currency
and commodities markets as well as changes in the applicable interest rates, changes in the issuer’s credit rating, and economic,
legal, political, or geographic events that affect the referenced index. There may be restrictions on the Fund’s right to
redeem its investment in an ETN, which is meant to be held until maturity. The Fund’s decision to sell its ETN holdings may
be limited by the availability of a secondary market.
Brexit
Risk. In a public referendum in June 2016, the United Kingdom voted to leave the European Union in a process now
commonly referred to as “Brexit”. On January 31, 2020, the United Kingdom officially withdrew from the European
Union and entered into a transition period until December 31, 2020, during which the United Kingdom will effectively remain
in the European Union from an economic perspective but will no longer have political representation in the European Union parliament.
During the transition period, the United Kingdom and European Union has sought to negotiate and finalize a new trade agreement,
but the parties have yet to agree on a deal. It is possible that the transition period could be extended for up to two years. There
is considerable uncertainty surrounding the outcome of the negotiations for a new trade agreement, including whether that parties
will be able to agree and implement a new trade agreement or what the nature of such trade arrangement will be and the impact of
Brexit on the United Kingdom, the European Union and the broader global economy may be significant. As a result of the political
divisions within the United Kingdom and between the United Kingdom and the European Union that the referendum vote and the negotiations
have highlighted and the uncertain consequences of Brexit, the United Kingdom and European economies and the broader global economy
could be significantly impacted, which may result in increased volatility and illiquidity and potentially lower economic growth
on markets in the United Kingdom, Europe and globally, which could potentially have an adverse effect on the value of the Fund’s
investments. In addition to concerns related to the effect of Brexit, that referendum may inspire similar initiatives in other
European Union member countries, producing further risks for global financial markets.
Small-
and Mid-Capitalization Risk. The Fund may invest across large-, mid-, and small-capitalization stocks. From time to
time, the Fund may invest its assets in small- and medium-size companies. Such investments entail greater risk than investments
in larger, more established companies. Small- and medium-size companies may have narrower markets and more limited managerial and
financial resources than larger, more established companies. As a result of these risks and uncertainties, the returns from these
small- and medium-size stocks may trail returns from the overall stock market. Historically, these stocks have been more volatile
in price than the large-capitalization stocks.
Defensive
Investments. When adverse market or economic conditions occur, the Fund may temporarily invest all or a portion of its
assets in defensive investments that are short-term and liquid. Such investments include U.S. government securities, certificates
of deposit, banker’s acceptances, time deposits, repurchase agreements, and other high quality debt instruments. When following
a defensive strategy, the Fund will be less likely to achieve its investment objective.
Portfolio
Selection Risk. The Investment Adviser’s judgment about the quality, relative yield, relative value or market
trends affecting a particular sector or region, market segment, security or about interest rates generally may prove to be incorrect.
Portfolio
Turnover Risk. A high portfolio turnover rate (100% or more) has the potential to result in the realization and distribution
to shareholders of higher capital gains, which may subject you to a higher tax liability. A high portfolio turnover rate also leads
to higher transaction costs.
MLP
Risk. As compared to common shareholders of a corporation, holders of MLP units have more limited control and limited
rights to vote on matters affecting the partnership. In addition, there are certain tax risks associated with an investment in
MLP units and conflicts of interest may exist between common unit holders and the general partner, including those arising from
incentive distribution payments.
A change in current tax law, or a change
in the business of a given MLP, could result in an MLP being treated as a corporation for U.S. federal income tax purposes, which
would result in such MLP being required to pay U.S. federal income tax on its taxable income. Thus, if any of the MLPs owned by
the Fund were treated as corporations for U.S. federal income tax purposes, the after-tax return to the Fund with respect to its
investment in such MLPs would be materially reduced, which could cause a decline in the value of the common stock.
To the extent that the Fund invests in
the equity securities of an MLP, the Fund will be a partner in such MLP. Accordingly, the Fund will be required to include in its
taxable income the Fund’s allocable share of the income, gains, losses, deductions and expenses recognized by each such MLP,
regardless of whether the MLP distributes cash to the Fund. The Fund will incur a current tax liability on its allocable share
of an MLP’s income and gains that is not offset by the MLP’s tax deductions, losses and credits, or its net operating
loss carryforwards, if any. The portion, if any, of a distribution received by the Fund from an MLP that is offset by the MLP’s
tax deductions, losses or credits is essentially treated as a return of capital. The percentage of an MLP’s income and gains
that is offset by tax deductions, losses and credits will fluctuate over time for various reasons. A significant slowdown in acquisition
activity or capital spending by MLPs held in the Fund’s portfolio could result in a reduction of accelerated depreciation
generated by new acquisitions, which may result in increased current tax liability for the Fund.
Because of the Fund’s investments
in equity securities of MLPs, the Fund’s earnings and profits may be calculated using accounting methods that are different
from those used for calculating taxable income. Because of these differences, the Fund may make distributions out of its current
or accumulated earnings and profits, which will be treated as dividends, in years in which the Fund’s distributions exceed
its taxable income. In addition, changes in tax laws or regulations, or future interpretations of such laws or regulations, could
adversely affect the Fund or the MLP investments in which the Fund invests. Real Estate Market Risk. The Fund will not invest
in real estate directly, but only in securities issued by real estate companies. However, because the Fund has significant exposure
to the real estate sector, the Fund is also subject to the risks associated with the direct ownership of real estate. These risks
include:
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declines in the value of real estate;
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risks related to general and local economic conditions;
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possible lack of availability of mortgage funds;
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extended vacancies of properties;
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increases in property taxes and operating expenses;
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changes in zoning laws;
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losses due to costs resulting from the clean-up of environmental problems;
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liability to third parties for damages resulting from environmental problems;
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casualty or condemnation losses;
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changes in neighborhood values and the appeal of properties to tenants; and
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changes in interest rates.
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Thus, the value of the Fund’s shares
may change at different rates compared to the value of shares of the Fund with investments in a mix of different industries.
Concentration
Risk. Concentration risk is the risk that The Fund’s investments in the securities of companies in one industry
will cause the Fund to be more exposed to developments affecting a single industry or market sector than a more broadly diversified
fund would be. The Fund may be subject to greater volatility with respect to its portfolio securities than the Fund that is more
broadly diversified.
Fixed
Income Risk. The prices of fixed income securities react to economic developments, particularly interest rate changes,
as well as to perceptions about the credit risk of individual issuers. Increases in interest rates can cause the prices of the
Fund’s fixed income securities to decline, and the level of current income from a portfolio of fixed income securities may
decline in certain interest rate environments. These risks may be greater in the current market environment because interest rates
are near historically low levels. It is likely that there will be less governmental action in the near future to maintain low interest
rates. The negative impact on fixed income securities from the resulting rate increases for that and other reasons may be swift
and significant.
Investment
Risk. An investment in the Fund is subject to investment risk, including the possible loss of the entire principal amount
that you invest.
Return
of Capital Risk. The Fund expects to make quarterly distributions at a level percentage rate regardless of its quarterly
performance. All or a portion of such distributions may represent a return of capital. A return of capital is the portion of the
distribution representing the return of your investment in the Fund. A return of capital is tax-free to the extent of a shareholder’s
basis in the Fund’s shares and reduces the shareholder’s basis to that extent. Distributions made in excess of a shareholder’s
basis in the Fund’s shares could be treated as capital gain from the sale of Fund shares to such shareholder. Such capital
gain may be long term depending on each shareholders holding period in its shares of the Fund.
Commercial
Paper Risk. Commercial paper includes short-term unsecured promissory notes, variable rate demand notes, and variable
rate master demand notes issued by domestic and foreign bank holding companies, corporations, and financial institutions as well
as similar taxable and tax-exempt instruments issued by government agencies and instrumentalities. These instruments are generally
unsecured, which increases the credit risk associated with this type of investment.
Stapled
Securities Risk. A stapled security is a security that is comprised of two parts that cannot be separated from one another.
The two parts of a stapled security are a unit of a trust and a share of a company. The resulting security is influenced by both
parts, and must be treated as one unit at all times, such as when buying or selling a security. The value of stapled securities
and the income derived from them may fall as well as rise. Stapled securities are not obligations of, deposits in, or guaranteed
by the Fund. The listing of stapled securities on a domestic or foreign exchange does not guarantee a liquid market for stapled
securities.
Investment
Grade Securities Risk. Investment grade corporate securities are securities rated BBB- or above by Standard and Poor’s
Corporation or Fitch IBCA or Baa3 or above by Moody’s Investors Service, Inc. or, if non-rated, are determined by the
Investment Adviser to be of comparable credit quality. Investment grade corporate securities are fixed income securities issued
by U.S. corporations, including debt securities, convertible securities and preferred stock. Ratings are only the opinions of the
companies issuing them and are not guarantees as to quality.
Short-term
Debt Obligations Risk. The Fund may invest in certain bank obligations including certificates of deposit, bankers’
acceptances, time deposits and promissory notes that earn a specified rate of return and may be issued by (i) a domestic branch
of a domestic bank, (ii) a foreign branch of a domestic bank, (iii) a domestic branch of a foreign bank or (iv) a
foreign branch of a foreign bank. Bank obligations may be structured as fixed-, variable- or floating-rate obligations.
Certificates of deposit, or so-called CDs,
typically are interest-bearing debt instruments issued by banks and have maturities ranging from a few weeks to several years.
Yankee dollar certificates of deposit are negotiable CDs issued in the United States by branches and agencies of foreign banks.
Eurodollar certificates of deposit are CDs issued by foreign banks with interest and principal paid in U.S. dollars. Eurodollar
and Yankee Dollar CDs typically have maturities of less than two years and have interest rates that typically are pegged to the
London Interbank Offered Rate or LIBOR. Bankers’ acceptances are time drafts drawn on and accepted by banks, are a customary
means of effecting payment for merchandise sold in import-export transactions and are a general source of financing. A time deposit
can be either a savings account or CD that is an obligation of a financial institution for a fixed term. Typically, there are penalties
for early withdrawals of time deposits.
Promissory notes are written commitments
of the maker to pay the payee a specified sum of money either on demand or at a fixed or determinable future date, with or without
interest.
Bank investment contracts are issued by
banks. Pursuant to such contracts, the Fund may make cash contributions to a deposit fund of a bank. The bank then credits to the
Fund payments at floating or fixed interest rates. The Fund also may hold funds on deposit with its custodian for temporary purposes.
Certain bank obligations, such as some
CDs, are insured by the FDIC up to certain specified limits. Many other bank obligations, however, are neither guaranteed nor insured
by the FDIC or the U.S. Government. These bank obligations are “backed” only by the creditworthiness of the issuing
bank or parent financial institution. Domestic and foreign banks are subject to different governmental regulation. Accordingly,
certain obligations of foreign banks, including Eurodollar and Yankee dollar obligations, involve different and/or heightened investment
risks than those affecting obligations of domestic banks, including, among others, the possibilities that: (i) their liquidity
could be impaired because of political or economic developments; (ii) the obligations may be less marketable than comparable
obligations of domestic banks; (iii) a foreign jurisdiction might impose withholding and other taxes at high levels on interest
income; (iv) foreign deposits may be seized or nationalized; (v) foreign governmental restrictions such as exchange controls
may be imposed, which could adversely affect the payment of principal and/or interest on those obligations; (vi) there may
be less publicly available information concerning foreign banks issuing the obligations; and (vii) the reserve requirements
and accounting, auditing and financial reporting standards, practices and requirements applicable to foreign banks may differ (including,
less stringent) from those applicable to domestic banks. Foreign banks generally are not subject to examination by any U.S. Government
agency or instrumentality.
Income
and Distribution Risk. The income that shareholders receive from the Fund is expected to be based in part on income
from short-term gains that the Fund earns from dividends and other distributions received from its investments. If the distribution
rates or yields of the Fund’s holdings decrease, shareholders’ income from that Fund could decline. In selecting equity
income securities in which the Fund will invest, the Investment Adviser will consider the issuer’s history of making regular
periodic distributions (i.e., dividends) to its equity holders. An issuer’s history of paying dividends or other distributions,
however, does not guarantee that the issuer will continue to pay dividends or other distributions in the future. The dividend income
stream associated with equity income securities generally is not fixed but are elected and declared at the discretion of the issuer’s
board of directors and will be subordinate to payment obligations of the issuer on its debt and other liabilities. Accordingly,
an issuer may forgo paying dividends on its equity securities. In addition, because in most instances issuers are not obligated
to make periodic distributions to the holders of their equity securities, such distributions or dividends generally may be discontinued
at the issuer’s discretion. There can be no assurance that monthly distributions paid by the Fund to the shareholders will
be maintained at initial levels or increase over time.
Asset
Allocation Risk. The Fund is subject to the risk that the Investment Adviser’s selection and weighting of asset
classes may cause the Fund to fail to meet its investment objective, cause the Fund to underperform other funds with a similar
investment objective or cause an investor to lose money.
Commodity-Related
Investments Risk. The value of commodities investments will generally be affected by overall market movements and factors
specific to a particular industry or commodity, which may include weather, embargoes, tariffs, and health, political, international
and regulatory developments. Economic and other events (whether real or perceived) can reduce the demand for commodities, which
may reduce market prices and cause the value of Fund shares to fall. The frequency and magnitude of such changes cannot be predicted.
Exposure to commodities and commodities markets may subject a fund to greater volatility than investments in traditional securities.
No active trading market may exist for certain commodities investments, which may impair the ability of a fund to sell or to realize
the full value of such investments in the event of the need to liquidate such investments. In addition, adverse market conditions
may impair the liquidity of actively traded commodities investments. Certain types of commodities instruments (such as commodity
swaps) are subject to the risk that the counterparty to the instrument will not perform or will be unable to perform in accordance
with the terms of the instrument.
Construction
and Development Risk. Investments in new or development stage infrastructure projects, likely retain some risk that
the project will not be completed within budget, within the agreed time frame and to the agreed specification. During the construction
or development phase, the major risks of delay include political opposition, regulatory and permitting delays, delays in procuring
sites, strikes, disputes, environmental issues, force majeure, or failure by one or more of the infrastructure investment participants
to perform in a timely manner their contractual, financial or other commitments. These delays in the projected completion of a
project could result in delays in the commencement of cash flow and an increase in the capital needed to complete construction,
which may have a material adverse effect on the Fund’s financial performance.
Contingent
Convertible Securities Risk. Contingent convertible securities (“CoCos”) have no stated maturity, have fully
discretionary coupons and are typically issued in the form of subordinated debt instruments. CoCos generally either convert into
equity or have their principal written down upon the occurrence of certain triggering events (“triggers”) linked to
regulatory capital thresholds or regulatory actions relating to the issuer’s continued viability. As a result, an investment
by the Fund in CoCos is subject to the risk that coupon (i.e., interest) payments may be cancelled by the issuer or a regulatory
authority in order to help the issuer absorb losses. An investment by the Fund in CoCos is also subject to the risk that, in the
event of the liquidation, dissolution or winding-up of an issuer prior to a trigger event, the Fund’s rights and claims will
generally rank junior to the claims of holders of the issuer’s other debt obligations. In addition, if CoCos held by the
Fund are converted into the issuer’s underlying equity securities following a trigger event, the Fund’s holding may
be further subordinated due to the conversion from a debt to equity instrument. Further, the value of an investment in CoCos is
unpredictable and will be influenced by many factors and risks, including interest rate risk, credit risk, market risk and liquidity
risk. An investment by the Fund in CoCos may result in losses to the Fund.
Equity
Securities Risk. Equity securities represent an ownership interest in an issuer, rank junior in a company’s capital
structure to debt securities and consequently may entail greater risk of loss than debt securities. Equity securities are subject
to the risk that stock prices may rise and fall in periodic cycles and may perform poorly relative to other investments. This risk
may be greater in the short term.
Gold
and Other Precious Metals Risk. Investments related to gold and other precious metals are considered speculative and
are affected by a variety of worldwide economic, financial and political factors. The price of gold and other precious metals may
fluctuate sharply over short periods of time due to changes in inflation or expectations regarding inflation in various countries,
the availability of supplies of gold and other precious metals, changes in industrial and commercial demand, gold and other precious
metals sales by governments, central banks or international agencies, investment speculation, monetary and other economic policies
of various governments and government restrictions on private ownership of gold and other precious metals. No income is derived
from holding physical gold or other precious metals, which is unlike securities that may pay dividends or make other current payments.
Although the Fund has contractual protections with respect to the credit risk of their custodian, gold held in physical form (even
in a segregated account) involves the risk of delay in obtaining the assets in the case of bankruptcy or insolvency of the custodian.
This could impair disposition of the assets under those circumstances. If it holds physical gold, the Fund is also subject to an
increased risk of loss and expense in connection with the transportation of such assets to and from the Fund’s custodian.
In addition, income derived from trading in gold and other precious metals may result in negative tax consequences due to appreciation
in value, which could limit the ability of the Fund to sell its holdings of physical gold and certain ETFs at the desired time.
Infrastructure
Risk. The Fund’s investments in Infrastructure Securities involve risks. Infrastructure companies may be subject
to a variety of factors that may adversely affect their business or operations, including high interest costs in connection with
capital construction programs, high leverage, costs associated with environmental and other regulations, the effects of economic
slowdown, surplus capacity, increased competition from other providers of services, uncertainties concerning the availability of
fuel at reasonable prices, the effects of energy conservation policies and other factors. The following is a summary of specific
risks infrastructure companies may be particularly affected by or subject to:
Regulatory
Risk. Infrastructure companies may be subject to regulation by various governmental authorities and may also be affected
by governmental regulation of rates charged to services, the imposition of special tariffs and changes in tax laws, environmental
laws and regulations, regulatory policies, accounting standards and general changes in market sentiment towards infrastructure
assets. Infrastructure companies’ inability to predict, influence or respond appropriately to changes in law or regulatory
schemes could adversely impact their results of operations.
Technology
Risk. This risk arises where a change could occur in the way a service or product is delivered rendering the existing
technology obsolete. While the risk could be considered low in the infrastructure sector given the massive fixed costs involved
in constructing assets and the fact that many infrastructure technologies are well-established, any technology change that occurs
over the medium term could threaten the profitability of an infrastructure company. If such a change were to occur, these assets
may have very few alternative uses should they become obsolete.
Regional
or Geographic Risk. This risk arises where an infrastructure company’s assets are not movable. Should an event
that somehow impairs the performance of an infrastructure company’s assets occur in the geographic location where the issuer
operates those assets, the performance of the issuer may be adversely affected.
Natural
Disasters Risk. Natural risks, such as earthquakes, flood, lightning, hurricanes and wind, are risks facing certain
infrastructure companies. Extreme weather patterns, or the threat thereof, could result in substantial damage to the facilities
of certain companies located in the affected areas, and significant volatility in the products or services of infrastructure companies
could adversely impact the prices of the securities of such issuer.
Through-put
Risk. The revenue of many infrastructure companies may be impacted by the number of users who use the products or services
produced by the infrastructure company. A significant decrease in the number of users may negatively impact the profitability of
an infrastructure company.
Project
Risk. To the extent the Fund invests in infrastructure companies which are dependent to a significant extent on new
infrastructure projects, the Fund may be exposed to the risk that the project will not be completed within budget, within the agreed
time frame or to agreed specifications. Each of these factors may adversely affect the Fund’s return from that investment.
Strategic
Asset Risk. Infrastructure companies may control significant strategic assets. Strategic assets are assets that have
a national or regional profile, and may have monopolistic characteristics. The very nature of these assets could generate additional
risk not common in other industry sectors. Given the national or regional profile and/or their irreplaceable nature, strategic
assets may constitute a higher risk target for terrorist acts or political actions. Given the essential nature of the products
or services provided by infrastructure companies, there is also a higher probability that the services provided by such issuers
will be in constant demand. Should an infrastructure company fail to make such services available, users of such services may incur
significant damage and may, due to the characteristics of the strategic assets, be unable to replace the supply or mitigate any
such damage, thereby heightening any potential loss.
Operation
Risk. The long-term profitability of an infrastructure company may be partly dependent on the efficient operation and
maintenance of its infrastructure assets. Should an infrastructure company fail to efficiently maintain and operate the assets,
the infrastructure company’s ability to maintain payments of dividends or interest to investors may be impaired. The destruction
or loss of an infrastructure asset may have a major impact on the infrastructure company. Failure by the infrastructure company
to carry adequate insurance or to operate the asset appropriately could lead to significant losses and damages.
Customer
Risk. Infrastructure companies can have a narrow customer base. Should these customers or counterparties fail to pay
their contractual obligations, significant revenues could cease and not be replaceable. This would affect the profitability of
the infrastructure company and the value of any securities or other instruments it has issued.
Interest
Rate Risk. Infrastructure assets can be highly leveraged. As such, movements in the level of interest rates may affect
the returns from these assets more significantly than other assets in some instances. The structure and nature of the debt encumbering
an infrastructure asset may therefore be an important element to consider in assessing the interest risk of the infrastructure
asset. In particular, the type of facilities, maturity profile, rates being paid, fixed versus variable components and covenants
in place (including the manner in which they affect returns to equity holders) are crucial factors in assessing any interest rate
risk. Due to the nature of infrastructure assets, the impact of interest rate fluctuations may be greater for infrastructure companies
than for the economy as a whole in the country in which the interest rate fluctuation occurs.
Inflation
Risk. Many companies operating in the infrastructure sector may have fixed income streams and, therefore, be unable
to pay higher dividends. The market value of infrastructure companies may decline in value in times of higher inflation rates.
The prices that an infrastructure company is able to charge users of its assets may not be linked to inflation. In this case, changes
in the rate of inflation may affect the forecast profitability of the infrastructure company.
Developing
Industries Risk. Some infrastructure companies are focused on developing new technologies and are strongly influenced
by technological changes. Product development efforts by such companies may not result in viable commercial products. These companies
may bear high research and development costs, which can limit their ability to maintain operations during periods of organizational
growth or instability. Some infrastructure companies in which the Fund invests may be in the early stages of operations and may
have limited operating histories and smaller market capitalizations on average than companies in other sectors. As a result of
these and other factors, the value of investments in such issuers may be considerably more volatile than that in more established
segments of the economy.
Risks
of Investing in Pipelines. Pipeline companies are subject to the demand for natural gas, natural gas liquids, crude
oil or refined products in the markets they serve, changes in the availability of products for gathering, transportation, processing
or sale due to natural declines in reserves and production in the supply areas serviced by the companies’ facilities, sharp
decreases in crude oil or natural gas prices that cause producers to curtail production or reduce capital spending for exploration
activities, and environmental regulation and related cost-intensive integrity management and testing programs. Demand for gasoline,
which accounts for a substantial portion of refined product transportation, depends on price, prevailing economic conditions in
the markets served, and demographic and seasonal factors.
Companies that own interstate
pipelines that transport natural gas, natural gas liquids, crude oil or refined petroleum products are subject to regulation by
the Federal Energy Regulation Commission (“FERC”) with respect to the tariff rates they may charge for transportation
services. An adverse determination by FERC with respect to the tariff rates of such a company could have a material adverse effect
on its business, financial condition, results of operations and cash flows and its ability to pay cash distributions or dividends.
In addition, FERC has a tax allowance policy, which permits such companies to include in their cost of service an income tax allowance
to the extent that their owners have an actual or potential tax liability on the income generated by them.
The ability of interstate pipelines
held in tax-pass-through entities such as MLPs to include an allowance for income taxes as a cost-of-service element in their regulated
rates has been subject to extensive litigation before the FERC and the courts for a number of years. It has been FERC’s policy
to permit pipelines to include in cost-of-service a tax allowance to reflect actual or potential income tax liability on their
public utility income attributable to all partnership or limited liability company interests, if the ultimate owner of the interest
has an actual or potential income tax liability on such income. Whether a pipeline’s owners have such actual or potential
income tax liability has been reviewed by the FERC on a case-by-case basis.
In March 2018, FERC issued
a revised policy statement on treatment of income taxes, which announced that it will no longer allow MLPs to recover income tax
allowances from their expense calculations. The revised policy statement only applies to MLPs with regulated cost-of-service tariffs,
but FERC indicated that it will address income tax allowances for non-MLP partnerships in subsequent proceedings. As a result,
FERC-regulated cost-of-service pipelines may need to adjust their prices downwards to prevent over-earning their “just and
reasonable” return on equity. This may adversely impact the maximum tariff rates that such companies are permitted to charge
for their transportation services, which would in turn adversely affect such companies’ financial condition and ability to
pay distributions or dividends to their equity holders. Natural gas pipelines have been directed to review their rates by the end
of 2018, while oil pipelines will face a review of their pricing in 2020. The revised policy statement is subject to rehearing
at FERC and will likely be the subject of subsequent appellate court review.
Further, intrastate pipelines
are subject to regulation in many states, which, while less comprehensive than FERC regulation, makes intrastate pipeline tariffs
subject to protest and complaint and may adversely affect such intrastate pipelines’ financial condition, cash flows and
ability to pay distributions or dividends.
Financing
Risk. From time to time, infrastructure companies may encounter difficulties in obtaining financing for construction
programs during inflationary periods. Issuers experiencing difficulties in financing construction programs may also experience
lower profitability, which can result in reduced income to the Fund.
Other factors that may affect
the operations of infrastructure companies include difficulty in raising capital in adequate amounts on reasonable terms in periods
of high inflation and unsettled capital markets, inexperience with and potential losses resulting from a developing deregulatory
environment, increased susceptibility to terrorist acts or political actions, and general changes in market sentiment towards infrastructure
assets.
Natural
Resources Risk. The Fund’s investments in Natural Resources Securities involve risks. The market value of Natural
Resources Securities may be affected by numerous factors, including events occurring in nature, inflationary pressures and international
politics. Because the Fund invests significantly in Natural Resources Securities, there is the risk that the Fund will perform
poorly during a downturn in the natural resource sector. For example, events occurring in nature (such as earthquakes or fires
in prime natural resource areas) and political events (such as coups, military confrontations or acts of terrorism) can affect
the overall supply of a natural resource and the value of companies involved in such natural resource. Political risks and the
other risks to which foreign securities are subject may also affect domestic natural resource companies if they have significant
operations or investments in foreign countries. Rising interest rates and general economic conditions may also affect the demand
for natural resources.
Sector
Focus Risk. To the extent the Fund emphasizes, from time to time, investments in a market segment, the Fund will be
subject to a greater degree to the risks particular to that segment, and may experience greater market fluctuation than a fund
without the same focus. For example, industries in the financial segment, such as banks, insurance companies, broker-dealers and
REITs, may be sensitive to changes in interest rates and general economic activity and are generally subject to extensive government
regulation.
Industries in the materials segment, such
as chemicals, construction materials, containers and packaging, metals and mining and paper and forest products, may be significantly
affected by the level and volatility of commodity prices, currency rates, import controls and other regulations, labor relations,
global competition and resource depletion.
Industries in the industrials segment,
such as companies engaged in the production, distribution or service of products or equipment for manufacturing, agriculture, forestry,
mining and construction, can be significantly affected by general economic trends, including such factors as employment and economic
growth, interest rate changes, changes in consumer spending, legislative and governmental regulation and spending, import controls,
commodity prices, and worldwide competition.
Industries in the energy segment, such
as those engaged in the development, production and distribution of energy resources, can be significantly affected by supply and
demand both for their specific product or service and for energy products in general. The price of oil, gas and other consumable
fuels, exploration and production spending, government regulation, world events and economic conditions likewise will affect the
performance of companies in these industries. Recently, the energy sector has experienced significant volatility as a result of
fluctuations in the price of oil and such volatility may continue in the future. To the extent the Fund invests in companies in
the oil sector, it may be subject to greater volatility than funds that do not invest in the oil sector.
Government
Intervention in Financial Markets Risk. Global economies and financial markets are increasingly interconnected, which
increases the possibility that conditions in one country or region may adversely affect companies in a different country or region.
In the past, instability in the financial markets has led governments and regulators around the world to take a number of unprecedented
actions designed to support certain financial institutions and segments of the financial markets that have experienced extreme
volatility, and in some cases a lack of liquidity. Governments, their regulatory agencies, or self-regulatory organizations may
take actions that affect the regulation of the instruments in which the Fund invests, or the issuers of such instruments, in ways
that are unforeseeable. Legislation or regulation may also change the way in which the Fund itself is regulated. Such legislation
or regulation could limit or preclude the Fund’s ability to achieve its investment objective.
The U.S. presidential election occurred
on November 3, 2020. Commencing January 2021, the Democratic Party is expected to control the executive branch of government.
Control of the legislative branch of government is uncertain and may remain uncertain for several weeks. Changes in federal policy,
including tax policies, and at regulatory agencies occur over time through policy and personnel changes following elections, which
lead to changes involving the level of oversight and focus on the financial services industry or the tax rates paid by corporate
entities. The nature, timing and economic and political effects of potential changes to the current legal and regulatory framework
affecting markets remain highly uncertain. Uncertainty surrounding future changes may adversely affect the Fund’s operating
environment and therefore its investment performance.
The global pandemic outbreak of an infectious
respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has now
been detected globally. On March 11, 2020, the World Health Organization announced that it had made the assessment that COVID-19
can be characterized as a pandemic. COVID-19 and concern about its spread has resulted in severe disruptions to global financial
markets, border closings, restrictions on travel and gatherings of any measurable amount of people, “shelter in place”
orders (or the equivalent) for states, cities, metropolitan areas and countries, expedited and enhanced health screenings, quarantines,
cancellations, business and school closings, disruptions to employment and supply chains, reduced productivity, severely impacted
customer and client activity in virtually all markets and sectors, and a virtual cessation of normal economic activity. These events
have contributed to severe market volatility, which may result in reduced liquidity, heightened volatility and negatively impact
Fund performance and the value of your investment in the Fund.
Temporary
Defensive Strategies Risk. From time to time, the Fund may temporarily depart from its principal investment strategies
as a defensive measure when the Adviser anticipates unusual market or other conditions. When a temporary defensive posture is believed
by the Adviser to be warranted (“temporary defensive periods”), the Fund may without limitation hold cash or invest
its Managed Assets in money market instruments and repurchase agreements in respect of those instruments. The money market instruments
in which the Fund may invest are obligations of the U.S. government, its agencies or instrumentalities; commercial paper rated
A-1 or higher by S&P or Prime-1 by Moody’s; and certificates of deposit and bankers’ acceptances issued by domestic
branches of U.S. banks that are members of the Federal Deposit Insurance Corporation. During temporary defensive periods, the Fund
may also invest to the extent permitted by applicable law in shares of money market mutual funds. Money market mutual funds are
investment companies and the investments in those companies by the Fund are in some cases subject to applicable law. See “Investment
Restrictions” in the SAI. To the extent that the Fund invests defensively, it may not achieve its investment objective.
Risks
Associated with Covered Calls and Other Option Transactions. There are several risks associated with transactions in
options on securities. For example, there are significant differences between the securities and options markets that could result
in an imperfect correlation between these markets, causing a given covered call option transaction not to achieve its objectives.
A decision as to whether, when and how to use covered calls (or other options) involves the exercise of skill and judgment, and
even a well-conceived transaction may be unsuccessful because of market behavior or unexpected events. The use of options may require
the Fund to sell portfolio securities at inopportune times or for prices other than current market values, may limit the amount
of appreciation the Fund can realize on an investment, or may cause the Fund to hold a security it might otherwise sell. As the
writer of a covered call option, the Fund forgoes, during the option’s life, the opportunity to profit from increases in
the market value of the security covering the call option above the exercise price of the call option, but has retained the risk
of loss should the price of the underlying security decline. Although such loss would be offset in part by the option premium received,
in a situation in which the price of a particular stock on which the Fund has written a covered call option declines rapidly and
materially or in which prices in general on all or a substantial portion of the stocks on which the Fund has written covered call
options decline rapidly and materially, the Fund could sustain material depreciation or loss in its net assets to the extent it
does not sell the underlying securities (which may require it to terminate, offset or otherwise cover its option position as well).
The writer of an option has no control over the time when it may be required to fulfill its obligation as a writer of the option.
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 the underlying security at the exercise price.
There can be no assurance that a liquid
market will exist when the Fund seeks to close out an option position. Reasons for the absence of a liquid secondary market for
exchange-traded options include the following: (i) there may be insufficient trading interest; (ii) restrictions may
be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of options; (iv) unusual or unforeseen circumstances
may interrupt normal operations on an exchange; (v) the trading facilities of an exchange or the OCC may not be adequate to
handle current trading volume; or (vi) the relevant exchange could, for economic or other reasons, decide or be compelled
at some future date to discontinue the trading of options (or a particular class or series of options). If trading were discontinued,
the secondary market on that exchange (or in that class or series of options) would cease to exist.
However, outstanding options on that exchange
that had been issued by the OCC as a result of trades on that exchange would continue to be exercisable in accordance with their
terms. The Fund’s ability to terminate over-the-counter options may be more limited than with exchange-traded options and
may involve the risk that counterparties participating in such transactions will not fulfill their obligations. If the Fund were
unable to close out a covered call option that it had written on a security, it would not be able to sell the underlying security
unless the option expired without exercise.
The hours of trading for options 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. Call options are marked to market daily and their value will be affected by changes in the
value of and dividend rates of the underlying common stocks, an increase in interest rates, changes in the actual or perceived
volatility of the stock market and the underlying common stocks and the remaining time to the options’ expiration. Additionally,
the exercise price of an option may be adjusted downward before the option’s expiration as a result of the occurrence of
certain corporate events affecting the underlying equity security, such as extraordinary dividends, stock splits, merger or other
extraordinary distributions or events. A reduction in the exercise price of an option would reduce the Fund’s capital appreciation
potential on the underlying security.
Management of the Fund
General
The business and affairs of the Fund are
managed under the direction of the Board of Directors. The Board of Directors approves all significant agreements between the Fund
and the companies that furnish the Fund with services, including, but not limited to, agreements with the Investment Adviser, the
Fund’s Custodian, the Fund’s Administrator, and the Fund’s Transfer Agent. The day-to-day operations of the Fund
are delegated to the Investment Adviser, subject to the supervision of the Board of Directors.
The Investment Adviser
Brookfield Public Securities Group LLC
(the “Investment Adviser”), a Delaware limited liability company and a registered investment adviser under the Investment
Advisers Act of 1940, as amended, serves as the investment adviser and administrator to the Fund. Founded in 1989, the Adviser
is a wholly owned subsidiary of Brookfield Asset Management Inc. (TSX/NYSE: BAM; EURONEXT: BAMA), a leading global alternative
asset manager focused on real estate, renewable power, infrastructure and private equity, with assets under management approximately
$575 billion as of September 30, 2020. In addition to Brookfield Investment Funds (the “Trust”), the Adviser’s
clients include financial institutions, public and private pension plans, insurance companies, endowments and foundations, sovereign
wealth funds and high net-worth investors. The Adviser specializes in global listed real assets strategies and its investment philosophy
incorporates a value-based approach towards investment. The Adviser also provides advisory services to several other registered
investment companies. As September 30, 2020, the Adviser had over $15 billion in assets under management. The Adviser’s
principal offices are located at Brookfield Place, 250 Vesey Street, New York, New York 10281-1023.
As compensation for its services and the
related expenses borne by the Investment Adviser, the Fund pays the Investment Adviser a fee, computed daily and payable monthly,
equal, on an annual basis, to 1.00% of the Fund’s average daily total Managed Assets. This advisory fee shall be payable
monthly as soon as practicable after the last day of each month based on the average daily values placed on the Managed Assets
of the Fund as determined at the close of business on each day throughout the month.
A discussion regarding the basis for the
approval of the Investment Advisory Agreement by the Board of Directors is available in the Fund’s semi-annual report to
shareholders for the period ended June 30, 2020.
The Advisory and Sub-Advisory Agreements
Pursuant to the Investment Advisory Agreement,
the Investment Adviser furnishes a continuous investment program for the Fund, makes the day-to-day investment decisions for the
Fund, arranges the portfolio transactions of the Fund, and generally manages the Fund’s investments in accordance with the
stated policies of the Fund, subject to the general supervision of the Board of Directors. Pursuant to the Investment Advisory
Agreement, the Investment Adviser may delegate any or all of its responsibilities to one or more investment sub-advisers, which
may be affiliates of the Investment Adviser, subject to the approval of the Board of Directors and shareholders of the Fund.
For services rendered by the Investment
Adviser on behalf of the Fund under the Investment Advisory Agreement, the Fund pays the Investment Adviser a fee computed daily
and paid monthly, equal on an annual basis to 1.00% of the Fund’s average daily total Managed Assets. The fee paid by the
Fund may be higher when leverage is utilized, giving the Investment Adviser an incentive to utilize leverage.
The Advisory Agreement provides that in
the absence of willful misfeasance, bad faith, gross negligence, or reckless disregard of their respective obligations and duties
thereunder, the Investment Adviser is not liable for any error or judgment or mistake of law or for any loss suffered by the Fund.
In accordance with the terms of the Advisory
Agreement, the Advisory Agreement will continue in effect for successive annual periods so long as such continuance is specifically
approved at least annually: (i) by the Fund’s Board of Directors or by the holders of a majority of the Fund’s
outstanding voting securities and (ii) by a majority of the Directors who are not “interested persons” (as defined
in the 1940 Act) of any party to the Investment Advisory Agreement, by vote cast in person at a meeting called for the purpose
of voting on such approval.
The Adviser has entered into a Sub-Advisory
Agreement with Schroder Investment Management North America Inc. (the “Sub-Adviser”). The Sub-Adviser is responsible
for the management of the Securitized Credit investments. The Adviser is responsible for any fees due to the Sub-Adviser.
Advisory Fees Earned by the Investment
Adviser
For the Fiscal Year Ended: ​
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December 31, 2019
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$
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[●]
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December 31,
2018
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$
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[●]
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December 31,
2017
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$
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[●]
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See “Management of the Fund”
in the SAI for further information about the Fund’s investment advisory arrangements.
Portfolio Management
Larry
Antonatos — Managing Director and Portfolio Manager. Mr. Antonatos has 28 years of industry experience and
is a Portfolio Manager for PSG’s Real Asset Solutions team. In this role he oversees the portfolio construction process,
including execution of asset allocation. Larry joined Brookfield in 2011 as Product Manager for the firm’s equity investment
strategies. Prior to joining Brookfield, he was a portfolio manager for a U.S. REIT strategy for 10 years. He also has investment
experience with direct property, CMBS, and mortgage loans. Larry earned a Master of Business Administration degree from the Wharton
School of the University of Pennsylvania and a Bachelor of Engineering degree from Vanderbilt University.
Chris
Janus — Director and Portfolio Manager. Chris Janus has 13 years of industry experience and is a Director on Brookfield’s
Corporate Credit team. He is responsible for covering Real Estate via corporate bonds, bank loans and CMBS (Commercial Mortgage
Backed Securities). Previously, he was a Director on Brookfield’s Structured Products team focused on CMBS, CRE CLOs (Commercial
Real Estate Collateralized Loan Obligations) and direct lending. Prior to joining the firm in 2009, Chris began his career at SunTrust
Robinson Humphrey within the Real Estate Investment Banking group. Chris earned a Bachelor of Science degree in Mechanical Engineering
from Miami University.
Gaal
Surugeon, CFA — Director and Portfolio Manager. Gaal Surugeon has 11 years of industry experience and is
a Director for Brookfield’s Real Asset Solutions team. He is responsible for portfolio construction and asset allocation
for the firm’s diversified real asset portfolios. Prior to joining the firm in 2019, Gaal was an Executive Director at Oppenheimer
Asset Management where he served as manager of the firm’s multi-asset portfolios and director of asset allocation and research.
Prior to that, he was an Associate Economist at Decision Economics, Inc. Gaal holds the Chartered Financial Analyst®
designation and is a member of the CFA Society Chicago. He earned a Bachelor of Arts in Economics from the University of Michigan
– Ann Arbor.
Dana
Erikson, CFA — Managing Director and Portfolio Manager. Mr. Erikson has 31 years of industry experience
and is a Portfolio Manager and Head of the Public Securities Group’s Global Credit team. He oversees and contributes to the
portfolio construction process, including execution of buy/sell decisions. Prior to joining the firm in 2006, he was with Evergreen
Investments or one of its predecessor firms since 1996 where he held a number of positions, including Senior Portfolio Manager,
Head of the High Yield team and Head of High Yield Research. Dana holds the Chartered Financial Analyst® designation
and is a member of the CFA Society Boston, Inc. He earned a Master of Business Administration degree, with honors, from Northeastern
University and a Bachelor of Arts degree in Economics from Brown University.
Dan
Parker, CFA — Director and Portfolio Manager. Mr. Parker
has over 20 years of industry experience and is a Portfolio Manager and Director on the Public Securities Group’s Global
Credit team. In addition, Mr. Parker supports the Global Infrastructure Equities team with a focus on utilities. Prior to
joining the firm in 2006, Mr. Parker spent four years at Standard & Poor’s where he covered the utilities and
natural resources sectors. He started his career in international trade finance as a credit analyst at Canada’s Export Credit
Agency, EDC. Mr. Parker holds the Chartered Financial Analyst® designation and is a member of the CFA
Society Chicago, Inc. He earned an Honours Bachelor of Commerce degree from Lakehead University.
The SAI provides additional information
about the Portfolio Managers’ compensation, other accounts managed by the Portfolio Managers, and the Portfolio Managers’
ownership of securities of the Fund.
Administrator
Pursuant to an administration agreement
(the “Administration Agreement”), the Investment Adviser also performs various administrative services to the Fund,
including, among other responsibilities, the preparation and coordination of reports and other materials to be supplied to the
Board of Directors; prepare and/or supervise the preparation and filing with the applicable regulatory authority of all securities
filings, periodic financial reports, prospectuses, statements of additional information, marketing materials, tax returns, shareholder
reports and other regulatory reports and filings required of the Fund; supervise and monitor the preparation of all required filings
necessary to maintain the Fund’s qualification and/or registration to sell shares in all states where the Fund currently
does, or intends to do business; coordinate the preparation, printing and mailing of all materials required to be sent to shareholders;
coordinate the preparation and payment of Fund-related expenses; monitor and oversee the activities of the Fund’s other service
providers; review and adjust as necessary the Fund’s daily expense accruals; monitor daily, monthly and periodic compliance
with respect to the federal and state securities laws; and send periodic information (i.e., performance figures) to service
organizations that track investment company information.
For its services under the Administration
Agreement, the Investment Adviser receives from the Fund an annual fee equal to .15% of its average daily Managed Assets, payable
monthly by the fifth day of the next month.
Administration Fees earned by the Investment
Adviser
For the Fiscal Year Ended:
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​
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​
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​
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​
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December 31, 2019
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$
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[●]
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December 31,
2018
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$
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[●]
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December 31,
2017
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$
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[●]
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Sub-Administrator
Pursuant to a sub-administration agreement
(the “Sub-Administration Agreement”), U.S. Bancorp Fund Services, LLC, (“USBFS” or the “Sub-Administrator”),
1201 South Alma School Road, Suite 3000, Mesa, Arizona 85210, acts as the Sub-Administrator to the Fund. USBFS provides certain
services to the Fund including, among other responsibilities, coordinating the negotiation of contracts and fees with, and the
monitoring of performance and billing of, the Fund’s independent contractors and agents; preparation for signature by an
officer of the Fund of all documents required to be filed for compliance by the Fund with applicable laws and regulations, excluding
those of the securities laws of various states; arranging for the computation of performance data, including NAV per share and
yield; responding to shareholder inquiries; and arranging for the maintenance of books and records of the Fund, and providing,
at its own expense, office facilities, equipment and personnel necessary to carry out its duties. In this capacity, USBFS does
not have any responsibility or authority for the management of the Fund, the determination of investment policy, or for any matter
pertaining to the distribution of Fund shares.
Pursuant to the Sub-Administration Agreement,
as compensation for its services, USBFS receives from the Investment Adviser, as administrator to the Fund, a fee based on the
Fund’s current average daily net assets of: .07% on the first $100 million, .05% on the next $200 million and .03% on the
remaining assets, with a minimum annual fee of $45,000. USBFS also is entitled to certain out-of-pocket expenses.
Payment of Expenses
The Investment Adviser is obligated to
pay expenses associated with providing the services contemplated by the Investment Advisory Agreement including compensation of
and office space for its officers and employees connected with investment and economic research, trading and investment management
and compensation payable to the Sub-Administrator, pursuant to the Administration Agreement, as well as the fees of all Directors
of the Fund who are officers or employees of the Investment Adviser or its affiliates.
In addition to the fees of the Investment
Adviser, the Fund is responsible for the payment of all its other expenses incurred in the operation of the Fund, which include,
among other things, organizational expenses, expenses for legal and the Fund’s independent registered public accounting firm’s
services, stock exchange listing fees, costs of printing proxies, shareholder reports, charges of the Fund’s custodian, charges
of the Fund’s fund accountant, charges of the transfer agent and dividend disbursing agent, SEC fees, expenses of directors’
and shareholders’ meetings, fees and expenses of Directors who are not officers or employees of the Investment Adviser or
its affiliates, accounting and printing costs, the Fund’s pro rata portion of the Chief Compliance Officer’s
compensation (if approved by the Board of Directors), fidelity bond coverage for the Fund’s officers and employees, Directors
and officers liability policy, interest, brokerage costs, taxes, expenses of qualifying the Fund for sale in various states, expenses
of personnel performing shareholder servicing functions, litigation and other extraordinary or non-recurring expenses and other
expenses properly payable by the Fund.
Distributions and Dividends
The Fund intends to distribute to common
shareholders all or a portion of its net investment income monthly and net realized capital gains, if any, at least annually. Under
normal market conditions, the Fund intends to distribute substantially all of its distributable cash flows, less Fund expenses,
to shareholders monthly. The Fund intends to pay common shareholders annually all, or at least 90%, of its investment company taxable
income. Various factors will affect the level of the Fund’s investment company taxable income, such as its asset mix. Distributions
may be paid to the holders of the Fund’s common shares if, as and when authorized by the Board of Directors and declared
by the Fund out of assets legally available therefor. To permit the Fund to maintain more stable monthly distributions, it may
from time to time distribute less than the entire amount of income earned in a particular period, with the undistributed amount
being available to supplement future distributions. As a result, the distributions paid by the Fund for any particular monthly
period may be more or less than the amount of income actually earned during that period. Because the Fund’s income will fluctuate
and the Fund’s distribution policy may be changed by the Board of Directors at any time, there can be no assurance that the
Fund will pay distributions or dividends. Distributions are subject to re-characterization for federal income tax purposes after
the end of the fiscal year.
In the event that the total distributions
on the Fund’s shares exceed the Fund’s current and accumulated earnings and profits allocable to such shares, the excess
distributions will generally be treated as a tax free return of capital (to the extent of the shareholder’s tax basis in
the shares). A return of capital is a return to investors of a portion of their original investment in the Fund rather than income
or capital gain. Shareholders should not assume that the source of a distribution from the Fund is net profit or income. Distributions
sourced from paid-in capital should not be considered the current yield or the total return from an investment in the Fund. The
amount treated as a tax free return of capital will reduce a shareholder’s adjusted tax basis in the common shares, thereby
increasing the shareholder’s potential taxable gain or reducing the potential loss on the sale of the shares.
Distributions paid by the Fund will be
reinvested in additional shares of the Fund, unless a shareholder elects to receive all distributions in cash.
On September 30, 2015, the SEC granted
Brookfield, on behalf of itself and certain funds that it currently manages and funds it advises in the future, an order granting
an exemption from Section 19(b) of and Rule 19b-1 under the 1940 Act to conditionally permit the Fund to make periodic
distributions of long-term capital gains with respect to the Fund’s outstanding common shares as frequently as twelve times
each year, so long as it complies with the conditions of the order and maintains in effect a distribution policy with respect to
its common shares calling for periodic distributions of an amount equal to a fixed amount per share, a fixed percentage of market
price per share or a fixed percentage of the Fund’s net asset value per share (a “Managed Dividend Policy”).
In connection with any implementation of a Managed Dividend Policy pursuant to the order, the Fund would be required to:
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implement certain compliance review and reporting procedures with respect to the Managed Dividend
Policy;
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•
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include in each notice to shareholders that accompanies distributions certain information in addition
to the information currently required by Section 19(a) of and Rule 19a-1 under the 1940 Act (“19(a) Notice”);
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•
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include certain disclosure regarding the Managed Dividend Policy on the inside front cover of each
annual and semi-annual report to shareholders;
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•
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provide the Fund’s total return in relation to changes in NAV in the financial highlights
table and in any discussion about the Fund’s total return in each prospectus and annual and semi-annual report to shareholders;
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•
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include the information contained in each 19(a) Notice in any communication (other than a
communication on Form 1099) about the Managed Dividend Policy or distributions under the Managed Dividend Policy by the Fund,
or agents that the Fund has authorized to make such communication on the Fund’s behalf, to any Fund common shareholders,
prospective common shareholder or third-party information provider;
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issue, contemporaneously with the issuance of any 19(a) Notice, a press release containing
the information in the 19(a) Notice and will file with the SEC the information contained in such 19(a) Notice and other
required disclosures, as an exhibit to its next report to shareholders;
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post prominently a statement on its website containing the information in each 19(a) Notice
and other required disclosures, and will maintain such information on the website for at least 24 months; and
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take certain steps to ensure the delivery of the 19(a) Notice to beneficial owners whose Fund
shares are held through a financial intermediary.
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In addition, if the Fund’s common
shares were to trade at a significant premium to NAV following the implementation of a Managed Dividend Policy, and certain other
circumstances were present, the Fund’s Board of Directors would be required to determine whether to approve or disapprove
the continuation, or continuation after amendment, of the Managed Dividend Policy. Finally, if the Fund implemented a Managed Dividend
Policy pursuant to the order, it would not be permitted to make a public offering of common shares other than:
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a rights offering below NAV to holders of the Fund’s common shares;
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an offering in connection with a dividend reinvestment plan, merger, consolidation, acquisition,
spin-off or reorganization of the Fund; or
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an offering other than those described above, unless, with respect to such other offering:
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the Fund’s average annual distribution rate for the six months ending on the last day of
the month ended immediately prior to the most recent distribution record date, expressed as a percentage of NAV per share as of
such date, is no more than one percentage point greater than the Fund’s average annual total return for the five-year period
(or the period since the Fund’s first public offering, if less than five years) ending on such date; and
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the transmittal letter accompanying any registration statement filed with the SEC in connection
with such offering discloses that the Fund has received an order under Section 19(b) of the 1940 Act to permit it to
make periodic distributions of long-term capital gains with respect to its common shares as frequently as twelve times each year,
and as frequently as distributions are specified in accordance with the terms of any outstanding preferred shares that such fund
may issue.
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The relief described above will expire
on the effective date of any amendment to Rule 19b-1 under the 1940 Act that provides relief permitting certain closed-end
investment companies to make periodic distributions of long-term capital gains with respect to their outstanding common shares
as frequently as twelve times each year.
Under a Managed Dividend Policy, if, for
any distribution, undistributed net investment income and net realized capital gains were less than the amount of the distribution,
the difference would be distributed from the Fund’s other assets. In addition, in order to make such distributions, the Fund
might have to sell a portion of its investment portfolio at a time when independent investment judgment might not dictate such
action.
Dividend Reinvestment Plan
The Fund has adopted a Dividend Reinvestment
Plan (the “Plan”) that provides that unless you elect to receive your distributions in cash, they will be automatically
reinvested by the Plan Administrator, USBFS, in additional common shares. If you elect to receive distributions in cash, you will
receive them paid by check mailed directly to you by the Plan Administrator.
No action is required on the part of a
shareholder to have their cash distribution reinvested in shares of the common shares. Unless you or your brokerage firm decides
to opt out of the Plan, the number of common shares you will receive will be determined as follows:
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(1)
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The number of shares to be issued to a shareholder shall be based on share price equal to 95% of
the closing price of the common shares one day prior to the distribution payment date.
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(2)
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The Board of Directors may, in its sole discretion, instruct the Fund to purchase common shares
in the open market in connection with the implementation of the Plan as follows: if the common shares are trading below NAV at
the time of valuation, upon notice from the Fund, the Plan Administrator will receive the distribution in cash and will purchase
common shares in the open market, on the NYSE or elsewhere, for the participants’ accounts, except that the Plan Administrator
will endeavor to terminate purchases in the open market and cause the Fund to issue the remaining shares if, following the commencement
of the purchases, the market value of the shares, including brokerage commissions, exceeds the NAV at the time of valuation. Provided
the Plan Administrator can terminate purchases on the open market, the remaining shares will be issued by the Fund at a price equal
to the greater of (i) the NAV at the time of valuation or (ii) 95% of the then-current market price. It is possible that
the average purchase price per share paid by the Plan Administrator may exceed the market price at the time of valuation, resulting
in the purchase of fewer shares than if the distribution had been paid entirely in common shares issued by the Fund.
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You may withdraw from the Plan at any time
by giving written notice to the Plan Administrator, or by telephone in accordance with such reasonable requirements as the Fund
and the Plan Administrator may agree upon. Such withdrawal will be effective the next business day. If you withdraw or the Plan
is terminated, the Plan Administrator will sell your shares and send you the proceeds, minus brokerage commissions.
The Plan Administrator maintains all common
shareholders’ accounts in the Plan and gives written confirmation of all transactions in the accounts, including information
you may need for tax records. Common shares in your account will be held by the Plan Administrator in non-certificated form. The
Plan Administrator, or the Fund’s appointed agent, will forward to each participant any proxy solicitation material and will
vote any shares so held only in accordance with proxies returned to the Fund. Any proxy you receive will include all common shares
you have received under the Plan.
There is no brokerage charge for reinvestment
of your distributions in common shares. However, all participants will pay a pro rata share of brokerage commissions incurred
by the Plan Administrator when it makes open market purchases.
Automatically reinvesting distributions
does not avoid a taxable event or the requirement to pay income taxes due upon receiving distributions, even though you have not
received any cash with which to pay the resulting tax. See “Taxation.”
If you hold common shares with a brokerage
firm that does not participate in the Plan, you will not be able to participate in the Plan and any distribution reinvestment may
be effected on different terms than those described above. Consult your financial advisor for more information.
The Plan Administrator’s fees under
the Plan will be borne by the Fund. There is no direct service charge to participants in the Plan; however, the Fund reserves the
right to amend or terminate the Plan, including amending the Plan to include a service charge payable by the participants, if in
the judgment of the Board of Directors the change is warranted. Any amendment to the Plan, except amendments necessary or appropriate
to comply with applicable law or the rules and policies of the SEC or any other regulatory authority, require the Fund to
provide at least 30 days written notice to each participant. Additional information about the Plan may be obtained from U.S. Bancorp
Fund Services, LLC at 615 East Michigan Street, Milwaukee, Wisconsin 53202.
Description of Capital Structure
The following description is based on
relevant portions of the Maryland General Corporation Law and on the Fund’s charter and Bylaws. This summary is not necessarily
complete, and you should refer to the Maryland General Corporation Law and the charter and Bylaws for a more detailed description
of the provisions summarized below.
Stock
The Fund’s authorized stock consists
of 1,000,000,000 shares of stock, par value $.001 per share, all of which are initially classified as common shares. Of that amount,
[●] are outstanding as of [●]. The common shares are listed on the NYSE under the symbol “RA.” Under Maryland
law, the Fund’s shareholders generally are not personally liable for the Fund’s debts or obligations.
Under the Fund’s charter, the Board
of Directors is authorized to classify and reclassify any unissued shares of stock into other classes or series of stock and authorize
the issuance of shares of stock without obtaining shareholder approval. As permitted by the Maryland General Corporation Law, the
Fund’s charter provides that the Board of Directors, without any action by the shareholders, may amend the charter from time
to time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series
that the Fund has authority to issue.
Common Shares
All common shares have equal voting rights
and equal rights as to earnings, assets and dividends and, when they are issued, will be duly authorized, validly issued, fully
paid and nonassessable. Dividends may be paid to the holders of the common shares if, as and when authorized by the Board of Directors
and declared by the Fund out of funds legally available therefor. Common shares have no preemptive, appraisal, exchange, conversion
or redemption rights and are freely transferable, except where their transfer is restricted by federal and state securities laws
or by contract. In the event of the Fund’s liquidation, dissolution or winding up, each common share would be entitled to
share ratably in all of the Fund’s assets that are legally available for distribution after the Fund pays all debts and other
liabilities and subject to any preferential rights of holders of the Fund’s preferred shares, if any preferred shares are
outstanding at such time. Except as provided with respect to any other class or series of stock, each common share is entitled
to one vote on all matters submitted to a vote of shareholders, including the election of Directors and the holders of the common
shares will possess exclusive voting power. There is no cumulative voting in the election of Directors, which means that holders
of a majority of the outstanding common shares can elect all of the Fund’s Directors, and holders of less than a majority
of such shares will be unable to elect any Director.
Any additional offering of common shares
will be subject to the requirements of the 1940 Act, which provides that common shares may not be issued at a price below the then
current NAV, except in connection with an offering to existing common shareholders or with the consent of a majority of the Fund’s
outstanding voting securities.
The Fund’s NAV per share will be
reduced immediately following the offering of common shares by the amount of offering expenses paid by the Fund. See “Use
of Proceeds.” Unlike open-end funds, closed-end funds like the Fund do not continuously offer shares and do not provide daily
redemptions. Rather, if a shareholder determines to buy additional common shares or sell shares already held, the shareholder may
do so by trading through a broker on the NYSE or otherwise.
Shares of closed-end investment companies
often trade on an exchange at prices lower than NAV. Because the market value of the common shares may be influenced by such factors
as dividend distribution levels (which are in turn affected by expenses), dividend and distribution stability, NAV, market liquidity,
relative demand for and supply of such shares in the market, unrealized gains, general market and economic conditions and other
factors beyond the control of the Fund, the Fund cannot assure you that common shares will trade at a price equal to or higher
than NAV in the future. Common shares of the Fund are designed primarily for long-term investors and you should not purchase the
common shares if you intend to sell them soon after purchase.
Preferred Shares
The Fund’s governing documents provide
that the Board of Directors may authorize and issue preferred shares with rights as determined by the Board of Directors, by action
of the Board of Directors without prior approval of the holders of the common shares. Holders of common shares have no preemptive
right to purchase any preferred shares that might be issued. Although the Fund has no present intention to issue preferred shares,
it may in the future utilize preferred shares to the maximum extent permitted by the 1940 Act. Under the 1940 Act, the Fund may
not issue preferred shares if, immediately after issuance, the Fund would have asset coverage (as defined in the 1940 Act) of less
than 200% (i.e., for every dollar of preferred shares outstanding, the Fund is required to have at least two dollars of
assets). In addition, the Fund is not permitted to declare any dividend (except a dividend payable in common shares), or to declare
any other distribution on its common shares, or to purchase any common shares, unless the preferred shares have at the time of
the declaration of any such dividend or other distribution, or at the time of any such purchase of common shares, an asset coverage
of at least 200% after deducting the amount of such dividend, distribution or purchase price. If preferred shares are issued, the
Fund intends, to the extent possible, to purchase or redeem preferred shares from time to time to the extent necessary to maintain
asset coverage of any preferred shares of at least 200%. Any preferred shares issued by the Fund would have special voting rights
and a liquidation preference over the common shares. Issuance of preferred shares would constitute financial leverage and would
entail special risks to common shareholders.
If preferred shares are outstanding, two
of the Fund’s Directors will be elected by the holders of preferred shares, voting separately as a class. The remaining Directors
of the Fund will be elected by common shareholders and preferred shares voting together as a single class. In the unlikely event
the Fund failed to pay dividends on preferred shares for two years, preferred shares would be entitled to elect a majority of the
Directors of the Fund.
The Fund may be subject to certain restrictions
imposed by guidelines of one or more rating agencies that may issue ratings for preferred shares issued by the Fund. These guidelines
may impose asset coverage or portfolio composition requirements that are more stringent than those imposed on the Fund by the 1940
Act.
Leverage
The Fund may issue preferred shares or
debt securities, or to borrow to increase its assets available for investment. The Fund, however, does not have any current intention
to issue preferred shares or debt securities. As a non-fundamental policy, the Fund may not issue preferred shares or borrow money
and issue debt securities with an aggregate liquidation preference and aggregate principal amount exceeding 331/3% of
the Fund’s Managed Assets. However, the Board of Directors reserves the right to issue preferred shares or debt securities
or borrow to the extent permitted by the 1940 Act. There can be no assurance that preferred shares representing such percentage,
or any percentage, of the assets of the Fund will actually be issued.
The Fund’s charter authorizes the
Board of Directors to classify and reclassify any unissued shares of stock into other classes or series of stock, including preferred
shares, without the approval of the holders of the common shares. Holders of common shares have no preemptive right to purchase
any preferred shares that might be issued. The Fund may elect to issue preferred shares as part of a leverage strategy.
Prior to issuance of shares of each class
or series, the Board of Directors is required by Maryland law and by the Fund’s charter to set the preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions
of redemption for each class or series. Thus, the Board of Directors could authorize the issuance of preferred shares with terms
and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control that might
involve a premium price for holders of the common shares or otherwise be in their best interests.
As provided in the 1940 Act and subject
to certain exceptions, the Fund intends to issue debt or preferred shares with the condition that immediately after issuance the
value of its total assets, less certain ordinary course liabilities, exceed 300% of the amount of the debt outstanding and exceed
200% of the sum of the amount of debt and preferred shares outstanding. Any such debt or preferred shares may be convertible in
accordance with SEC guidelines, which may permit the Fund to obtain leverage at attractive rates.
The concept of leveraging is based on the
premise that so long as the cost of the leverage on the assets to be obtained by the leverage is lower than the return earned by
the Fund on these leveraged assets, the common shareholders will benefit from the incremental return. Should the differential between
the return produced by the underlying assets and the cost of leverage narrow, the incremental return will be reduced.
Furthermore, if the cost of the leverage
on the leveraged assets exceeds the return earned by the Fund on these leveraged assets, the NAV of the Fund will be diminished.
An issuance of preferred shares may subject
the Fund to certain restrictions on investments imposed by guidelines of one or more rating agencies that may issue ratings for
any preferred shares issued by the Fund.
Liquidation
preference. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Fund, the holders
of preferred shares, if any, will be entitled to receive a preferential liquidating distribution, which is expected to equal the
original purchase price per preferred shares plus accrued and unpaid dividends, whether or not declared, before any distribution
of assets is made to holders of common shares. After payment of the full amount of the liquidating distribution to which they are
entitled, the holders of preferred shares will not be entitled to any further participation in any distribution of assets by the
Fund.
Voting
rights. The 1940 Act requires that the holders of any preferred shares, voting separately as a single class, have the
right to elect at least two Directors at all times. The remaining Directors will be elected by holders of common shares and preferred
shares, voting together as a single class. In addition, subject to the prior rights, if any, of the holders of any other class
of senior securities outstanding, the holders of any preferred shares have the right to elect a majority of the Board of Directors
at any time when dividends on any preferred shares are unpaid for two years. The 1940 Act also requires that, in addition to any
approval by shareholders that might otherwise be required, the approval of the holders of a majority of any outstanding preferred
shares, voting separately as a class, would be required to (1) adopt any plan of reorganization that would adversely affect
the preferred shares, and (2) take any action requiring a vote of security holders under Section 13(a) of the 1940
Act, including, among other things, changes in the Fund’s classification as a closed-end investment company or changes in
its fundamental investment restrictions. As a result of these voting rights, the Fund’s ability to take any such actions
may be impeded to the extent that there are any preferred shares outstanding. The Board of Directors presently intends that, except
as otherwise indicated in this Prospectus and except as otherwise required by applicable law, holders of preferred shares will
have equal voting rights with common shareholders (one vote per share, unless otherwise required by the 1940 Act) and will vote
together with common shareholders as a single class.
The affirmative vote of the holders of
a majority of the outstanding preferred shares, voting as a separate class, will be required to amend, alter or repeal any of the
preferences, rights or powers of holders of preferred shares so as to affect materially and adversely such preferences, rights
or powers. The class vote of holders of preferred shares described above will in each case be in addition to any other vote required
to authorize the action in question.
Distributions.
Holders of any preferred shares will be entitled to receive distributions, when, as and if authorized by the Board and declared
by the Fund, out of funds legally available therefor. The prospectus for any preferred shares will describe the distribution payment
provisions for those shares. Distributions so declared and payable shall be paid to the extent permitted under Maryland law and
to the extent available and in preference to and priority over any distribution declared and payable on the common shares.
A declaration of a dividend or other distribution
of any common or preferred shares of the Fund may be prohibited (i) at any time that an event of default under any borrowings
has occurred and is continuing, (ii) if after giving effect to such declaration, purchase or redemption, the Fund would not
meet the 1940 Act asset coverage requirements or any temporary requirements imposed under an order issued by the SEC or (iii) by
Maryland law in certain instances.
Subscription Rights
The Fund may issue subscription rights
to holders of certain securities. Subscription rights may be issued independently or together with any other offered security and
may or may not be transferable by the person purchasing or receiving the subscription rights. In connection with a subscription
rights offering to holders of certain securities, the Fund would distribute certificates evidencing the subscription rights and
a Prospectus Supplement to our common or preferred shareholders as of the record date that we set for determining the shareholders
eligible to receive subscription rights in such subscription rights offering.
The applicable Prospectus Supplement would
describe the following terms of subscription rights in respect of which this Prospectus is being delivered:
the period of time the offering would remain
open (which will be open a minimum number of days such that all record holders would be eligible to participate in the offering
and will not be open longer than 120 days);
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the exercise price for such subscription rights (or method of calculation thereof);
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the number of such subscription rights issued in respect of each common share;
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the extent to which such subscription rights are transferable and the market on which they may
be traded if they are transferable;
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if applicable, a discussion of the material U.S. federal income tax considerations applicable to
the issuance or exercise of such subscription rights;
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the date on which the right to exercise such subscription rights will commence, and the date on
which such right will expire (subject to any extension);
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the extent to which such subscription rights include an over-subscription privilege with respect
to unsubscribed securities and the terms of such over-subscription privilege;
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any termination right the Fund may have in connection with such subscription rights offering;
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the expected trading market, if any, for subscription rights; and
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any other terms of such subscription rights, including exercise, settlement and other procedures
and limitations relating to the transfer and exercise of such subscription rights.
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Exercise
of Subscription Rights. Each subscription right would entitle the holder of the subscription right to purchase
for cash such number of shares at such exercise price as in each case is set forth in, or be determinable as set forth in the Prospectus
Supplement relating to the subscription rights offered thereby. Subscription rights would be exercisable at any time up to the
close of business on the expiration date for such subscription rights set forth in the Prospectus Supplement. After the close of
business on the expiration date, all unexercised subscription rights would become void.
Upon expiration of the rights offering
and the receipt of payment and the subscription rights certificate properly completed and duly executed at the corporate trust
office of the subscription rights agent or any other office indicated in the Prospectus Supplement, the Fund would issue, as soon
as practicable, the shares purchased as a result of such exercise. To the extent permissible under applicable law, the Fund may
determine to offer any unsubscribed offered securities directly to persons other than shareholders, to or through agents, underwriters
or dealers or through a combination of such methods, as set forth in the applicable Prospectus Supplement.
Certain Provisions of Maryland Law and
of the Fund’s Charter and Bylaws
The following description is based on
relevant portions of the Maryland General Corporation Law and on the Fund’s charter and Bylaws. This summary is not necessarily
complete, and you should refer to the Maryland General Corporation Law and the charter and Bylaws for a more detailed description
of the provisions summarized below.
The Fund’s Charter and Bylaws and
Maryland law include provisions that could have the effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board. This could have the effect of depriving shareholders of an opportunity to
sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control over
the Fund. Such attempts could have the effect of increasing the expenses of the Fund and disrupting the normal operation of the
Fund. These provisions are expected to discourage certain coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of the Fund to negotiate first with the Board. The Fund believes that the benefits of these
provisions outweigh the potential disadvantages of discouraging any such acquisition proposals because the negotiation of such
proposals may improve their terms. The Board of Directors has determined that the following voting requirements, which are generally
greater than the minimum requirements under Maryland law and the 1940 Act, are in the best interests of the Fund and its shareholders
generally. The Fund has not opted-in to the provisions of the Maryland Control Share Acquisition Act.
Classified
board of directors. The Fund’s Board of Directors is divided into three classes of Directors. The current terms
for the first, second and third classes will expire at the Fund’s 2023, 2021 and 2022 annual meeting of shareholders, respectively.
Upon expiration of their current terms, Directors of each class will be elected to serve until the third succeeding annual meeting
of shareholders and until their successors are duly elected and qualify, and each year one class of Directors will be elected by
the shareholders. A classified board may render a change in control of the Fund or the removal of the Fund’s incumbent management
more difficult. The Fund believes, however, that the longer time required to elect a majority of a classified Board of Directors
will help to ensure the continuity and stability of the Fund’s management and policies.
Election
of directors. The Fund’s charter and Bylaws provide that Directors will be elected by the affirmative vote of
a majority of the votes entitled to be cast in the election of Directors. Pursuant to the Fund’s charter, the Board of Directors
may amend the Bylaws from time to time to alter the vote required to elect a Director.
Number
of directors; vacancies; removal. The Fund’s charter provides that the number of Directors will be set only by
the Board of Directors in accordance with the Fund’s Bylaws. The Fund’s Bylaws provide that a majority of the entire
Board of Directors may at any time increase or decrease the number of Directors. However, the number of Directors cannot be less
than the minimum number required by the Maryland General Corporation Law or, unless the Fund’s Bylaws are amended, more than
12.
The Fund has elected, by a provision in
its charter, to be subject to a provision of the Maryland General Corporation Law requiring that, except as may be provided by
the Board of Directors in setting the terms of any class or series of preferred shares, any and all vacancies on the Board of Directors
may be filled only by the affirmative vote of a majority of the Directors remaining in office, even if the remaining Directors
do not constitute a quorum, and any Director elected to fill a vacancy will serve for the remainder of the full term of the directorship
in which the vacancy occurred and until a successor is elected and qualifies, subject to any applicable requirements of the 1940
Act. The Fund’s charter provides that, subject to the rights of holders of one or more classes or series of preferred shares
to elect or remove one or more directors, any director, or the entire Board may be removed only for cause, as defined in the charter,
and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast in the election of Directors.
Action
by shareholders. Under the Maryland General Corporation Law, shareholder action can be taken only at an annual or special
meeting of shareholders or, unless the charter provides for shareholder action by less than unanimous written consent (which is
not the case for the Fund’s charter), by unanimous written consent in lieu of a meeting. These provisions, combined with
the requirements of the Fund’s Bylaws regarding the calling of a shareholder-requested special meeting of shareholders discussed
below, may have the effect of delaying consideration of a shareholder proposal until the next annual meeting of shareholders.
Advance
notice provisions for shareholder nominations and shareholder proposals. The Fund’s Bylaws provide that, with
respect to an annual meeting of shareholders, the nomination of individuals for election as Directors and the proposal of other
business to be considered by the Fund’s shareholders may be made only (1) pursuant to the Fund’s notice of the
meeting, (2) by or at the direction of the Board of Directors or (3) by a shareholder who was a shareholder of record
both at the time the shareholder provides notice in accordance with the Fund’s Bylaws and at the time of the annual meeting,
who is entitled to vote at the meeting in the election of such individuals as Directors or on such other business and who has complied
with the advance notice requirements of, and provided the information required by, the Fund’s Bylaws. With respect to special
meetings of the Fund’s shareholders, only the business specified in the notice of the meeting may be brought before the meeting.
Nominations of individuals for election as Directors at a special meeting of shareholders may be made only (1) by or at the
direction of the Board of Directors or (2) if the special meeting has been called in accordance with the Fund’s Bylaws
for the purpose of electing directors, by any shareholder who is a shareholder of record both at the time the shareholder provides
the notice required by the Fund’s Bylaws at the time of the special meeting, who is entitled to vote at the meeting in the
election of each individual so nominated and who has complied with the advance notice requirements of, and provided the information
required by, the Fund’s Bylaws.
Calling
of special meetings of shareholders. The Fund’s Bylaws provide that special meetings of the Fund’s shareholders
may be called by the Board of Directors, the Chairman of the Board and certain of the Fund’s officers. The Fund’s Bylaws
also provide that, subject to the satisfaction of certain procedural and informational requirements by the shareholders requesting
the meeting, a special meeting of shareholders must be called by the secretary of the Fund upon the written request of shareholders
entitled to cast not less than a majority of all the votes entitled to be cast at such meeting. The Fund’s secretary will
inform the requesting shareholders of the reasonably estimated cost of preparing and mailing the notice of meeting (including the
Fund’s proxy materials), and the requesting shareholders must pay the estimated cost before the secretary may prepare and
mail notice of the special meeting.
Approval
of extraordinary corporate action; amendment of the Fund’s charter and Bylaws. Under Maryland law, a Maryland
corporation generally cannot dissolve, amend its charter, merge, sell all or substantially all of its assets, engage in a share
exchange, convert or engage in similar transactions outside the ordinary course of business, unless advised by its board of directors
and approved by the affirmative vote of shareholders entitled to cast at least two-thirds of the votes entitled to be cast on the
matter. However, a Maryland corporation may provide in its charter for approval of these matters by a lesser percentage, but not
less than a majority of all of the votes entitled to be cast on the matter.
The Fund’s charter generally provides
for approval of charter amendments and extraordinary transactions by the shareholders entitled to cast at least a majority of the
votes entitled to be cast on the matter. However, the Fund’s charter also provides that the following matters require the
approval of shareholders entitled to cast at least 80 percent of the votes entitled to be cast on such matter:
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amendments to the provisions of the Fund’s charter relating to the classification of the
Board of Directors, the power of the Board of Directors to fix the number of directors and to fill vacancies on the Board, the
vote required to elect a Director, the vote related to extraordinary transactions, the removal of a Director, and the vote to amend
those provisions;
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charter amendments that would convert the Fund from a closed-end company to an open-end company
or make the common shares a redeemable security (within the meaning of the 1940 Act);
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the liquidation or dissolution of the Fund or charter amendments to effect the liquidation or dissolution
of the Fund; or
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any merger, consolidation, share exchange or sale or exchange of all or substantially all of the
Fund’s assets that the Maryland General Corporation Law requires be approved by the Fund’s shareholders.
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However, if such amendment, proposal or
transaction is approved by at least two-thirds of the Fund’s continuing directors (in addition to approval by the Board of
Directors), the amendment, proposal or transaction may instead be approved by a majority of the votes entitled to be cast on such
amendment, proposal or transaction. The “continuing directors” are defined in the Fund’s charter as its current
Directors and Directors whose nomination for election by the Fund’s shareholders or whose election by the Directors to fill
a vacancy on the Board is approved by a majority of the continuing directors then serving on the Board of Directors.
The Fund’s charter and Bylaws provide
that the Board of Directors will have the exclusive power to adopt, alter or repeal any provision of the Fund’s Bylaws and
to make new Bylaws.
Closed-End Fund Structure
The Fund is a diversified, closed-end management
investment company (commonly referred to as a closed-end fund). Closed-end funds differ from open-end funds (which are generally
referred to as mutual funds) in that closed-end funds generally list their shares for trading on a stock exchange and do not redeem
their shares at the request of the shareholder. This means that if you wish to sell your shares of a closed-end fund you must trade
them on the market like any other stock at the prevailing market price at that time. In a mutual fund, if the shareholder wishes
to sell shares of the fund, the mutual fund will redeem or buy back the shares at NAV. Also, mutual funds generally offer new shares
on a continuous basis to new investors, and closed-end funds generally do not. The continuous inflows and outflows of assets in
a mutual fund can make it difficult to manage the fund’s investments. By comparison, closed-end funds are generally able
to stay more fully invested in securities that are consistent with their investment objectives, to have greater flexibility to
make certain types of investments and to use certain investment strategies, such as financial leverage and investments in illiquid
securities.
Shares of closed-end funds often trade
at a discount to their NAV. Because of this possibility and the recognition that any such discount may not be in the interest of
shareholders, the Board of Directors might consider from time to time engaging in open-market repurchases, tender offers for shares
or other programs intended to reduce a discount. We cannot guarantee or assure, however, that the Board of Directors will decide
to engage in any of these actions. Nor is there any guarantee or assurance that such actions, if undertaken, would result in the
shares trading at a price equal or close to NAV per share. The Board of Directors might also consider converting the Fund to an
open-end mutual fund, which would also require a supermajority vote of the shareholders of the Fund and a separate vote of any
outstanding preferred shares. We cannot assure you that the Fund’s common shares will not trade at a discount.
Repurchase of Common Shares
The Fund is a diversified, closed-end management
investment company and as such its shareholders do not, and will not, have the right to require the Fund to repurchase their shares.
The Fund, however, may repurchase its common shares from time to time as and when it deems such a repurchase advisable. The Board
of Directors has authorized such repurchases to be made when the Fund’s common shares are trading at a discount. Although
the Board of Directors has authorized such repurchases, the Fund is not required to repurchase its common shares. Such repurchases
may be subject to certain notices and any applicable requirements under the 1940 Act.
Pursuant to the 1940 Act, the Fund may
repurchase its common shares on a securities exchange (provided that the Fund has informed its shareholders within the preceding
six months of its intention to repurchase such shares) or pursuant to tenders and may also repurchase shares privately if the Fund
meets certain conditions regarding, among other things, distribution of net income for the preceding fiscal year, status of the
seller, price paid, brokerage commissions, prior notice to shareholders of an intention to purchase shares and purchasing in a
manner and on a basis that does not discriminate against the other shareholders through their interest in the Fund.
If the Fund repurchases its common shares
for a price below NAV, the NAV of the common shares that remain outstanding will be enhanced, but this does not necessarily mean
that the market price of the outstanding common shares will be affected, either positively or negatively. The repurchase of common
shares will reduce the total assets of the Fund available for investment and may increase the Fund’s expense ratio and decreases
the asset coverage with respect to any preferred shares outstanding. Any share repurchases or tender offers will be made in accordance
with the requirements of the 1934 Act, the 1940 Act and the principal stock exchange on which the common shares are traded.
Net Asset Value
The NAV of the Fund’s shares is computed
based on the market value of the securities it holds and is determined daily as of the close of the regular trading day on the
NYSE. For purposes of determining the Fund’s NAV per share, portfolio securities listed or traded on a nationally recognized
securities exchange or traded in the U.S. over-the-counter market for which market quotations are readily available are valued
at the last quoted sale price or a market’s official closing price as of the close of business on the day the securities
are being valued. If there were no sales that day, the security is valued at the average of the closing bid and asked prices, or,
if there were no asked prices quoted on that day, then the security is valued at the closing bid price on that day. If no bid or
asked prices are quoted on such day, the security is valued at the most recently available price, or, if the Board of Directors
so determines, by such other method as the Board of Directors shall determine in good faith to reflect its fair market value. Portfolio
securities traded on more than one national securities exchange or market are valued according to the broadest and most representative
market, as determined by the Investment Adviser.
Portfolio securities primarily traded on
a foreign market are generally valued at the preceding closing values of such securities on the relevant market, but may be fair
valued pursuant to procedures established by the Board of Directors if market conditions change significantly after the close of
the foreign market but prior to the close of business on the day the securities are being valued. Debt instruments with remaining
maturities of 60 days or less that are not credit impaired are valued at amortized cost, unless the Board of Directors determines
such amount does not reflect fair value, in which case these securities will be fair valued as determined by the Board of Directors.
Debt instruments having a maturity greater than 60 days for which market quotations are readily available are valued at the latest
average of the bid and asked prices. If there were no asked prices quoted on such day, the security is valued using the closing
bid price. Futures contracts are valued at the closing settlement price of the exchange or board of trade on which the applicable
contract is traded.
Options are valued using market quotations.
When market quotations are not readily available, options are valued from broker quotes. In limited circumstances when neither
market quotations nor broker quotes are readily available, options are valued using a Black-Scholes model.
Securities and assets for which market
quotations are not readily available are fair valued as determined by the Board of Directors. Fair valuation methodologies and
procedures may include, but are not limited to: analysis and review of available financial and non-financial information about
the company; comparisons to the valuation and changes in valuation of similar securities, including a comparison of foreign securities
to the equivalent U.S. dollar value ADR securities at the close of the U.S. exchange; and evaluation of any other information that
could be indicative of the value of the security.
The Fund obtains valuations on the basis
of prices provided by a pricing service approved by the Board of Directors. All other investment assets, including restricted and
not readily marketable securities, are valued in good faith at fair value under procedures established by and under the general
supervision and responsibility of the Fund’s Board of Directors.
In addition, whenever developments in one
or more securities markets after the close of the principal markets for one or more portfolio securities and before the time as
of which the Fund determines its NAV would, if such developments had been reflected in such principal markets, likely have more
than a minimal effect on the Fund’s NAV per share, the Fund may fair value such portfolio securities based on available market
information as of the time the Fund determines its NAV.
NYSE
closings. The holidays (as observed) on which the NYSE is closed, and therefore days upon which shareholders cannot
purchase or sell shares, currently are: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day and on the preceding Friday or subsequent Monday
when a holiday falls on a Saturday or Sunday, respectively.
Limitation on Directors’ and Officers’
Liability
Maryland law permits a Maryland corporation
to include in its charter a provision limiting the liability of its directors and officers to the corporation and its shareholders
for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property
or services or (b) active and deliberate dishonesty established by a final judgment as being material to the cause of action.
The Fund’s charter contains such a provision which eliminates directors’ and officers’ liability to the maximum
extent permitted by Maryland law, subject to the requirements of the 1940 Act.
The Fund’s charter authorizes the
Fund, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to obligate the Fund to
indemnify any present or former director or officer or any individual who, while serving as a director or officer of the Fund and,
at the Fund’s request, serves or has served another corporation, real estate investment trust, partnership, joint venture,
trust, limited liability company, employee benefit plan or other enterprise as a director, officer, partner, trustee, manager or
managing member from and against any claim or liability to which that individual may become subject or which that individual may
incur by reason of his or her service in any such capacity and to pay or reimburse his or her reasonable expenses in advance of
final disposition of a proceeding.
The Fund’s Bylaws obligate the Fund,
to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to indemnify any present or former
director or officer or any individual who, while serving as a director or officer of the Fund and, at the Fund’s request,
serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, limited liability company,
employee benefit plan or other enterprise as a director, officer, partner, trustee, manager or managing member and who is made,
or threatened to be made, a party to the proceeding by reason of his or her service in any such capacity and to pay or reimburse
his or her reasonable expenses in advance of final disposition of a proceeding. The Fund’s charter and Bylaws also permit
the Fund to indemnify and advance expenses to any individual who served any predecessor of the Fund in any of the capacities described
above and any employee or agent of the Fund or a predecessor of the Fund, if any.
Maryland law requires a corporation (unless
its charter provides otherwise, which the Fund’s charter does not) to indemnify a director or officer who has been successful,
on the merits or otherwise, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason
of his or her service in that capacity. Maryland law permits a corporation to indemnify its present and former directors and officers,
among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made, or threatened to be made, a party by reason of their service in those or other capacities
unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to
the proceeding and (1) was committed in bad faith, or (2) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money, property or services, or (c) in the case of any
criminal proceeding, the director or officer had reasonable cause to believe the act or omission was unlawful. Under Maryland law,
however, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for
a judgment of liability on the basis that a personal benefit was improperly received, unless in either case a court orders indemnification,
and then only for expenses. In addition, Maryland law permits a corporation to pay or reimburse reasonable expenses to a director
or officer in advance of final disposition of a proceeding upon the corporation’s receipt of (a) a written affirmation
by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification
by the corporation, and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed
by the corporation if it is ultimately determined that the standard of conduct was not met.
In accordance with the 1940 Act, the Fund
will not indemnify any person for any liability to which such person would be subject by reason of such person’s willful
misconduct, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Taxation
The following discussion is a brief summary
of certain U.S. federal income tax considerations affecting the Fund and its shareholders. A more complete discussion of the tax
rules applicable to the Fund and its shareholders can be found in the SAI that is incorporated by reference into this Prospectus.
This discussion assumes you are a U.S. person (as defined for U.S. federal income tax purposes) and that you hold your common shares
as capital assets. This discussion is based upon current provisions of the Code, the Treasury regulations promulgated thereunder
and judicial and administrative authorities, all of which are subject to change or differing interpretations by the courts or the
Internal Revenue Service (the “IRS”), possibly with retroactive effect. No assurance can be given that the IRS would
not assert, or that a court would not sustain, a position different from any of the tax aspects set forth below. This summary does
not purport to deal with all of the U.S. federal income tax consequences applicable to the Fund, or which may be important to particular
shareholders in light of their individual investment circumstances or to some types of shareholders subject to special tax rules,
such as shareholders subject to the alternative minimum tax, financial institutions, broker-dealers, insurance companies, tax-exempt
organizations, partnerships or other pass-through entities, persons holding common shares in connection with a hedging, straddle,
conversion or other integrated transaction, persons with a functional currency other than the U.S. dollar, non-U.S. investors or
shareholders who contribute assets other than cash to the Fund in exchange for common shares. If a partnership (including any other
entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds Rights or common shares, the U.S. federal
income tax treatment of a partner in such partnership generally will depend upon the status of the partner and the activities of
the partnership. Partners of partnerships that hold Rights or common shares should consult their tax advisors. No attempt is made
to discuss state, local or foreign tax consequences to investors in the Fund, nor to present a detailed explanation of all U.S.
federal tax concerns affecting the Fund and its shareholders (including shareholders owning large positions in the Fund).
The discussion set forth herein does
not constitute tax advice and potential investors are urged to consult their own tax advisers to determine the tax consequences
to them of investing in the Fund.
Taxation of the Fund
The Fund intends to elect to be treated,
and to qualify annually, as a regulated investment company under Subchapter M of the Code. Accordingly, the Fund must, among other
things, meet the following requirements regarding the source of its income and the diversification of its assets:
(i) derive
in each taxable year at least 90% of its gross income from the following sources, which are referred to herein as “Qualifying
Income”: (a) dividends, interest (including tax-exempt interest), payments with respect to certain securities loans,
and gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including but not limited
to gain from options, futures and forward contracts) derived with respect to its business of investing in such stock, securities
or foreign currencies; and (b) interests in publicly traded partnerships that are treated as partnerships for U.S. federal
income tax purposes and that derive less than 90% of their gross income from the items described in clause (a) above (each
a “Qualified Publicly Traded Partnership”).
(ii) diversify
its holdings so that, at the end of each quarter of each taxable year, (a) at least 50% of the market value of the Fund’s
total assets is represented by cash and cash items (including receivables), U.S. government securities, the securities of other
regulated investment companies and other securities, with such other securities limited, in respect of any one issuer, to an amount
not greater than 5% of the value of the Fund’s total assets and not more than 10% of the outstanding voting securities of
such issuer and (b) not more than 25% of the market value of the Fund’s total assets is invested in the securities (other
than U.S. government securities and the securities of other regulated investment companies) of (I) any one issuer, (II) any
two or more issuers that the Fund controls and that are determined to be engaged in the same business or similar or related trades
or businesses or (III) any one or more Qualified Publicly Traded Partnerships.
Income from the Fund’s investments
in grantor trusts that are not Qualified Publicly Traded Partnerships (if any) will be Qualifying Income to the extent it is attributable
to items of income of such trust that would be Qualifying Income if earned directly by the Fund.
The Fund’s investments in partnerships,
including in Qualified Publicly Traded Partnerships, may result in the Fund’s being subject to state, local or foreign income,
franchise or withholding tax liabilities.
As a regulated investment company, the
Fund generally will not be subject to U.S. federal income tax on income and gains that the Fund distributes to its shareholders,
provided that it distributes each taxable year at least the sum of (i) 90% of the Fund’s investment company taxable
income (which includes, among other items, dividends, interest and the excess of any net short-term capital gain over net long-term
capital loss and other taxable income, other than any net capital gain (as defined below), reduced by deductible expenses) determined
without regard to the deduction for dividends paid and (ii) 90% of the Fund’s net tax-exempt interest (the excess of
its gross tax-exempt interest over certain disallowed deductions). The Fund intends to distribute substantially all of such income
at least annually. The Fund will be subject to income tax at regular corporate rates on any taxable income or gains that it does
not distribute to its shareholders.
The Code imposes a 4% nondeductible excise
tax on the Fund to the extent the Fund does not distribute by the end of any calendar year an amount at least equal to the sum
of (i) 98% of its ordinary income (not taking into account any capital gain or loss) for the calendar year and (ii) 98.2%
of its capital gain in excess of its capital loss (adjusted for certain ordinary losses) for a one-year period generally ending
on October 31 of the calendar year (unless an election is made to use the Fund’s fiscal year). In addition, the minimum
amounts that must be distributed in any year to avoid the excise tax will be increased or decreased to reflect any under-distribution
or over-distribution, as the case may be, from previous years. While the Fund intends to distribute any income and capital gain
in the manner necessary to minimize imposition of the 4% nondeductible excise tax, there can be no assurance that sufficient amounts
of the Fund’s taxable income and capital gain will be distributed to entirely avoid the imposition of the excise tax. In
that event, the Fund will be liable for the excise tax only on the amount by which it does not meet the foregoing distribution
requirement.
If for any taxable year the Fund does not
qualify as a regulated investment company, all of its taxable income (including its net capital gain) will be subject to tax at
regular corporate rates without any deduction for distributions to shareholders. In such case, dividends from the Fund generally
should be eligible for the preferential federal tax rate applicable to “qualified dividends” if certain requirements,
discussed below, are met.
Taxation of Shareholders
Distributions paid to you by the Fund from
its net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss), if any, that the
Fund reports as capital gains dividends (“capital gain dividends”) are taxable as long-term capital gains, regardless
of how long you have held your common shares. All other dividends paid to you by the Fund (including dividends from short-term
capital gains) from its current or accumulated earnings and profits (“ordinary income dividends”) are generally subject
to tax as ordinary income.
Special rules apply, however, to certain
ordinary income dividends paid by the Fund to individuals. If you are an individual, ordinary income dividends that you receive
from the Fund may be eligible for taxation at the reduced federal rates applicable to long-term capital gains to the extent that
(i) the ordinary income dividend is attributable to “qualified dividend income” (i.e., generally dividends
paid by U.S. corporations and certain foreign corporations) received by the Fund, (ii) the Fund satisfies certain holding
period and other requirements with respect to the stock on which such qualified dividend income was paid and (iii) you satisfy
certain holding period and other requirements with respect to your common shares. The amount of qualified dividend income paid
by the Fund depends on its underlying investments and there can be no assurance as to what portion of the Fund’s ordinary
income dividends will constitute qualified dividend income.
Any distributions you receive that are
in excess of the Fund’s current or accumulated earnings and profits will be treated as a tax-free return of capital to the
extent of your adjusted tax basis in your common shares, and thereafter as capital gain from the sale of common shares. The amount
of any Fund distribution that is treated as a tax-free return of capital will reduce your adjusted tax basis in your common shares,
thereby increasing your potential gain or reducing your potential loss on any subsequent sale or other disposition of your common
shares. If you purchase shares prior to a distribution, the price you pay for the shares may reflect, in part, the value of the
upcoming distribution, nonetheless the distribution will be taxable to you even though economically it may represent a return on
your investment.
Dividends and other taxable distributions
are taxable to you even though they are reinvested in additional common shares of the Fund. Dividends and other distributions paid
by the Fund are generally treated under the Code as received by you at the time the dividend or distribution is made. If, however,
the Fund pays you a dividend in January that was declared in the previous October, November or December to shareholders
of record on a specified date in one of such months, then such dividend will be treated for tax purposes as being paid by the Fund
and received by you on December 31 of the year in which the dividend was declared.
The Fund will send you information after
the end of each year setting forth the amount and tax status of any distributions paid to you by the Fund.
The sale or other disposition of common
shares of the Fund will generally result in capital gain or loss to you, and will be long-term capital gain or loss if you have
held such common shares for more than one year at the time of sale. Any loss upon the sale or exchange of common shares held for
six months or less will be treated as long-term capital loss to the extent of any capital gain dividends received (including amounts
credited as an undistributed capital gain dividend) by you with respect to such common shares. Any loss you realize on a sale or
exchange of common shares will be disallowed if you acquire other common shares (whether through the automatic reinvestment of
dividends or otherwise) within a 61-day period beginning 30 days before and ending 30 days after your sale or exchange of the common
shares. In such case, your tax basis in the common shares acquired will be adjusted to reflect the disallowed loss.
Dividends and net capital gains are generally
subject to a 3.8% federal tax on net investment income for shareholders whose adjusted gross income exceeds $200,000 for single
filers and $250,000 for married joint filers.
The Fund may be required to withhold, for
federal backup withholding tax purposes, a portion of the dividends, distributions and redemption proceeds payable to shareholders
who fail to provide the Fund (or its agent) with their correct taxpayer identification number (in the case of individuals, generally,
their social security number) or to make required certifications, or who have been notified by the IRS that they are subject to
backup withholding. Certain shareholders are exempt from backup withholding. Backup withholding, currently at a rate of 24%, is
not an additional tax and any amount withheld may be refunded or credited against your federal income tax liability, if any, provided
that you timely furnish the required information to the IRS. In addition, the Fund may be required to withhold on distributions
to non-U.S. shareholders.
Plan of Distribution
We may sell our securities from time to
time on an immediate, continuous or delayed basis, in one or more offerings under this Prospectus and any applicable Prospectus
Supplement in any one or more of the following ways (1) directly to one or more purchasers, (2) through agents for the
period of their appointment, (3) to underwriters as principals for resale to the public, (4) to dealers as principals
for resale to the public, (5) through, in the case of our common shares, “at-the-market” transactions or (6) pursuant
to our Dividend Reinvestment Plan.
The securities may be sold from time to
time in one or more transactions at a fixed price or fixed prices, which may change; at prevailing market prices at the time of
sale; prices related to prevailing market prices; at varying prices determined at the time of sale; or at negotiated prices. The
securities may be sold for cash and other than for cash, including in exchange transactions for non-control securities, or may
be sold for a combination of cash and securities. The applicable Prospectus Supplement will describe the method of distribution
of our securities offered therein.
Each Prospectus Supplement relating to
an offering of our securities will state the terms of the offering, including:
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the names of any agents, underwriters or dealers;
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any sales loads, underwriting discounts and commissions or agency fees and other items constituting
underwriters’ or agents’ compensation;
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any discounts, commissions, fees or concessions allowed or reallowed or paid to dealers or agents;
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the public offering or purchase price of the offered securities and the estimated net proceeds
we will receive from the sale; and
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any securities exchange on which the offered securities may be listed.
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Any public offering price and any discounts
or concessions allowed or reallowed or paid to dealers may be changed from time to time.
Direct Sales
We may sell our securities directly to,
and solicit offers from, purchasers, including institutional investors or others who may be deemed to be underwriters as defined
in the Securities Act for any resales of such securities. In this case, no underwriters or agents would be involved. We may use
electronic media, including the Internet, to sell offered securities directly. We will describe the terms of any of those sales
in a Prospectus Supplement.
Distribution
Through Agents
We may offer and sell our securities on
a continuous basis through agents that we designate. We will name any agent involved in the offer and sale and describe any commissions
payable by us in the Prospectus Supplement. Unless otherwise indicated in the Prospectus Supplement, the agents will be acting
on a best efforts basis for the period of their appointment.
Offers to purchase securities may be solicited
directly by the issuer or by agents designated by the issuer from time to time. Any such agent, who may be deemed to be an underwriter
as the term is defined in the Securities Act, involved in the offer or sale of the offered securities in respect of which this
Prospectus is delivered will be named, and any commissions payable by the issuer to such agent set forth, in a Prospectus Supplement.
Distribution Through Underwriters
We may offer and sell securities from time
to time to one or more underwriters who would purchase the securities as principal for resale to the public either on a firm commitment
or best efforts basis. If we sell securities to underwriters, we will execute an underwriting agreement with them at the time of
the sale and will name them in the Prospectus Supplement. In connection with these sales, the underwriters may be deemed to have
received compensation from us in the form of underwriting discounts and commissions. The underwriters also may receive commissions
from purchasers of securities for whom they may act as an agent. Unless otherwise stated in the Prospectus Supplement, the underwriters
will not be obligated to purchase the securities unless the conditions set forth in the underwriting agreement are satisfied, and
if the underwriters purchase any of the securities, they will be required to purchase all of the offered securities. In the event
of default by any underwriter, in certain circumstances, the purchase commitments may be increased among the non-defaulting underwriters
or the underwriting agreement may be terminated. The underwriters may sell the offered securities to or through dealers, and those
dealers may receive discounts, concessions or commissions from the underwriters as well as from the purchasers for whom they may
act as an agent. Sales of the offered securities by underwriters may be in one or more transactions, including negotiated transactions,
at a fixed public offering price or at varying prices determined at the time of sale. The applicable Prospectus Supplement will
describe the method of reoffering by the underwriters. The applicable Prospectus Supplement will also describe the discounts and
commissions to be allowed or paid to the underwriters, if any, all other items constituting underwriting compensation, and the
discounts and commissions to be allowed or paid to dealers, if any. If a Prospectus Supplement so indicates, we may grant the underwriters
an option to purchase additional common shares at the public offering price, less the underwriting discounts and commissions, within
a specified number of days from the date of the Prospectus Supplement, to cover any over-allotments.
Distribution
Through Dealers
We may offer and sell securities from time
to time to one or more dealers who would purchase the securities as principal. The dealers then may resell the offered securities
to the public at fixed or varying prices to be determined by those dealers at the time of resale. We will set forth the names of
the dealers and the terms of the transaction in the applicable Prospectus Supplement.
Distribution Through Remarketing Firms
One or more dealers, referred to as “remarketing
firms,” may also offer or sell the securities, if the Prospectus Supplement so indicates, in connection with a remarketing
arrangement contemplated by the terms of the securities. Remarketing firms will act as principals for their own account or as agents.
These remarketing firms will offer or sell the securities in accordance with the terms of the securities. The Prospectus Supplement
will identify any remarketing firm and the terms of its agreement, if any, with us and will describe the remarketing firm’s
compensation. Remarketing firms may be deemed to be underwriters in connection with the securities they remarket.
Distribution
Through At-the-Market Offerings
We may engage in at-the-market offerings
to or through a market maker or into an existing trading market, on an exchange or otherwise, in accordance with Rule 415(a)(4).
An at-the-market offering may be through an underwriter or underwriters acting as principal or agent for us.
General Information
Agents, underwriters, or dealers participating
in an offering of securities and remarketing firms participating in a remarketing of securities may be deemed to be underwriters,
and any discounts and commission received by them and any profit realized by them on resale of the offered securities for whom
they may act as agent, may be deemed to be underwriting discounts and commissions under the Securities Act.
We may offer to sell securities either
at a fixed price or at prices that may vary, at market prices prevailing at the time of sale, at prices related to prevailing market
prices, or at negotiated prices.
Ordinarily, each series of offered securities
will be a new issue of shares, and other than our common shares, will have no established trading market.
If indicated in the applicable Prospectus
Supplement, we may authorize underwriters or other persons acting as our agents to solicit offers by certain institutions to purchase
securities from us pursuant to contracts providing for payment and delivery on a future date. Institutions with which these contracts
may be made include: commercial and savings banks, insurance companies, pension funds, educational and charitable institutions
and others, but in all cases these institutions must be approved by us. The obligations of any purchaser under any contract will
be subject only to those conditions described in the applicable Prospectus Supplement. The underwriters and the other agents will
not have any responsibility for the validity or performance of the contracts. The applicable Prospectus Supplement will describe
the commission payable for solicitation of those contracts.
We may enter into derivative transactions
with third parties, or sell securities not covered by this Prospectus to third parties in privately negotiated transactions. If
the applicable Prospectus Supplement indicates, in connection with those derivatives, the third parties may sell securities covered
by this Prospectus and the applicable Prospectus Supplement, including in short sale transactions. If so, the third parties may
use securities pledged by us or borrowed from us or others to settle those sales or to close out any related open borrowings of
stock, and may use securities received from us in settlement of those derivatives to close out any related open borrowings of stock.
The third parties in such sale transactions will be underwriters and will be identified in the applicable Prospectus Supplement
(or a post-effective amendment).
We may loan or pledge securities to a financial
institution or other third party that in turn may sell the securities using this Prospectus. Such financial institution or third
party may transfer its short position to investors in our securities or in connection with a simultaneous offering of other securities
offered by this Prospectus.
In connection with any offering of the
securities in an underwritten transaction, the underwriters may engage in transactions that stabilize, maintain, or otherwise affect
the market price of the common shares or any other security. Those transactions may include over-allotment, entering stabilizing
bids, effecting syndicate covering transactions, and reclaiming selling concessions allowed to an underwriter or a dealer.
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An over-allotment in connection with an offering creates a short position in the offered securities
for the underwriters’ own account.
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An underwriter may place a stabilizing bid to purchase an offered security for the purpose of pegging,
fixing, or maintaining the price of that security.
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Underwriters may engage in syndicate covering transactions to cover over-allotments or to stabilize
the price of the offered securities by bidding for, and purchasing, the offered securities or any other securities in the open
market in order to reduce a short position created in connection with the offering.
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The managing underwriter may impose a penalty bid on a syndicate member to reclaim a selling concession
in connection with an offering when offered securities originally sold by the syndicate member are purchased in syndicate covering
transactions or otherwise.
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Any of these activities may stabilize or
maintain the market price of the securities above independent market levels. The underwriters are not required to engage in these
activities, and may end any of these activities at any time.
Any underwriters that are qualified market
makers on the NYSE may engage in passive market making transactions in our common shares on the NYSE in accordance with Regulation
M under the Exchange Act, during the business day prior to the pricing of the offering, before the commencement of offers or sales
of the common shares or any other covered security. Passive market makers must comply with applicable volume and price limitations
and must be identified as passive market makers. In general, a passive market maker must display its bid at a price not in excess
of the highest independent bid for such security; if all independent bids are lowered below the passive market maker’s bid,
however, the passive market maker’s bid must then be lowered when certain purchase limits are exceeded. Passive market making
may stabilize the market price of the securities at a level above that which might otherwise prevail in the open market and, if
commenced, may be discontinued at any time.
We will not require underwriters or dealers
to make a market in the securities. Any underwriters to whom the offered securities are sold for offering and sale may make a market
in the offered securities, but the underwriters will not be obligated to do so and may discontinue any market-making at any time
without notice.
Under agreements entered into with us,
underwriters and agents may be entitled to indemnification by us against certain civil liabilities, including liabilities under
the Securities Act, or to contribution for payments the underwriters or agents may be required to make. The underwriters, agents,
and their affiliates may engage in financial or other business transactions with us and our subsidiaries, if any, in the ordinary
course of business.
In compliance with the guidelines of FINRA,
the maximum commission or discount to be received by any member of FINRA or independent broker-dealer will not be greater than
9% of the initial gross proceeds from the sale of any security being sold.
The aggregate offering price specified
on the cover of this Prospectus relates to the offering of the securities not yet issued as of the date of this Prospectus. The
place and time of delivery for the offered securities in respect of which this Prospectus is delivered are set forth in the accompanying
Prospectus Supplement.
To the extent permitted under the 1940
Act and the rules and regulations promulgated thereunder, the underwriters may from time to time act as a broker or dealer
and receive fees in connection with the execution of our portfolio transactions after the underwriters have ceased to be underwriters
and, subject to certain restrictions, each may act as a broker while it is an underwriter.
A Prospectus and accompanying Prospectus
Supplement in electronic form may be made available on the websites maintained by the underwriters. The underwriters may agree
to allocate our securities for sale to their online brokerage account holders. Such allocations of our securities for internet
distributions will be made on the same basis as other allocations. In addition, our securities may be sold by the underwriters
to securities dealers who resell securities to online brokerage account holders.
Custodian, Sub-Administrator, Fund Accountant,
Transfer Agent and Dividend Disbursing Agent
U.S. Bank National Association, located
at 1555 North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212, serves as the custodian of the Fund’s assets
pursuant to a custody agreement. Under the custody agreement, the Custodian holds the Fund’s assets in compliance with the
1940 Act. For its services, the Custodian will receive a monthly fee paid by the Fund based upon, among other things, the average
daily market value of the Fund’s portfolio assets, plus certain charges for securities transactions and out-of-pocket expenses.
U.S. Bancorp Fund Services, LLC, located
at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as the Fund’s sub-administrator and is compensated for its
services by the Investment Adviser, as administrator to the Fund. U.S. Bancorp Fund Services, LLC, also serves as the Fund’s
accountant.
American Stock Transfer & Trust
Company, located at 6201 15th Avenue, Brooklyn, New York 11219, serves as the Fund’s transfer agent and dividend disbursing
agent with respect to the common shares of the Fund.
Legal Matters
Certain
legal matters in connection with the common shares will be passed upon for the Fund by Paul Hastings LLP and, with respect to certain
matters of Maryland law, by [●]. Paul Hastings LLP may rely on the opinion of [●] as to certain matters of Maryland
law.
Independent Registered Public Accounting
Firm
[●]
is the independent registered public accounting firm of the Fund and audits the financial statements of the Fund. [●] is
located at [●].
Additional Information
The Fund is subject to the informational
requirements of the 1934 Act and the 1940 Act and in accordance therewith files reports and other information with the SEC. Reports,
proxy statements and other information filed by the Fund with the SEC pursuant to the informational requirements of such Acts can
be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Washington D.C. 20549. The
SEC maintains a web site at http://www.sec.gov containing reports, proxy and information statements and other information regarding
registrants, including the Fund, that file electronically with the SEC.
The common shares are listed on the NYSE
under the symbol “RA.” Reports, proxy statements and other information concerning the Fund and filed with the SEC by
the Fund will be available for inspection at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
This Prospectus constitutes part of a Registration
Statement filed by the Fund with the SEC under the Securities Act and the 1940 Act. This Prospectus omits certain of the information
contained in the Registration Statement, and reference is hereby made to the Registration Statement and related exhibits for further
information with respect to the Fund and the common shares offered hereby. Any statements contained herein concerning the provisions
of any document are not necessarily complete, and, in each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the SEC. Each such statement is qualified in its entirety by such
reference. The complete Registration Statement may be obtained from the SEC upon payment of the fee prescribed by its rules and
regulations or free of charge through the SEC’s web site (http://www.sec.gov).
Privacy Principles of the Fund
The Fund is committed to maintaining the
privacy of its shareholders and to safeguarding their non-public personal information. The following information is provided to
help you understand what personal information the Fund collects, how the Fund protects that information and why, in certain cases,
the Fund may share information with select other parties.
Generally, the Fund does not receive any
non-public personal information relating to its shareholders, although certain non-public personal information of its shareholders
may become available to the Fund. The Fund does not disclose any non-public personal information about its shareholders or former
shareholders to anyone, except as permitted by law or as is necessary in order to service shareholder accounts (for example, to
a transfer agent or third party administrator).
The Fund restricts access to non-public
personal information about its shareholders to employees of the Fund, the Investment Adviser and its affiliates with a legitimate
business need for the information. The Fund maintains physical, electronic and procedural safeguards designed to protect the non-public
personal information of its shareholders.
Table of Contents of SAI
An SAI dated as of [●], 2020 has been filed with the SEC
and is incorporated by reference in this Prospectus. An SAI may be obtained without charge by writing to the Fund at its address
at Brookfield Place, 250 Vesey Street, 15th Floor, New York, New York 10281-1023, or by calling the Fund toll-free at (855) 777-8001.
The table of contents of the SAI is as follows:
|
|
Page
|
|
The
Fund
|
|
|
[●]
|
|
Risk Factors and
Special Considerations
|
|
|
[●]
|
|
Investment Restrictions
|
|
|
[●]
|
|
Management of the
Fund
|
|
|
[●]
|
|
Distributions and
Dividends
|
|
|
[●]
|
|
Portfolio Transactions
|
|
|
[●]
|
|
Portfolio Turnover
|
|
|
[●]
|
|
Taxation
|
|
|
[●]
|
|
General Information
|
|
|
[●]
|
|
Independent Registered
Public Accounting Firm
|
|
|
[●]
|
|
Legal Matters
|
|
|
[●]
|
|
Appendix A—Description
of Corporate Debt Ratings
|
|
|
A-1
|
|
Appendix B—Portfolio
Proxy Voting Policies and Procedures
|
|
|
B-1
|
|
Brookfield Real Assets Income Fund Inc.
COMMON SHARES
[PREFERRED SHARES]
[SUBSCRIPTION RIGHTS TO PURCHASE COMMON
SHARES]
[SUBSCRIPTION RIGHTS TO PURCHASE PREFERRED
SHARES]
PROSPECTUS
[●], 2020
The information in this Prospectus is not complete
and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission
is effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
Preliminary Prospectus Dated
December 18, 2020
Subject to Completion
$[●]
Brookfield Real Assets Income Fund Inc.
Common Shares
[Preferred Shares]
[Subscription Rights to Purchase Common
Shares]
[Subscription Rights to Purchase Preferred
Shares]
PROSPECTUS
[●], 2020
Filed Pursuant to Rule 497(c)
Registration Statement No. 333-[●]
The information in this Prospectus is not complete
and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission
is effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
Subject to Completion, Dated
December 18, 2020
FORM PROSPECTUS SUPPLEMENT
(To Prospectus Dated [●],
2020)
Brookfield
Real Assets Income Fund Inc.
Common
Shares
We are offering for sale [●] common
shares in this prospectus supplement (the “Offer”). This prospectus supplement (the “Prospectus Supplement”),
together with the accompanying prospectus dated [●], 2020, (the “Prospectus”) set forth the information that
you should know prior to investing.
Our
common shares are listed on the New York Stock Exchange (“NYSE”) and trade under the ticker symbol “RA.”
The last reported sale price for our common shares on [●] was $[●] per share. The net asset value of the Fund’s
common shares at the close of business on [●], [●] was $[●] per share.
You should review the information set forth under “Risk
Factors and Special Considerations” on page [●] of the accompanying Prospectus before investing in
our common shares.
|
|
Per
Share of
Common
Stock
|
|
Total(1)
|
Public Offering Price
|
|
$
|
[ ]
|
|
$
|
[ ]
|
Underwriting Discounts & Commissions
|
|
$
|
[ ]
|
|
$
|
[ ]
|
Proceeds, before expenses, to us
|
|
$
|
[ ]
|
|
$
|
[ ]
|
(1)
|
The aggregate expenses of the offering are estimated to be $[●], which represents approximately $[●] per share.
|
The underwriters may also purchase up to
an additional [●] common shares from the Fund at the public offering price, less underwriting discounts and commissions if
any, within [●] days after the date of this Prospectus Supplement. If the over-allotment option is exercised in full, the
total proceeds, before expenses, to the Fund would be $[●] and the total underwriting discounts and commissions would be
$[●]. The common shares will be ready for delivery on or about [●].
You should read this Prospectus Supplement
and the accompanying Prospectus before deciding whether to invest in our common shares and retain it for future reference. This
Prospectus Supplement and the accompanying Prospectus contain important information about us. Material that has been incorporated
by reference and other information about us can be obtained from us by calling (855) 777-8001 or from the SEC website (http://www.sec.gov).
Neither the SEC nor any state securities
commission has approved or disapproved these securities or determined if this Prospectus Supplement is truthful or complete. Any
representation to the contrary is a criminal offense.
You should rely only on the information
contained or incorporated by reference in this Prospectus Supplement. The Fund has not authorized any other person to provide you
with different information. If anyone provides you with different or inconsistent information, you should not rely on it. The Fund
is not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
|
|
|
|
Cautionary
Notice Regarding Forward-Looking Statements
|
S-3
|
About
This Prospectus Supplement
|
S-3
|
Table
of Fees and Expenses
|
S-4
|
Use
of Proceeds
|
S-4
|
Capitalization
|
S-4
|
Financial
Highlights
|
S-5
|
Price
Range of Common Shares
|
S-5
|
Plan
of Distribution
|
S-5
|
Legal
Matters
|
S-5
|
|
|
Prospectus
|
|
|
|
Cautionary
Notice Regarding Forward-Looking Statements
|
[●]
|
Prospectus
Summary
|
[●]
|
Summary
of Fund Expenses
|
[●]
|
Financial
Highlights
|
[●]
|
The
Offer
|
[●]
|
The
Fund
|
[●]
|
Use
of Proceeds
|
[●]
|
Description
of Common Shares
|
[●]
|
Investment
Objective and Investment Policies
|
[●]
|
Risk
Factors and Special Considerations
|
[●]
|
Management
of the Fund
|
[●]
|
Dividends
and Distributions
|
[●]
|
Dividend
Reinvestment Plan
|
[●]
|
Description
of Capital Structure
|
[●]
|
Certain
Provisions of Maryland Law and the Fund’s Charter and Bylaws
|
[●]
|
Closed-End
Fund Structure
|
[●]
|
Repurchase
of Common Shares
|
[●]
|
Net
Asset Value
|
[●]
|
Limitation
on Directors’ and Officers’ Liability
|
[●]
|
Taxation
|
[●]
|
Plan
of Distribution
|
[●]
|
Custodian,
Sub-Administrator, Fund Accountant, Transfer Agent and Dividend Disbursing Agent
|
[●]
|
Legal
Matters
|
[●]
|
Independent
Registered Public Accounting Firm
|
[●]
|
Additional
Information
|
[●]
|
Privacy
Principles of the Fund
|
[●]
|
Table
of Contents of SAI
|
[●]
|
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
STATEMENTS
This Prospectus Supplement, the accompanying Prospectus and
the SAI contain “forward-looking statements.” Forward-looking statements can be identified by the words “may,”
“will,” “intend,” “expect,” “estimate,” “continue,” “plan,”
“anticipate,” and similar terms and the negative of such terms. Such forward-looking statements may be contained in
this Prospectus Supplement as well as in the accompanying Prospectus. By their nature, all forward-looking statements involve risks
and uncertainties, and actual results could differ materially from those contemplated by the forward-looking statements. Several
factors that could materially affect our actual results are the performance of the portfolio of securities we hold, the price at
which our shares will trade in the public markets and other factors discussed in our periodic filings with the Securities and Exchange
Commission (the “SEC”). Currently known risk factors that could cause actual results to differ materially from our
expectations include, but are not limited to, the factors described in the “Risk Factors and Special Considerations”
section of the Prospectus. We urge you to review carefully that section for a more detailed discussion of the risks of an investment
in our securities.
Although we believe that the expectations expressed in our forward-looking
statements are reasonable, actual results could differ materially from those projected or assumed in our forward-looking statements.
Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and
are subject to inherent risks and uncertainties, such as those disclosed in the “Risk Factors and Special Considerations”
section of the Prospectus. All forward-looking statements contained or incorporated by reference in this Prospectus Supplement
or the accompanying Prospectus are made as of the date of this Prospectus Supplement or the accompanying Prospectus, as the case
may be. Except for our ongoing obligations under the federal securities laws, we do not intend, and we undertake no obligation,
to update any forward-looking statement. The forward-looking statements contained in this Prospectus Supplement, the accompanying
Prospectus and the SAI are excluded from the safe harbor protection provided by section 27A of the Securities Act of 1933, as amended.
ABOUT THIS PROSPECTUS SUPPLEMENT
You should rely only on the information contained or incorporated
by reference in this Prospectus Supplement and the accompanying Prospectus. The Fund has not, and the underwriters have not, authorized
anyone to provide you with inconsistent information. If anyone provides you with inconsistent information, you should not assume
that the Fund or the underwriters have authorized or verified it. The Fund is not, and the underwriters are not, making an offer
of these securities in any state where the offer is not permitted. You should not assume that the information contained in this
Prospectus Supplement and the accompanying Prospectus is accurate as of any date other than the date on the front hereof or thereof.
The Fund’s business, financial condition, results of operations and prospects may have changed since those date.
This document has two parts. The first part is this Prospectus
Supplement, which describes the terms of this offering of common shares and also adds to and updates information contained in the
accompanying Prospectus. The second part is the accompanying Prospectus, which gives more general information and disclosure. To
the extent the information contained in this Prospectus Supplement differs from or is additional to the information contained in
the accompanying Prospectus, you should rely only on the information contained in this Prospectus Supplement. You should read this
Prospectus Supplement and the accompanying Prospectus before investing in the common shares.
TABLE OF FEES AND EXPENSES
The following tables are intended to assist you in understanding
the various costs and expenses directly or indirectly associated with investing in our common shares as a percentage of net assets
attributable to common shares. Amounts are for the current fiscal year after giving effect to anticipated net proceeds of the offering,
assuming that we incur the estimated offering expenses.
Shareholder Transaction Expenses
|
|
|
|
|
Offering Expenses Borne by the Fund (as a percentage of offering price)
|
|
|
[●]
|
%
|
Dividend Reinvestment Sales Fees
|
|
$
|
[●]
|
|
Annual Expenses (as a percentage of net assets
attributable to common shares)
|
|
|
|
|
Management Fees
|
|
|
[●]
|
|
Interest Payments on Borrowed Funds
|
|
|
[None]
|
|
Other Expenses
|
|
|
[●]
|
%
|
Total Annual Expenses
|
|
|
[●]
|
%
|
Dividends on Preferred Shares
|
|
|
[●]
|
%
|
Total Annual Expenses
|
|
|
[●]
|
%
|
The purpose of the table above and the example below is to help
you understand all fees and expenses that you, as a holder of common shares, would bear directly or indirectly.
The following example illustrates the expenses you would pay
on a $1,000 investment in common shares, assuming a 5% annual portfolio total return.* The actual amounts in connection with any
offering will be set forth in the Prospectus Supplement if applicable.
|
|
|
1
Year
|
|
|
|
3
Years
|
|
|
|
5
Years
|
|
|
|
10
Years
|
|
Total Expenses Incurred
|
|
$
|
[●]
|
|
|
$
|
[●]
|
|
|
$
|
[●]
|
|
|
$
|
[●]
|
|
*
|
The example should not be considered a representation of future expenses. The example assumes that the amounts set forth in the Annual Expenses table are accurate and that all distributions are reinvested at net asset value. Actual expenses may be greater or less than those assumed. Moreover, the Fund’s actual rate of return may be greater or less than the hypothetical 5% return shown in the example.
|
USE OF PROCEEDS
We estimate the net proceeds of the offering to be $[●]
based on the public offering price of $[●] per share and after deducting estimated offering expenses payable by us.
Brookfield Public Securities Group LLC (the “Investment
Adviser”) anticipates that investment of the net proceeds of the Offer in accordance with the Fund’s investment objective
and investment policies will be completed within three months after completion of the Offer. The Fund intends use the proceeds
of the Offer to make investments consistent with its investment objective. See “The Offer—Purpose of the Offer,”
“Investment Objective and Investment Policies” and, in the SAI, “Investment Restrictions.” Pending such
investment, it is anticipated that the net proceeds will be invested in fixed income securities and other permitted investments.
See “Investment Objective and Investment Policies.”
CAPITALIZATION
[To be updated.]
FINANCIAL HIGHLIGHTS
[To be updated.]
The Financial Highlights set forth below are derived from our
financial statements, the accompanying notes thereto, and the report of [●] thereon for the fiscal year ended [●] (the
“[●] Audited Financial Statements”) which are incorporated by reference into our SAI. Copies of our SAI are available
from us without charge upon request.
PRICE RANGE OF COMMON SHARES
[To be provided.]
PLAN OF DISTRIBUTION
[To be provided.]
LEGAL MATTERS
Certain
legal matters in connection with the common shares will be passed upon for the Fund by Paul Hastings LLP and, with respect to certain
matters of Maryland law, by [●]. Paul Hastings LLP may rely
on the opinion of [●] as to certain matters of Maryland law.
Brookfield
Real Assets Income Fund Inc.
[●]
Shares of Common Shares
PROSPECTUS
SUPPLEMENT
[●]
Filed Pursuant to Rule 497(c)
Registration Statement No. 333-[●]
The information in this Prospectus is not complete
and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission
is effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
Subject to Completion, Dated
December 18, 2020
FORM PROSPECTUS SUPPLEMENT
(To Prospectus Dated [●],
2020)
Brookfield Real Assets Income Fund Inc.
Series [●] Preferred Shares
We are offering for sale [●] preferred
shares in this prospectus supplement (the “Offer”). This prospectus supplement (the “Prospectus Supplement”),
together with the accompanying prospectus dated [●], 2020, (the “Prospectus”) set forth the information that
you should know prior to investing.
Our
common shares are listed on the New York Stock Exchange (“NYSE”) and trade under the ticker symbol “RA.”
The new [●]% Series [●] [Cumulative] Preferred Shares (“Series [●] Preferred”) are not
currently traded on a stock exchange. The last reported sale price for our common shares on [●], [●] was $[●]
per share. The net asset value of the Fund’s common shares at the close of business on [●], [●] was $[●]
per share.
You
should review the information set forth under “Risk Factors and Special Considerations“ on page [●]
of the accompanying Prospectus before investing in our new preferred shares.
|
|
Per
Share of
Common
Stock
|
|
|
Total(1)
|
|
Public Offering Price
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
Proceeds, before expenses, to us
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
(1)
|
The aggregate expenses of the offering are estimated to be $[●], which represents approximately $[●] per share.
|
The underwriters may also purchase up to
an additional [●] preferred shares from the Fund at the public offering price, less underwriting discounts and commissions
if any, within [●] days after the date of this Prospectus Supplement. If the over-allotment option is exercised in full,
the total proceeds, before expenses, to the Fund would be $[●] and the total underwriting discounts and commissions would
be $[●]. The preferred shares will be ready for delivery on or about [●].
You should read this Prospectus Supplement
and the accompanying Prospectus before deciding whether to invest in the new preferred shares and retain it for future reference.
The Prospectus Supplement and the accompanying Prospectus contain important information about us. Material that has been incorporated
by reference and other information about us can be obtained from us by calling (855) 777-8001 or from the SEC website (http://www.sec.gov).
Neither the SEC nor any state securities commission has approved
or disapproved these securities or determined if this Prospectus Supplement is truthful or complete. Any representation to the
contrary is a criminal offense.
You should rely only on the information
contained or incorporated by reference in this Prospectus Supplement. The Fund has not authorized any other person to provide you
with different information. If anyone provides you with different or inconsistent information, you should not rely on it. The Fund
is not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Cautionary
Notice Regarding Forward-Looking Statements
|
P-3
|
|
|
About
This Prospectus Supplement
|
P-3
|
|
|
Terms
of the Series [●] Preferred Shares
|
P-4
|
|
|
Use
of Proceeds
|
P-4
|
|
|
Capitalization
|
P-4
|
|
|
Asset
Coverage Ratio
|
P-4
|
|
|
Special
Characteristics and Risks of the Series [●] Preferred Shares
|
P-5
|
|
|
Description
of the Series [●] Preferred Shares
|
P-8
|
|
|
Taxation
|
P-8
|
|
|
Legal
Matters
|
P-8
|
Prospectus
|
|
|
|
Cautionary
Notice Regarding Forward-Looking Statements
|
[●]
|
|
|
Prospectus
Summary
|
[●]
|
|
|
Summary
of Fund Expenses
|
[●]
|
|
|
Financial
Highlights
|
[●]
|
|
|
The
Offer
|
[●]
|
|
|
The
Fund
|
[●]
|
|
|
Use
of Proceeds
|
[●]
|
|
|
Description
of Common Shares
|
[●]
|
|
|
Investment
Objective and Investment Policies
|
[●]
|
|
|
Risk
Factors and Special Considerations
|
[●]
|
|
|
Management
of the Fund
|
[●]
|
|
|
Dividends
and Distributions
|
[●]
|
|
|
Dividend
Reinvestment Plan
|
[●]
|
|
|
Description
of Structure
|
[●]
|
|
|
Certain
Provisions of Maryland Law and the Fund’s Charter and Bylaws
|
[●]
|
|
|
Closed-End
Fund Structure
|
[●]
|
|
|
Repurchase
of Common Shares
|
[●]
|
|
|
Net
Asset Value
|
[●]
|
|
|
Limitation
on Directors’ and Officers’ Liability
|
[●]
|
|
|
Taxation
|
[●]
|
|
|
Plan
of Distribution
|
[●]
|
|
|
Custodian,
Sub-Administrator, Fund Accountant, Transfer Agent and Dividend Disbursing Agent
|
[●]
|
|
|
Legal
Matters
|
[●]
|
|
|
Independent
Registered Public Accounting Firm
|
[●]
|
|
|
Additional
Information
|
[●]
|
|
|
Privacy
Principles of the Fund
|
[●]
|
|
|
Table
of Contents of SAI
|
[●]
|
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
STATEMENTS
This Prospectus Supplement, the accompanying
Prospectus and the SAI contain “forward-looking statements.” Forward-looking statements can be identified by the words
“may,” “will,” “intend,” “expect,” “estimate,” “continue,”
“plan,” “anticipate,” and similar terms and the negative of such terms. Such forward-looking statements
may be contained in this Prospectus Supplement as well as in the accompanying Prospectus. By their nature, all forward-looking
statements involve risks and uncertainties, and actual results could differ materially from those contemplated by the forward-looking
statements. Several factors that could materially affect our actual results are the performance of the portfolio of securities
we hold, the price at which our shares will trade in the public markets and other factors discussed in our periodic filings with
the Securities and Exchange Commission (the “SEC”). Currently known risk factors that could cause actual results to
differ materially from our expectations include, but are not limited to, the factors described in the “Risk Factors and Special
Considerations” section of the Prospectus. We urge you to review carefully that section for a more detailed discussion of
the risks of an investment in our securities.
Although we believe that the expectations
expressed in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed
in our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements,
are subject to change and are subject to inherent risks and uncertainties, such as those disclosed in the “Risk Factors and
Special Considerations” section of the Prospectus. All forward-looking statements contained or incorporated by reference
in this Prospectus Supplement or the accompanying Prospectus are made as of the date of this Prospectus Supplement or the accompanying
Prospectus, as the case may be. Except for our ongoing obligations under the federal securities laws, we do not intend, and we
undertake no obligation, to update any forward-looking statement. The forward-looking statements contained in this Prospectus Supplement,
the accompanying Prospectus and the SAI are excluded from the safe harbor protection provided by section 27A of the Securities
Act of 1933, as amended.
ABOUT THIS PROSPECTUS SUPPLEMENT
You should rely only on the information
contained or incorporated by reference in this Prospectus Supplement and the accompanying Prospectus. The Fund has not, and the
underwriters have not, authorized anyone to provide you with inconsistent information. If anyone provides you with inconsistent
information, you should not assume that the Fund or the underwriters have authorized or verified it. The Fund is not, and the underwriters
are not, making an offer of these securities in any state where the offer is not permitted. You should not assume that the information
contained in this Prospectus Supplement and the accompanying Prospectus is accurate as of any date other than the date on the front
hereof or thereof. The Fund’s business, financial condition, results of operations and prospects may have changed since those
date.
This document has two parts. The first
part is this Prospectus Supplement, which describes the terms of this offering of preferred shares and also adds to and updates
information contained in the accompanying Prospectus. The second part is the accompanying Prospectus, which gives more general
information and disclosure. To the extent the information contained in this Prospectus Supplement differs from or is additional
to the information contained in the accompanying Prospectus, you should rely only on the information contained in this Prospectus
Supplement. You should read this Prospectus Supplement and the accompanying Prospectus before investing in the preferred shares.
TERMS OF THE SERIES [●] PREFERRED
SHARES
Dividend Rate
|
The annual dividend rate will be [●]%.
|
|
|
Dividend Payment Date
|
[Dividends will be paid when, as and if declared on [●], [●], [●] and [●], commencing.] The payment date for the initial dividend period will be [●].]
|
|
|
[Regular Dividend Period]
|
[Regular dividend periods will be [●] days.]
|
|
|
Liquidation Preference
|
$[●] per share.
|
|
|
[Non-Call Period/Redemption]
|
The shares generally may not be called
for redemption at the option of the Fund prior to [●]. The Fund reserves the right, however, to redeem the Series [●]
Preferred Shares at any time if it is necessary, in the judgment of the Board of Directors, to meet tax, regulatory or rating agency
asset coverage requirements.
[Commencing [●], and thereafter,
to the extent permitted by the 1940 Act and Maryland law, the Fund may at any time, upon notice of redemption, redeem the Series [●]
Preferred Shares in whole or in part at the liquidation preference per share plus accumulated unpaid dividends through the date
of redemption.]
|
|
|
[Stock Exchange Listing]
|
Application will be made to list the Series [●] Preferred Shares on the [NYSE]. Prior to the offering, there has been no public market for Series [●] Preferred Shares. It is anticipated that trading on the [NYSE] will begin within [●] days from the date of this Prospectus Supplement.
|
USE OF PROCEEDS
We estimate the net proceeds of the offering
to be $[●] based on the public offering price of $[●] per share and after deducting commissions and estimated offering
expenses payable by us.
Brookfield Public Securities Group LLC
(the “Investment Adviser”) anticipates that investment of the net proceeds of the Offer in accordance with the Fund’s
investment objective and investment policies will be completed within three months after completion of the Offer. The Fund intends
use the proceeds of the Offer to make investments consistent with its investment objective. See “The Offer—Purpose
of the Offer,” “Investment Objective and Investment Policies” and, in the SAI, “Investment Restrictions.”
Pending such investment, it is anticipated that the net proceeds will be invested in fixed income securities and other permitted
investments. See “Investment Objective and Investment Policies.”
CAPITALIZATION
[To be provided]
ASSET COVERAGE RATIO
Pursuant to the 1940 Act, the Fund generally
will not be permitted to declare any dividend, or declare any other distribution, upon any outstanding common shares, or purchase
any such shares of common shares, unless, in every such case, all preferred shares issued by the Fund have at the time of declaration
of any such dividend or distribution or at the time of any such purchase an asset coverage of at least 200% (“1940 Act Asset
Coverage Requirement”) after deducting the amount of such dividend, distribution, or purchase price, as the case may be.
In addition to the 1940 Act Asset Coverage
Requirement, the Fund will be subject to certain restrictions on investments imposed by guidelines of one or more rating agencies,
which will issue ratings for certain of the preferred shares and may issue a rating for the Series [●] Preferred Shares.
SPECIAL CHARACTERISTICS AND RISKS OF
THE SERIES [●] PREFERRED SHARES
Dividends
Holders of Series [●] Preferred
Shares shall be entitled to receive cumulative cash dividends and distributions at the rate of [●]% per annum (computed on
the basis of a 360-day year consisting of twelve 30-day months) of the $[●] liquidation preference on the Series [●]
Preferred Shares. Dividends and distributions on Series [●] Preferred Shares will accumulate from the date of their
original issue, which is [●].
Dividends and distributions will be payable
quarterly on [●] (each a “Dividend Payment Date”) commencing on [●] (or, if any such day is not a business
day, then on the next succeeding business day) to holders of record of Series [●] Preferred Shares as they appear on
the shareholder register of the Fund at the close of business on the fifth preceding business day. Dividends and distributions
on Series [●] Preferred Shares shall accumulate from the date on which the shares are originally issued. Each period
beginning on and including a Dividend Payment Date (or the date of original issue, in the case of the first dividend period after
issuance of the Series [●] Preferred Shares) and ending on but excluding the next succeeding Dividend Payment Date is
referred to herein as a “Dividend Period.” Dividends and distributions on account of arrears for any past Dividend
Period or in connection with the redemption of Series [●] Preferred Shares may be declared and paid at any time, without
reference to any Dividend Payment Date, to holders of record on such date as shall be fixed by the Board of Directors.
No full dividends or distributions will
be declared or paid on Series [●] Preferred Shares for any Dividend Period or part thereof unless full cumulative dividends
and distributions due through the most recent Dividend Payment Dates therefor for all series of preferred shares of the Fund ranking
on a parity with the Series [●] Preferred Shares as to the payment of dividends and distributions have been or contemporaneously
are declared and paid through the most recent Dividend Payment Dates therefor. If full cumulative dividends and distributions due
have not been paid on all outstanding preferred shares of the Fund, any dividends and distributions being paid on such preferred
shares (including the Series [●] Preferred Shares) will be paid as nearly pro rata as possible in proportion
to the respective amounts of dividends and distributions accumulated but unpaid on each such series of preferred shares on the
relevant Dividend Payment Date.
Restrictions on Dividend, Redemption and Other Payments
Under the 1940 Act, the Fund is not permitted
to issue preferred shares (such as the Series [●] Preferred Shares) unless immediately after such issuance the Fund
will have an asset coverage of at least 200% (or such other percentage as may in the future be specified in or under the 1940 Act
as the minimum asset coverage for senior securities representing shares of a closed-end investment company as a condition of declaring
distributions, purchases or redemptions of its shares). In general, the term “asset coverage” for this purpose means
the ratio the value of the total assets of the Fund, less all liabilities and indebtedness not represented by senior securities,
bears to the aggregate amount of senior securities representing indebtedness of the Fund plus the aggregate of the involuntary
liquidation preference of the preferred shares. The involuntary liquidation preference refers to the amount to which the preferred
shares would be entitled on the involuntary liquidation of the Fund in preference to a security junior to them. The Fund also is
not permitted to declare any cash dividend or other distribution on its common shares or purchase its common shares unless, at
the time of such declaration or purchase, the Fund satisfies this 200% asset coverage requirement after deducting the amount of
the distribution or purchase price, as applicable. In addition, the Fund may be limited in its ability to declare any cash distribution
on its shares of stock (including the Series [●] Preferred Shares) or purchase its shares of stock (including the Series [●]
Preferred Shares) unless, at the time of such declaration or purchase, the Fund has an asset coverage on its indebtedness, if any,
of at least 300% after deducting the amount of such distribution or purchase price, as applicable. The 1940 Act contains an exception,
however, that permits dividends to be declared upon any preferred shares issued by the Fund (including the Series [●]
Preferred Shares) if the Fund’s indebtedness has an asset coverage of at least 200% at the time of declaration after deducting
the amount of the dividend. In general, the term “asset coverage” for this purpose means the ratio which the value
of the total assets of the Fund, less all liabilities and indebtedness not represented by senior securities, bears to the aggregate
amount of senior securities representing indebtedness of the Fund.
The term “senior security”
does not include any promissory note or other evidence of indebtedness in any case where such a loan is for temporary purposes
only and in an amount not exceeding 5% of the value of the total assets of the Fund at the time when the loan is made. A loan is
presumed under the 1940 Act to be for temporary purposes if it is repaid within 60 days and is not extended or renewed; otherwise
it is presumed not to be for temporary purposes. For purposes of determining whether the 200% and 300% asset coverage requirements
described above apply in connection with dividends or distributions on or purchases or redemptions of Series [●] Preferred
Shares, the asset coverage may be calculated on the basis of values calculated as of a time within 48 hours (not including Sundays
or holidays) next preceding the time of the applicable determination.
Voting Rights
Except as otherwise provided in the Fund’s
governing documents or a resolution of the Board of Directors or its delegatee, or as required by applicable law, holders of Series [●]
Preferred Shares shall have no power to vote on any matter except matters submitted to a vote of the Fund’s common shares.
In any matter submitted to a vote of the holders of the common shares, each holder of Series [●] Preferred Shares shall
be entitled to one vote for each share of Series [●] Preferred Shares held and the holders of all outstanding preferred
shares, including Series [●] Preferred Shares, and the common shares shall vote together as a single class; provided,
however, that at any meeting of the shareholders of the Fund held for the election of Directors, the holders of the outstanding
preferred shares, including Series [●] Preferred Shares, shall be entitled, as a class, to the exclusion of the holders
of all other classes of shares of stock of the Fund, to elect a number of Fund directors, such that following the election of directors
at the meeting of the shareholders, the Fund’s Board of Directors shall contain two directors elected by the holders of the
outstanding preferred shares, including the Series [●] Preferred Shares.
During any period in which any one or more
of the conditions described below shall exist (such period being referred to herein as a “Voting Period”), the number
of directors constituting the Board of Directors shall be increased by the smallest number of additional directors that, when added
to the two directors elected exclusively by the holders of outstanding preferred shares, would constitute a simple majority of
the Board of Directors as so increased by such smallest number, and the holders of outstanding preferred shares, including the
Series [●] Preferred Shares, voting separately as one class (to the exclusion of the holders of all other classes of
shares of stock of the Fund) shall be entitled to elect such smallest number of additional directors. The Fund and the Board of
Directors shall take all necessary actions, including amending the Fund’s governing documents, to effect an increase in the
number of directors as described in the preceding sentence. A Voting Period shall commence:
|
(i)
|
if at any time accumulated dividends and distributions on the outstanding shares of Series [●] Preferred Shares equal to at least two full years’ dividends and distributions shall be due and unpaid; or
|
|
(ii)
|
if at any time holders of any other preferred shares are entitled to elect a majority of the Directors of the Fund under the 1940 Act or Registration Statement or other instrument creating such shares.
|
Redemption
Mandatory
Redemption. Under certain circumstances, the Series [●] Preferred Shares will be subject to mandatory redemption
by the Fund out of funds legally available therefor in accordance with the Registration Statement and applicable law. If
the Fund fails to have asset coverage, as determined in accordance with Section 18(h) of the 1940 Act, of at least 200%
with respect to all outstanding senior securities of the Fund which are shares, including all outstanding Series [●]
Preferred Shares (or such other asset coverage as may in the future be specified in or under the 1940 Act as the minimum asset
coverage for senior securities which are shares of a closed-end investment company as a condition of declaring dividends on its
common shares), and such failure is not cured as of the cure date specified in the Registration Statement, (i) the Fund shall
give a notice of redemption with respect to the redemption of a sufficient number of preferred shares, which at the Fund’s
determination (to the extent permitted by the 1940 Act and Maryland law) may include any proportion of Series [●] Preferred
Shares, to enable it to meet the asset coverage requirements, and, at the Fund’s discretion, such additional number of shares
of Series [●] Preferred Shares or other preferred shares in order for the Fund to have asset coverage with respect to
the Series [●] Preferred Shares and any other preferred shares remaining outstanding after such redemption as great
as 210%, and (ii) deposit an amount with U.S. Bancorp Fund Services, LLC, and its successors or any other dividend-disbursing
agent appointed by the Fund, having an initial combined value sufficient to effect the redemption of the Series [●]
Preferred Shares or other preferred shares to be redeemed.
On such cure date, the Fund shall redeem,
out of funds legally available therefor, the number of preferred shares, which, to the extent permitted by the 1940 Act and Maryland
law, at the option of the Fund may include any proportion of Series [●] Preferred Shares or any other series of preferred
shares, equal to the minimum number of shares the redemption of which, if such redemption had occurred immediately prior to the
opening of business on such cure date, would have resulted in the Fund having asset coverage immediately prior to the opening of
business on such cure date in compliance with the 1940 Act or, if asset coverage cannot be so restored, all of the outstanding
Series [●] Preferred Shares, at a price equal to $[●] per share plus accumulated but unpaid dividends and distributions
(whether or not earned or declared by the Fund) through the date of redemption.
Optional
Redemption. Prior to [●], the Series [●] Preferred Shares are not subject to optional redemption by
the Fund unless the redemption is necessary, in the judgment of the Board of Directors, to maintain the Fund’s status as
a regulated investment company under Subchapter M of the Internal Revenue Code. Commencing [●] and thereafter, to the extent
permitted by the 1940 Act and Maryland law, the Fund may at any time upon notice redeem the Series [●] Preferred Shares
in whole or in part at a price equal to the liquidation preference per share plus accumulated but unpaid dividends through the
date of redemption.
Liquidation
In the event of any liquidation, dissolution
or winding up of the affairs of the Fund, whether voluntary or involuntary, the holders of Series [●] Preferred Shares
shall be entitled to receive out of the assets of the Fund available for distribution to shareholders, after satisfying claims
of creditors but before any distribution or payment shall be made in respect of the Fund’s common shares or any other shares
of the Fund ranking junior to the Series [●] Preferred Shares as to liquidation payments, a liquidation distribution
in the amount of $[●] per share (the “Liquidation Preference”), plus an amount equal to all unpaid dividends
and distributions accumulated to and including the date fixed for such distribution or payment (whether or not earned or declared
by the Fund, but excluding interest thereon), and such holders shall be entitled to no further participation in any distribution
or payment in connection with any such liquidation, dissolution or winding up of the Fund.
If, upon any liquidation, dissolution or
winding up of the affairs of the Fund, whether voluntary or involuntary, the assets of the Fund available for distribution among
the holders of all outstanding shares of Series [●] Preferred Shares, and any other outstanding shares of a class or
series of the Fund’s preferred shares ranking on a parity with the Series [●] Preferred Shares as to payment upon
liquidation, shall be insufficient to permit the payment in full to such holders of Series [●] Preferred Shares of the
Liquidation Preference plus accumulated and unpaid dividends and distributions and the amounts due upon liquidation with respect
to such other preferred shares of the Fund, then such available assets shall be distributed among the holders of Series [●]
Preferred Shares and such other preferred shares of the Fund ratably in proportion to the respective preferential liquidation amounts
to which they are entitled. Unless and until the Liquidation Preference plus accumulated and unpaid dividends and distributions
has been paid in full to the holders of Series [●] Preferred Shares, no dividends or distributions will be made to holders
of the Fund’s common shares or any other shares of the Fund ranking junior to the Series [●] Preferred Shares
as to liquidation.
Stock Exchange Listing
Application has been made to list the Series [●]
Preferred Shares on the [NYSE]. The shares of Series [●] Preferred Shares are expected to commence trading on the [NYSE]
within [●] days of the date of issuance.
Risks
Risk is inherent in all investing. Therefore,
before investing in the Series [●] Preferred Shares you should consider the risks carefully. See “Risk Factors
and Special Considerations” in the Prospectus. Primary risks associated with an investment in the Series [●] Preferred
Shares include:
Market
Price Risk. The market price for the Series [●] Preferred Shares will be influenced by changes in interest
rates, the perceived credit quality of the Series [●] Preferred Shares and other factors, and may be higher or lower
than the liquidation preference of the Series [●] Preferred Shares. There is currently no market for the Series [●]
Preferred Shares.
Liquidity
Risk. Currently, there is no public market for the Series [●] Preferred Shares. As noted above, an application
has been made to list the Series [●] Stock on the [NYSE]. However, during an initial period which is not expected to
exceed [●] days after the date of its issuance, the Series [●] Preferred Shares will not be listed on any securities
exchange.
Redemption
Risk. The Fund may at any time redeem Series [●] Preferred Shares to the extent necessary to meet regulatory
asset coverage requirements or requirements imposed by credit rating agencies. For example, if the value of the Fund’s investment
portfolio declines, thereby reducing the asset coverage for the Series [●] Preferred Shares, the Fund may be obligated
under the terms of the Series [●] Preferred Shares to redeem some or all of the Series [●] Preferred Shares.
In addition, commencing [●], the Fund will be able to call the Series [●] Preferred Shares at the option of the
Fund. Investors may not be able to reinvest the proceeds of any redemption in an investment providing the same or a higher dividend
rate than that of the Series [●] Preferred Shares.
The Series [●] Preferred Shares
are not a debt obligation of the Fund. The Series [●] Preferred Shares are junior in respect of distributions and liquidation
preference to any indebtedness incurred by the Fund, and are of the same ranking as the distributions and liquidation preference
of the Series [●] Preferred Shares. Although unlikely, precipitous declines in the value of the Fund’s assets
could result in the Fund having insufficient assets to redeem all of the Series [●] Preferred Shares for the full redemption
price.
[Credit Rating Risk. The Fund is
seeking a credit rating on the Series [●] Preferred Shares. Any credit rating that is issued on the Series [●]
Preferred Shares could be reduced or withdrawn while an investor holds Series [●] Preferred Shares. A reduction or withdrawal
of the credit rating would likely have an adverse effect on the market value of the Series [●] Preferred Shares. In
addition, a credit rating does not eliminate or mitigate the risks of investing in the Series [●] Preferred Shares.]
Distribution
Risk. The Fund may not meet the asset coverage requirements or earn sufficient income from its investments to make distributions
on the Series [●] Preferred Shares.
DESCRIPTION OF THE SERIES [●] PREFERRED
SHARES
[To be provided]
TAXATION
[To be provided]
LEGAL MATTERS
Certain legal matters will be passed on
by Paul Hastings LLP, 200 Park Avenue, New York, New York 10166 in connection with the offering of the preferred shares.
Certain
legal matters will be passed on by [●] in connection with the offering of the preferred shares as Maryland counsel
to the Fund.
Brookfield Real Assets Income Fund Inc.
[●]Shares
[●]% Series [●] [●]
Preferred Shares
(Liquidation Preference $[●] per
share)
PROSPECTUS SUPPLEMENT
[●], [●]
Filed Pursuant to Rule 497(c)
Registration Statement No. 333-[●]
The information in this Prospectus is not complete
and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission
is effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
Subject to Completion, Dated
December 18, 2020
FORM PROSPECTUS SUPPLEMENT
(To Prospectus Dated [●],
2020)
[●]
Rights for [●] Shares
Subscription
Rights for Common Shares
Brookfield Real Assets Income Fund Inc.
(the “Fund”, “we”, “us” or “our”) is issuing subscription rights (the “Rights”)
to our common shareholders to purchase additional common shares (the “Offer”). This prospectus supplement (the “Prospectus
Supplement”) together with the accompanying prospectus dated [●], 2020, (the “Prospectus”) set forth the
information that you should know prior to investing.
The Fund is a diversified, closed-end management
investment company whose investment objective is to seek high total return, primarily through high current income and secondarily,
through growth of capital. The Fund’s investment adviser is Brookfield Public Securities Group LLC (the “Investment
Adviser”).
Our
common shares are listed on the New York Stock Exchange (“NYSE”) and trade under the ticker symbol “RA.”
On, [●] (the last trading date prior to the Common Shares trading ex-Rights), the last reported net asset value per share
of the Common Shares was $[●] and the last reported sales price per Common Share on the NYSE was $[●].
An investment in the Fund is not appropriate
for all investors. We cannot assure you that the Fund’s investment objective will be achieved. You should read this Prospectus
Supplement and the accompanying Prospectus before deciding whether to invest in common shares and retain it for future reference.
The Prospectus Supplement and the accompanying Prospectus contain important information about us. Material that has been incorporated
by reference and other information about us can be obtained from us by calling (855) 777-8001 or from the Securities and Exchange
Commission’s (“SEC”) website (http://www.sec.gov). For additional information all holders of rights should contact
the Information Agent, [●], toll-free at [●] or please send written request to: [●].
Investing
in common shares through Rights involves certain risks that are described in the “Special Characteristics
and Risks of the Rights Offering“ section beginning on page R-[●] of the Prospectus Supplement.
SHAREHOLDERS WHO DO NOT EXERCISE THEIR
RIGHTS MAY, AT THE COMPLETION OF THE OFFERING, OWN A SMALLER PROPORTIONAL INTEREST IN THE FUND THAN IF THEY EXERCISED THEIR RIGHTS.
AS A RESULT OF THE OFFERING YOU MAY EXPERIENCE DILUTION OR ACCRETION OF THE AGGREGATE NET ASSET VALUE OF YOUR COMMON SHARES
DEPENDING UPON WHETHER THE FUND’S NET ASSET VALUE PER COMMON SHARE IS ABOVE OR BELOW THE SUBSCRIPTION PRICE ON THE EXPIRATION
DATE. NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
SUPPLEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
|
Per
Share
|
|
Total
|
Subscription price of Common Shares to shareholders exercising Rights
|
$
|
[ ]
|
|
$
|
[ ]
|
Underwriting Discounts & Commissions
|
$
|
[ ]
|
|
$
|
[ ]
|
Proceeds, before expenses, to the Fund (1)
|
$
|
[ ]
|
|
$
|
[ ]
|
(1)
|
The aggregate expenses of the offering are estimated to be $[●].
|
The common stock is expected to be ready
for delivery in book-entry form through the Depository Trust Company on or about [●]. If the offer is extended, the common
stock is expected to be ready for delivery in book-entry form through the Depository Trust Company on or about, [●].
The date of this Prospectus Supplement
is, [●]
You should rely only on the information
contained or incorporated by reference in this Prospectus Supplement and the accompanying Prospectus. The Fund has not authorized
anyone to provide you with different information. The Fund is not making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should not assume that the information contained in this Prospectus Supplement and
the accompanying Prospectus is accurate as of any date other than the date of this Prospectus Supplement and the accompanying Prospectus,
respectively. Our business, financial condition, results of operations and prospects may have changed since those dates. In this
Prospectus Supplement and in the accompanying Prospectus, unless otherwise indicated, “Fund,” “us,” “our”
and “we” refer to Brookfield Real Assets Income Fund Inc. This Prospectus Supplement also includes trademarks owned
by other persons.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Cautionary
Notice Regarding Forward-Looking Statements
|
R-5
|
|
|
About
This Prospectus Supplement
|
R-5
|
|
|
Summary
of the Terms of the Rights Offering
|
R-6
|
|
|
Description
of the Rights Offering
|
R-8
|
|
|
Table
of Fees and Expenses
|
R-13
|
|
|
Use
of Proceeds
|
R-13
|
|
|
Financial
Highlights
|
R-14
|
|
|
Capitalization
|
R-14
|
|
|
Price
Range of Common Shares
|
R-14
|
|
|
Special
Characteristics And Risks of the Rights Offering
|
R-14
|
|
|
Taxation
|
R-16
|
|
|
Legal
Matters
|
R-16
|
Prospectus
|
|
|
|
Cautionary Notice
Regarding Forward-Looking Statements
|
[●]
|
|
|
Prospectus
Summary
|
[●]
|
|
|
Summary
of Fund Expenses
|
[●]
|
|
|
Financial
Highlights
|
[●]
|
|
|
The Offer
|
[●]
|
|
|
The
Fund
|
[●]
|
|
|
Use
of Proceeds
|
[●]
|
|
|
Description of
Common Shares
|
[●]
|
|
|
Investment
Objective and Investment Policies
|
[●]
|
|
|
Risk
Factors and Special Considerations
|
[●]
|
|
|
Management
of the Fund
|
[●]
|
|
|
Dividends
and Distributions
|
[●]
|
|
|
Dividend Reinvestment
Plan
|
[●]
|
|
|
Description of Structure
|
[●]
|
|
|
Certain Provisions
of Maryland Law and the Fund’s Charter and Bylaws
|
[●]
|
|
|
Closed-End Fund
Structure
|
[●]
|
|
|
Repurchase of Common
Shares
|
[●]
|
|
|
Net Asset Value
|
[●]
|
|
|
Limitation on
Directors’ and Officers’ Liability
|
[●]
|
|
|
Taxation
|
[●]
|
|
|
Plan of Distribution
|
[●]
|
|
|
Custodian, Sub-Administrator,
Fund Accountant, Transfer Agent and Dividend Disbursing Agent
|
[●]
|
|
|
Legal Matters
|
[●]
|
|
|
Independent Registered
Public Accounting Firm
|
[●]
|
Additional Information
|
[●]
|
|
|
Privacy Principles
of the Fund
|
[●]
|
|
|
Table of Contents
of SAI
|
[●]
|
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
STATEMENTS
This Prospectus Supplement, the accompanying
Prospectus and the SAI contain “forward-looking statements.” Forward-looking statements can be identified by the words
“may,” “will,” “intend,” “expect,” “estimate,” “continue,”
“plan,” “anticipate,” and similar terms and the negative of such terms. Such forward-looking statements
may be contained in this Prospectus Supplement as well as in the accompanying Prospectus. By their nature, all forward-looking
statements involve risks and uncertainties, and actual results could differ materially from those contemplated by the forward-looking
statements. Several factors that could materially affect our actual results are the performance of the portfolio of securities
we hold, the price at which our shares will trade in the public markets and other factors discussed in our periodic filings with
the SEC. Currently known risk factors that could cause actual results to differ materially from our expectations include, but are
not limited to, the factors described in the “Risk Factors and Special Considerations” section of the Prospectus. We
urge you to review carefully that section for a more detailed discussion of the risks of an investment in our securities.
Although we believe that the expectations
expressed in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed
in our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements,
are subject to change and are subject to inherent risks and uncertainties, such as those disclosed in the “Risk Factors and
Special Considerations” section of the Prospectus. All forward-looking statements contained or incorporated by reference
in this Prospectus Supplement or the accompanying Prospectus are made as of the date of this Prospectus Supplement or the accompanying
Prospectus, as the case may be. Except for our ongoing obligations under the federal securities laws, we do not intend, and we
undertake no obligation, to update any forward-looking statement. The forward-looking statements contained in this Prospectus Supplement,
the accompanying Prospectus and the SAI are excluded from the safe harbor protection provided by section 27A of the Securities
Act of 1933, as amended.
ABOUT THIS PROSPECTUS SUPPLEMENT
You should rely only on the information contained or incorporated
by reference in this Prospectus Supplement and the accompanying Prospectus. The Fund has not, and the underwriters have not, authorized
anyone to provide you with inconsistent information. If anyone provides you with inconsistent information, you should not assume
that the Fund or the underwriters have authorized or verified it. The Fund is not, and the underwriters are not, making an offer
of these securities in any state where the offer is not permitted. You should not assume that the information contained in this
Prospectus Supplement and the accompanying Prospectus is accurate as of any date other than the date on the front hereof or thereof.
The Fund’s business, financial condition, results of operations and prospects may have changed since those date.
This document has two parts. The first part is this Prospectus
Supplement, which describes the terms of this offering of Rights to our common shareholders to purchase additional common shares
and also adds to and updates information contained in the accompanying Prospectus. The second part is the accompanying Prospectus,
which gives more general information and disclosure. To the extent the information contained in this Prospectus Supplement differs
from or is additional to the information contained in the accompanying Prospectus, you should rely only on the information contained
in this Prospectus Supplement. You should read this Prospectus Supplement and the accompanying Prospectus before investing in the
Rights.
SUMMARY OF THE TERMS OF THE RIGHTS OFFERING
Terms of the Offer
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|
[●] transferable subscription right (a “Right”) will be issued for each common share of the Fund (each, a “Common Share,” and collectively, the “Common Shares”) held on the record date. Rights are expected to trade on the [NYSE]]. The Rights will allow common shareholders to subscribe for new Common Shares of the Fund. [●] Common Shares of the Fund are outstanding as of [●], [●]. [●] Rights will be required to purchase one Common Share. [An Over-Subscription Privilege will be offered[, subject to the right of the Board of Directors of the Fund (the “Board”) to eliminate the Over-Subscription Privilege.]] [●] Common Shares of the Fund will be issued if all Rights are exercised. [Additional Common Shares will be issued if the Over-Subscription Privilege is exercised.] See “Terms of the Rights Offering.” Any Common Shares issued as a result of the rights offering will not be record date shares for the Fund’s quarterly distribution to be paid on [●], [●] and will not be entitled to receive such dividend.
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Amount Available for Primary Subscription
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Approximately $[●], before expenses.
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Title
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Subscription Rights for Common Shares
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Subscription Price
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Rights may be exercised at a price of $[●] per Common Share (the “Subscription Price”). See “Terms of the Offer.”
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Record Date
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Rights will be issued to holders of record of the Fund’s Common Shares on, [●] (the “Record Date”). See “Terms of the Offer.”
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Number of Rights Issued
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Right will be issued in respect of each Common Share of the Fund outstanding on the Record Date. See “Terms of the Offer.”
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Number of Rights Required to Purchase One Common Share
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A holder of Rights may purchase Common Shares of the Fund for every Right exercised. The number of Rights to be issued to a shareholder on the Record Date will be rounded up to the nearest number of Rights evenly divisible by. See “Terms of the Offer.”
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Over-Subscription Privilege
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Record Date common shareholders (“Record Date Common Shareholders”) who fully exercise all Rights issued to them (other than those Rights to acquire less than one common share, which cannot be exercised) are entitled to subscribe for additional common shares which were not subscribed for by other Record Date Common Shareholders, subject to certain limitations and subject to allotment. This is known as the “over-subscription privilege” (the “Over-Subscription Privilege”). Investors who are not Record Date Common Shareholders, but who otherwise acquire Rights to purchase our common shares pursuant to the Offer, are not entitled to subscribe for any of our common shares pursuant to the Over-Subscription Privilege. If sufficient common shares are available, all Record Date Common Shareholders’ over-subscription requests will be honored in full. If these requests for common shares exceed the common shares available, the available common shares will be allocated pro rata among Record Date Common Shareholders who over-subscribe based on the number of Rights originally issued to them by the Fund.
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Transfer of Rights
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The Rights will be transferable. See “Terms of the Rights Offering,” “Sales by Subscription Agent” and “Method of Transferring Rights.”
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Subscription Period
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The Rights may be exercised at any time after issuance and prior to expiration of the Rights, which will be 5:00 PM Eastern Time on, [●] (the “Expiration Date”) (the “Subscription Period”). See “Terms of the Offer” and “Method of Exercise of Rights.”
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Offer Expenses
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The expenses of the Offer are expected to be approximately $[●]. See “Use of Proceeds.”
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Sale of Rights
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The Rights are transferable until the completion of the Subscription Period and will be admitted for trading on the [●]. Although no assurance can be given that a market for the Rights will develop, trading in the Rights on the [●] is expected to begin three Business Days prior to the Record Date and may be conducted until the close of trading on the last [●] trading day prior to the completion of the Subscription Period. For purposes of this Prospectus, a “Business Day” shall mean any day on which trading is conducted on the [●].
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The value of the Rights, if any, will be
reflected by the market price. Rights may be sold by individual holders or may be submitted to the Subscription Agent (defined
below) for sale. Any Rights submitted to the Subscription Agent for sale must be received by the Subscription Agent on or before
[●], [●], three Business Days prior to the completion of the Subscription Period, due to normal settlement procedures.
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Rights that are sold will not confer any right to acquire any Common Shares in any [primary or secondary] over-subscription, and any Record Date Shareholder who sells any Rights will not be eligible to participate in the [primary or secondary] Over-Subscription Privilege, if any.
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Trading of the Rights on the [●] will be conducted on a when-issued basis until and including the date on which the Subscription Certificates (as defined below) are mailed to Record Date Shareholders and thereafter will be conducted on a regular-way basis until and including the last [●] trading day prior to the completion of the Subscription Period. The shares are expected to begin trading ex-Rights [●] Business Days prior to the Record Date.
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If the Subscription Agent receives Rights for sale in a timely manner, it will use its best efforts to sell the Rights on the [●]. The Subscription Agent will also attempt to sell any Rights (i) a Rights holder is unable to exercise because the Rights represent the right to subscribe for less than one new Common Share or (ii) attributable to shareholders whose record addresses are outside the United States [and Canada], or who have an APO or FPO address. See “Foreign Restrictions.”
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Any commissions will be paid by the selling Rights holders. Neither the Fund nor the Subscription Agent will be responsible if Rights cannot be sold and neither has guaranteed any minimum sales price for the Rights. If the Rights can be sold, sales of these Rights will be deemed to have been effected at the weighted average price received by the Subscription Agent on the day such Rights are sold, less any applicable brokerage commissions, taxes and other expenses.
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Shareholders are urged to obtain a recent trading price for the Rights on the [●] from their broker, bank, financial advisor or the financial press.
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Banks, broker-dealers and trust companies that hold shares for the accounts of others are advised to notify those persons that purchase Rights in the secondary market that such Rights will not participate in any Over-Subscription Privilege. See “Terms of the Rights Offering” and “Sales by Subscription Agent.”
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Use of Proceeds
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The Fund estimates the net proceeds of the Offer to be approximately $[●]. The Investment Adviser anticipates that investment of the net proceeds of the Offer in accordance with the Fund’s investment objective and investment policies will be completed within three months after completion of the Offer. The Fund intends use the proceeds of the Offer to make investments consistent with its investment objective. See “The Offer—Purpose of the Offer,” “Investment Objective and Investment Policies” and, in the SAI, “Investment Restrictions.” Pending such investment, it is anticipated that the net proceeds will be invested in fixed income securities and other permitted investments. See “Investment Objective and Investment Policies.”
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Taxation/ERISA
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See “Employee Plan Considerations.”
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Subscription Agent
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[To be provided.]
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DESCRIPTION OF THE RIGHTS OFFERING
Terms of the Rights Offering
The Fund is issuing to shareholders of
record as of [●], [●] (“the Record Date”, and such shareholders, the “Record Date Shareholders”)
Rights
to subscribe for Common Shares of the Fund. Each Record Date Shareholder is being issued [●] transferable Right
for each Common Share owned on the Record Date. The Rights entitle the holder to acquire for $[●] (the “Subscription
Price”) one new Common Share for each [●] Rights held rounded up to the nearest number of Rights evenly divisible by
[●]. Fractional shares will not be issued upon the exercise of the Rights. Accordingly, Common Shares may be purchased only
pursuant to the exercise of Rights in integral multiples of [●]. In the case of Common Shares held of record by Cede &
Co. (“Cede”), as nominee for the Depository Trust Company (“DTC”), or any other depository or nominee,
the number of Rights issued to Cede or such other depository or nominee will be adjusted to permit rounding up (to the nearest
number of Rights evenly divisible by [●]) of the Rights to be received by beneficial owners for whom it is the holder of
record only if Cede or such other depository or nominee provides to the Fund on or before the close of business on [●], [●]
written representation of the number of Rights required for such rounding. Rights may be exercised at any time during the period
(the “Subscription Period”) which commences on [●], [●], and ends at [5:00] PM Eastern Time on [●],
[●] (the “Expiration Date”). The right to acquire one Common Share for each [●] Rights held during the
Subscription Period (or any extension thereof) at the Subscription Price will be referred to in the remainder of this Prospectus
Supplement as the “Subscription.” Rights will expire on the Expiration Date and thereafter may not be exercised. Any
Common Share issued as a result of the rights offering will not be record date shares for the Fund’s quarterly dividend to
be paid on [●], [●] and will not be entitled to receive such dividend.
Rights may be evidenced by subscription
certificates or may be uncertificated and evidenced by other appropriate documentation (“Subscription Certificates”).
The number of Rights issued to each holder will be stated on the Subscription Certificate delivered to the holder. The method by
which Rights may be exercised and shares paid for is set forth below in “Method of Exercise of Rights” and “Payment
for Shares.” A Holder of Rights will have no right to rescind a purchase after [●] (the “Subscription Agent”)
has received payment. See “Payment for Shares” below. It is anticipated that the Common Shares issued pursuant to an
exercise of Rights will be listed on the [●].
Rights holders who are not Record
Date Common Shareholders may purchase common shares as described above (the “Primary Subscription”), but are not
entitled to subscribe for common shares pursuant to the Over-Subscription Privilege. Holders of Rights who are Record Date
Shareholders are entitled to subscribe for additional Common Shares at the same Subscription Price pursuant to the
Over-Subscription Privilege, subject to certain limitations, subject to allotment and subject to the right of the Board to
eliminate the Over-Subscription Privilege. See “Over-Subscription Privilege” below.
For purposes of determining the maximum
number of Common Shares that may be acquired pursuant to the offer, broker-dealers, trust companies, banks or others whose shares
are held of record by Cede or by any other depository or nominee will be deemed to be the holders of the Rights that are held by
Cede or such other depository or nominee on their behalf.
The Rights are transferable until the completion
of the Subscription Period and will be admitted for trading on the [●]. Assuming a market exists for the Rights, the Rights
may be purchased and sold through usual brokerage channels and also sold through the Subscription Agent. Although no assurance
can be given that a market for the Rights will develop, trading in the Rights on the [●] is expected to begin three Business
Days prior to the Record Date and may be conducted until the close of trading on the last [●] trading day prior to the completion
of the Subscription Period. Trading of the Rights on the [●] is expected to be conducted on a when-issued basis until and
including the date on which the Subscription Certificates are mailed to Record Date Shareholders and thereafter is expected to
be conducted on a regular way basis until and including the last [●] trading day prior to the completion of the Subscription
Period. The method by which Rights may be transferred is set forth below under “Method of Transferring Rights.” The
Common Shares are expected to begin trading ex-Rights two Business Days prior to the Record Date as determined and announced by
the NYSE.
Nominees who hold the Fund’s Common
Shares for the account of others, such as banks, broker-dealers, trustees or depositories for securities, should notify the respective
beneficial owners of such shares as soon as possible to ascertain such beneficial owners’ intentions and to obtain instructions
with respect to the Rights. If the beneficial owner so instructs, the nominee should complete the Subscription Certificate and
submit it to the Subscription Agent with proper payment. In addition, beneficial owners of the Common Shares or Rights held through
such a nominee should contact the nominee and request the nominee to effect transactions in accordance with such beneficial owner’s
instructions.
Participants in the Fund’s Dividend
Reinvestment Plan (the “Plan”) will be issued Rights in respect of the Common Shares held in their accounts in the
Plan. Participants wishing to exercise these Rights must exercise the Rights in accordance with the procedures set forth in “Method
of Exercise of Rights” and “Payment for Shares.”
Important Dates to Remember
[Please note that the dates in the table
below may change if the rights offering is extended.]
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|
EVENT
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DATE
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Record Date
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[●], [●]
|
Subscription Period
|
|
[●], [●] through [●], [●]
|
Expiration Date*
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|
[●], [●]
|
Payment for Guarantees of Delivery Due*
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[●], [●]
|
Confirmation Date
|
|
[●], [●]
|
*
|
A shareholder exercising Rights must deliver by [5:00 PM] Eastern Time on [●], [●] either (a) a Subscription Certificate and payment for shares or (b) a notice of guaranteed delivery and payment for shares.
|
Over-Subscription Privilege
Record Date Common Shareholders who fully
exercise all Rights issued to them (other than those Rights to acquire less than one common share, which cannot be exercised) are
entitled to subscribe for additional common shares which were not subscribed for by other Record Date Common Shareholders, subject
to certain limitations and subject to allotment. This is known as the “over-subscription privilege” (the “Over-Subscription
Privilege”). Investors who are not Record Date Common Shareholders, but who otherwise acquire Rights to purchase our common
shares pursuant to the Offer, are not entitled to subscribe for any of our common shares pursuant to the Over-Subscription Privilege.
If sufficient common shares are available, all Record Date Common Shareholders’ over-subscription requests will be honored
in full. If these requests for common shares exceed the common shares available, the available common shares will be allocated
pro rata among Record Date Common Shareholders who over-subscribe based on the number of Rights originally issued to them
by the Fund.
The Fund will not offer or sell any common
shares that are not subscribed for pursuant to the Primary Subscription or the Over-Subscription Privilege.
Sales by Subscription Agent
Holders of Rights who are unable or do
not wish to exercise any or all of their Rights may instruct the Subscription Agent to sell any unexercised Rights. The Subscription
Certificates representing the Rights to be sold by the Subscription Agent must be received on or before [●], [●]. Upon
the timely receipt of the appropriate instructions to sell Rights, the Subscription Agent will use its best efforts to complete
the sale and will remit the proceeds of sale, net of any commissions, to the holders. The Subscription Agent will also attempt
to sell any Rights attributable to shareholders whose record addresses are outside the United States [and Canada], or who have
an APO or FPO address. The selling Rights holder will pay all brokerage commissions incurred by the Subscription Agent, [●]
(the “Dealer Manager”), a registered broker-dealer, may also act on behalf of its clients to purchase or sell Rights
in the open market and be compensated for its services at a commission of up to $[●] per Right, provided that, if the Rights
trade at a value of $0.01 or less at the time of such sale, then no commission will be charged. The Subscription Agent will automatically
attempt to sell any unexercised Rights that remain unclaimed as a result of Subscription Certificates being returned by the postal
authorities as undeliverable as of the fourth Business Day prior to the Expiration Date. These sales will be made net of commissions,
taxes and any other expenses paid on behalf of the nonclaiming holders of Rights. Proceeds from those sales will be held by American
Stock Transfer & Trust Company, in its capacity as the Fund’s transfer agent, for the account of the nonclaiming
holder of Rights until the proceeds are either claimed or escheated. There can be no assurance that the Subscription Agent will
be able to complete the sale of any of these Rights and neither the Fund nor the Subscription Agent has guaranteed any minimum
sales price for the Rights. All of these Rights will be sold at the market price, if any, through an exchange or market trading
the Rights. If the Rights can be sold, sales of the Rights will be deemed to have been effected at the weighted average price received
by the Subscription Agent on the day such Rights are sold, less any applicable brokerage commissions, taxes and other expenses.
Holders of Rights attempting to sell any
unexercised Rights in the open market through a broker-dealer other than the Dealer Manager should consider the commissions and
fees charged by the broker-dealer prior to selling their rights on the open market.
Shareholders are urged to obtain a recent
trading price for the Rights on the [●] from their broker, bank, financial advisor or the financial press.
Method of Transferring Rights
The value of the Rights, if any, will be
reflected by the market price. Rights may be sold by individual holders or may be submitted to the Subscription Agent for sale.
Any Rights submitted to the Subscription Agent for sale must be received by the Subscription Agent on or before [●], [●],
three Business Days prior to the completion of the Subscription Period, due to normal settlement procedures.
Rights that are sold will not confer any
right to acquire any Common Shares in any primary over-subscription, and any Record Date Shareholder who sells any Rights will
not be eligible to participate in the primary over-subscription, if any.
The Rights evidenced by a single Subscription
Certificate may be transferred in whole by endorsing the Subscription Certificate for transfer in accordance with the accompanying
instructions. A portion of the Rights evidenced by a single Subscription Certificate (but not fractional Rights) may be transferred
by delivering to the Subscription Agent a Subscription Certificate properly endorsed for transfer, with instructions to register
the portion of the Rights evidenced thereby in the name of the transferee (and to issue a new Subscription Certificate to the transferee
evidencing the transferred Rights). In this event, a new Subscription Certificate evidencing the balance of the Rights will be
issued to the Rights holder or, if the Rights holder so instructs, to an additional transferee.
Holders wishing to transfer all or a portion
of their Rights (but not fractional Rights) should promptly transfer such Rights to ensure that: (i) the transfer instructions
will be received and processed by the Subscription Agent, (ii) a new Subscription Certificate will be issued and transmitted
to the transferee or transferees with respect to transferred Rights, and to the transferor with respect to retained Rights, if
any, and (iii) the Rights evidenced by the new Subscription Certificates may be exercised or sold by the recipients thereof
prior to the Expiration Date. Neither the Fund nor the Subscription Agent shall have any liability to a transferee or transferor
of Rights if Subscription Certificates are not received in time for exercise or sale prior to the Expiration Date.
Except for the fees charged by the Subscription
Agent (which will be paid by the Fund as described below), all commissions, fees and other expenses (including brokerage commissions
and transfer taxes) incurred in connection with the purchase, sale or exercise of Rights will be for the account of the transferor
of the Rights, and none of these commissions, fees or expenses will be borne by the Fund or the Subscription Agent.
The Fund anticipates that the Rights will
be eligible for transfer through, and that the exercise of the Rights may be effected through, the facilities of DTC (Rights exercised
through DTC are referred to as “DTC Exercised Rights”).
Subscription Agent
The Subscription Agent is [●]. The
Subscription Agent will receive from the Fund an amount estimated to be $[●], comprised of the fee for its services and the
reimbursement for certain expenses related to the Rights offering.
Information Agent
INQUIRIES BY ALL HOLDERS OF RIGHTS SHOULD
BE DIRECTED TO: THE INFORMATION AGENT, [●]; HOLDERS MAY ALSO CONSULT THEIR BROKERS OR NOMINEES.
Method of Exercise of Rights
Rights may be exercised by completing and
signing the reverse side of the Subscription Certificate and mailing it in the envelope provided, or otherwise delivering the completed
and signed Subscription Certificate to the Subscription Agent, together with payment for the Common Shares as described below under
“Payment for Shares.” Rights may also be exercised through the broker of a holder of Rights, who may charge the holder
of Rights a servicing fee in connection with such exercise.
Completed Subscription Certificates must
be received by the Subscription Agent prior to 5:00 PM Eastern Time, on the Expiration Date (unless payment is effected by means
of a notice of guaranteed delivery as described below under “Payment for Shares”). The Subscription Certificate and
payment should be delivered to the Subscription Agent at the following address:
By First Class Mail Only (Overnight/Express Mail):
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Brookfield Real Assets Income Fund Inc.
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c/o [●]
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By Express Mail or Overnight Courier:
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Brookfield Real Assets Income Fund Inc.
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c/o [●]
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Payment for Shares
Holders of Rights who acquire Common Shares
in the Subscription may choose between the following methods of payment:
(1) A holder of Rights can send the
Subscription Certificate, together with payment in the form of a check for the Common Shares subscribed for in the Rights offering
and, if eligible, for any additional Common Shares subscribed for pursuant to the Over-Subscription Privilege, to the Subscription
Agent based on the Subscription Price of $[●] per Common Share. To be accepted, the payment, together with the executed Subscription
Certificate, must be received by the Subscription Agent at the address noted above prior to 5:00 PM Eastern Time on the Expiration
Date. The Subscription Agent will deposit all share purchase checks received by it prior to the final due date into a segregated
account pending proration and distribution of Common Shares. The Subscription Agent will not accept cash as a means of payment
for Common Shares.
(2) Alternatively, a subscription
will be accepted by the Subscription Agent if, prior to 5:00 PM Eastern Time on the Expiration Date, the Subscription Agent has
received a written notice of guaranteed delivery from a bank, trust company, or a NYSE member, guaranteeing delivery of (i) payment
of the full Subscription Price for the Common Shares subscribed for in the Rights offering and, if eligible, for any additional
Common Shares subscribed for pursuant to the Over-Subscription Privilege, and (ii) a properly completed and executed Subscription
Certificate. The Subscription Agent will not honor a notice of guaranteed delivery if a properly completed and executed Subscription
Certificate is not received by the Subscription Agent by the close of business on the third Business Day after the Expiration Date
and the full payment is not received by the Expiration Date. The notice of guaranteed delivery may be delivered to the Subscription
Agent in the same manner as Subscription Certificates at the addresses set forth above, or may be transmitted to the Subscription
Agent by facsimile transmission (fax number [●]; telephone number to confirm receipt [●]).
EXCEPT AS OTHERWISE SET FORTH BELOW, A
PAYMENT PURSUANT TO THIS METHOD MUST BE IN UNITED STATES DOLLARS BY CHECK DRAWN ON A BANK LOCATED IN THE CONTINENTAL UNITED STATES
(OR FOR ELIGIBLE CANADIAN RESIDENTS, A BANK LOCATED IN CANADA), MUST BE PAYABLE TO BROOKFIELD REAL ASSETS INCOME FUND INC. AND
MUST ACCOMPANY AN EXECUTED SUBSCRIPTION CERTIFICATE TO BE ACCEPTED.
If a holder of Rights who acquires Common
Shares pursuant to the Rights offering does not make payment of all amounts due, the Fund reserves the right to take any or all
of the following actions: (i) find other purchasers for such subscribed-for and unpaid-for Common Shares; (ii) apply
any payment actually received by it toward the purchase of the greatest whole number of Common Shares which could be acquired by
such holder upon exercise of the Rights or any Over-Subscription Privilege; (iii) sell all or a portion of the Common Shares
purchased by the holder, in the open market, and apply the proceeds to the amounts owed; and (iv) exercise any and all other
rights or remedies to which it may be entitled, including, without limitation, the right to set off against payments actually received
by it with respect to such subscribed Common Shares and to enforce the relevant guarantee of payment.
Issuance and delivery of certificates from
the common shares purchased are subject to collection of checks. Any payment required from a holder of Rights must be received
by the Subscription Agent prior to 5:00 PM Eastern Time on the Expiration Date.
Within ten Business Days following the
Expiration Date (the “Confirmation Date”), a confirmation will be sent by the Subscription Agent to each holder of
Rights (or, if the Common Shares are held by Cede or any other depository or nominee, to Cede or such other depository or nominee),
showing (i) the number of Common Shares acquired pursuant to the Subscription, (ii) the number of Common Shares, if any,
acquired pursuant to the Over-Subscription Privilege, and (iii) the per share and total purchase price for the Common Shares.
Any payment required from a holder of Rights must be received by the Subscription Agent on or prior to the Expiration Date. Any
excess payment to be refunded by the Fund to a holder of Rights, or to be paid to a holder of Rights as a result of sales of Rights
on its behalf by the Subscription Agent, will be mailed by the Subscription Agent to the holder within fifteen business days after
the Expiration Date.
A holder of Rights will have no right to
rescind a purchase after the Subscription Agent has received payment either by means of a notice of guaranteed delivery or a check.
Holders, such as broker-dealers, trustees
or depositories for securities, who hold Common Shares for the account of others, should notify the respective beneficial owners
of the Common Shares as soon as possible to ascertain such beneficial owners’ intentions and to obtain instructions with
respect to the Rights. If the beneficial owner so instructs, the record holder of the Rights should complete Subscription Certificates
and submit them to the Subscription Agent with the proper payment. In addition, beneficial owners of Common Shares or Rights held
through such a holder should contact the holder and request that the holder effect transactions in accordance with the beneficial
owner’s instructions. Banks, broker-dealers, trustees and other nominee holders that hold Common Shares of the Fund for the
accounts of others are advised to notify those persons that purchase Rights in the secondary market that such Rights may not participate
in any Over-Subscription Privilege offered.
THE INSTRUCTIONS ACCOMPANYING THE SUBSCRIPTION
CERTIFICATES SHOULD BE READ CAREFULLY AND FOLLOWED IN DETAIL. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE FUND.
THE METHOD OF DELIVERY OF SUBSCRIPTION
CERTIFICATES AND PAYMENT OF THE SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF THE RIGHTS HOLDERS,
BUT IF SENT BY MAIL IT IS RECOMMENDED THAT THE CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF
PAYMENT PRIOR TO [5:00 PM] EASTERN TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE
BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF A CERTIFIED OR CASHIER’S CHECK
OR MONEY ORDER.
All questions concerning the timeliness,
validity, form and eligibility of any exercise of Rights will be determined by the Fund, whose determinations will be final and
binding. The Fund in its sole discretion may waive any defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any Right. Subscriptions will not be deemed to have been
received or accepted until all irregularities have been waived or cured within such time as the Fund determines in its sole discretion.
Neither the Fund nor the Subscription Agent will be under any duty to give notification of any defect or irregularity in connection
with the submission of Subscription Certificates or incur any liability for failure to give such notification.
Foreign Restrictions
Subscription Certificates will only be
mailed to Record Date Shareholders whose addresses are within the United States [and Canada] (other than an APO or FPO address).
Because the offering of the Rights will not be registered in any jurisdiction other than the United States [and Canada], the Subscription
Agent will attempt to sell all of the Rights issued to shareholder’s outside of these jurisdictions and remit the net proceeds,
if any, to such shareholders. If the Rights can be sold, sales of these Rights will be deemed to have been effected at the weighted
average price received by the Subscription Agent on the day the Rights are sold, less any applicable brokerage commissions, taxes
and other expenses.
TABLE OF FEES AND EXPENSES
The following tables are intended to assist
you in understanding the various costs and expenses directly or indirectly associated with investing in our common shares as a
percentage of net assets attributable to common shares. Amounts are for the current fiscal year after giving effect to anticipated
net proceeds of the offering, assuming that we incur the estimated offering expenses.
Shareholder Transaction Expenses
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|
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|
|
Offering Expenses Borne by the Fund (as a percentage of offering price)
|
|
|
[●]
|
%
|
Dividend Reinvestment Sales Fees
|
|
$
|
[●]
|
|
Annual Expenses (as a percentage of net assets attributable to common shares)
|
|
|
|
|
Management Fees
|
|
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[●]
|
|
Interest Payments on Borrowed Funds
|
|
|
[None]
|
|
Other Expenses
|
|
|
[●]
|
%
|
Total Annual Expenses
|
|
|
[●]
|
%
|
Total Annual Expenses
|
|
|
[●]
|
%
|
Example
The following example illustrates the expenses
you would pay on a $1,000 investment in common shares, assuming a 5% annual portfolio total return.* The actual amounts in connection
with any offering will be set forth in the Prospectus Supplement if applicable.
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1
Year
|
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3
Years
|
|
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5
Years
|
|
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10
Years
|
|
Total Expenses Incurred
|
|
|
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|
|
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|
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*
|
The example should not be considered a representation of future expenses. The example assumes that the amounts set forth in the Annual Expenses table are accurate and that all distributions are reinvested at net asset value. Actual expenses may be greater or less than those assumed. Moreover, the Fund’s actual rate of return may be greater or less than the hypothetical 5% return shown in the example.
|
USE OF PROCEEDS
The Fund estimates the net proceeds of
the Offer to be $[●], based on the Subscription Price per share of $[●], assuming all new Common Shares offered are
sold and that the expenses related to the Offer estimated at approximately $[●] are paid.
The Investment Adviser anticipates that
investment of the net proceeds of the Offer in accordance with the Fund’s investment objective and investment policies will
be completed within three months after completion of the Offer. The Fund intends use the proceeds of the Offer to make investments
consistent with its investment objective. See “The Offer—Purpose of the Offer,” “Investment Objective and
Investment Policies” and, in the SAI, “Investment Restrictions.” Pending such investment, it is anticipated that
the net proceeds will be invested in fixed income securities and other permitted investments. See “Investment Objective and
Investment Policies.”
FINANCIAL HIGHLIGHTS
[To be provided.]
CAPITALIZATION
[To be provided.]
PRICE RANGE OF COMMON SHARES
The following table sets forth for the
quarters indicated, the high and low sale prices on the NYSE per common share and the net asset value and the premium or discount
from net asset value per share at which the common shares were trading, expressed as a percentage of net asset value, at each of
the high and low sale prices provided.
[To be provided.]
On, [●], the last reported net asset
value per Common Share was $[●] and the last reported sales price Common Share on the NYSE was $[●].
SPECIAL CHARACTERISTICS AND RISKS OF
THE RIGHTS OFFERING
Risk is inherent in all investing. Therefore,
before investing in Common Shares, you should consider the risks associated with such an investment carefully. See “Risk
Factors and Special Considerations” in the Prospectus. The following summarizes some of the matters that you should consider
before investing in the Fund through the Offer:
Risks
of Investing in Rights. Shares of closed-end investment companies, such as the Fund, frequently trade at a price below
their NAV, commonly referred to as a “discount.” In the past, common shares of the Fund have generally traded at a
discount, but have, on occasion, traded at a premium. The Subscription Price may be greater than the market price of a Common Share
on the Expiration Date. In such case, the Rights will have no value, and a person who exercises Rights will experience an immediate
loss of value.
Dilution.
As with any security, the price of the Fund’s Common Shares fluctuates with market conditions and other factors. [The Common
Shares are currently trading at a [discount/premium] to their net asset value.] However, shares of closed-end investment companies
frequently trade at a discount from their net asset values. This characteristic is a risk separate and distinct from the risk that
the Fund’s net asset value could decrease as a result of its investment activities and may be greater for shareholders expecting
to sell their Common Shares in a relatively short period of time following completion of this Rights offering. The net asset value
of the Common Shares will be reduced immediately following this Rights offering as a result of the payment of certain offering
costs.
If you do not exercise all of your Rights,
you may own a smaller proportional interest in the Fund when the Rights offering is over. In addition, you will experience an immediate
dilution of the aggregate net asset value per share of your Common Share if you do not participate in the Rights offering and will
experience a reduction in the net asset value per share whether or not you exercise your Rights, if the Subscription Price is below
the Fund’s net asset value per Common Share on the Expiration Date, because:
|
•
|
|
the offered Common Shares are being sold at less than their current net asset value;
|
|
•
|
|
you will indirectly bear the expenses of the Rights offering; and
|
|
•
|
|
the number of Common Shares outstanding after the Rights offering will have increased proportionately more than the increase in the amount of the Fund’s net assets.
|
On the other hand, if the Subscription
Price is above the Fund’s net asset value per share on the Expiration Date, you may experience an immediate accretion of
the aggregate net asset value per Common Share even if you do not exercise your Rights and an immediate increase in the net asset
value per Common Share whether or not you participate in the Offer, because:
|
•
|
|
the offered Common Shares are being sold at more than their current net asset value after deducting the expenses of the Rights offering; and
|
|
•
|
|
the number of Common Shares outstanding after the Rights offering will have increased proportionately less than the increase in the amount of the Fund’s net assets.
|
[Furthermore, if you do not participate
in the Over-Subscription Privilege, if it is available, your percentage ownership may also be diluted.] The Fund cannot state precisely
the amount of any dilution because it is not known at this time what the net asset value per share will be on the Expiration Date
or what proportion of the Rights will be exercised. The impact of the Rights offering on net asset value per share is shown by
the following examples, assuming a $[●] Subscription Price:
Scenario 1: (assumes net asset value per share is above subscription price)(1)
|
NAV
|
|
$
|
[●]
|
Subscription Price
|
|
$
|
[●]
|
Reduction in NAV($)(2)
|
|
$
|
[●]
|
Reduction in NAV(%)
|
|
|
[●]
|
Scenario 2: (assumes net asset value per share is below subscription price)(1)
|
|
|
|
NAV
|
|
$
|
[●]
|
Subscription Price
|
|
$
|
[●]
|
Increase in NAV($)(2)
|
|
$
|
[●]
|
Increase in NAV(%)
|
|
|
[●]
|
(1)
|
[Both examples assume the full Primary Subscription and Secondary Over-Subscription Privilege are exercised.] Actual amounts may vary due to rounding.
|
(2)
|
Assumes $[●] in estimated offering expenses.
|
If you do not wish to exercise your Rights,
you should consider selling them as set forth in this Prospectus Supplement. Any cash you receive from selling your Rights may
serve as partial compensation for any possible dilution of your interest in the Fund. The Fund cannot give assurance, however,
that a market for the Rights will develop or that the Rights will have any marketable value.
[The Fund’s largest shareholders
could increase their percentage ownership in the Fund through the exercise of the Primary Subscription and Over-Subscription Privilege.]
Leverage.
Leverage creates a greater risk of loss, as well as a potential for more gain, for the Common Shares than if leverage were not
used. Following the completion of the Offer, the Fund’s amount of leverage outstanding will decrease. The leverage of the
Fund as of [●] was [●]%. After the completion of the Offer, the leverage of the Fund is expected to decrease to [•]%.
The use of leverage for investment purposes creates opportunities for greater total returns but at the same time increases risk.
When leverage is employed, the net asset value, market price of the Common Shares and the yield to holders of Common Shares may
be more volatile. Any investment income or gains earned with respect to the amounts borrowed in excess of the interest due on the
borrowing will augment the Fund’s income. Conversely, if the investment performance with respect to the amounts borrowed
fails to cover the interest on such borrowings, the value of the Fund’s Common Shares may decrease more quickly than would
otherwise be the case, and distributions on the Common Shares would be reduced or eliminated. Interest payments and fees incurred
in connection with such borrowings will reduce the amount of net income available for distribution to common shareholders.
Because the fee paid to the Investment
Adviser is calculated on the basis of the Fund’s average weekly net assets, the dollar amount of the management fee paid
by the Fund to the Investment Adviser will be higher (and the Investment Adviser will be benefited to that extent) when leverage
is utilized. The Investment Adviser will utilize leverage only if it believes such action would result in a net benefit to the
Fund’s shareholders after taking into account the higher fees and expenses associated with leverage (including higher management
fees).
The Fund’s leveraging strategy may
not be successful.
Increase
in Share Price Volatility; Decrease in Share Price. The Offer may result in an increase in trading of the Common Shares,
which may increase volatility in the market price of the Common Shares. The Offer may result in an increase in the number of shareholders
wishing to sell their Common Shares, which would exert downward price pressure on the price of Common Shares.
Under-Subscription.
It is possible that the Offer will not be fully subscribed. Under-subscription of the Offer could have an impact on the net proceeds
of the Offer and whether the Fund achieves any benefits.
TAXATION
[To be provided.]
LEGAL MATTERS
Certain legal matters will be passed on
by Paul Hastings LLP, 200 Park Avenue, New York, New York 10166 in connection with the offering of the common shares.
Certain
legal matters will be passed on by [●] in connection with the offering of the common shares as Maryland counsel to
the Fund.
Brookfield
Real Assets Income Fund Inc.
Common
Shares
Issuable
Upon Exercise of Rights to
Subscribe
to Such Common Shares
PROSPECTUS
SUPPLEMENT
[●], 2020
Filed Pursuant to Rule 497(c)
Registration Statement No. 333-[●]
The information in this Prospectus is not complete
and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission
is effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
Subject
to Completion, Dated December 18, 2020
FORM PROSPECTUS
SUPPLEMENT
(To
Prospectus Dated [●], 2020)
[●]
Rights for [●] Shares
Subscription
Rights for [●]% Series [●] [Cumulative] Preferred Shares
Brookfield Real Assets Income Fund Inc.
(the “Fund”, “we”, “us” or “our”) is issuing subscription rights (the “Rights”)
to our [common] [preferred] shareholders to purchase shares of [●]% Series [●] [●] Preferred Shares (the
“Series [●] Preferred Shares”).
The Fund is a diversified, closed-end management
investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund’s
primary investment objective is to seek high total return, primarily through high current income and secondarily, through growth
of capital. The Fund’s investment adviser is Brookfield Public Securities Group LLC (the “Investment Adviser”).
Our
common shares are listed on the New York Stock Exchange (“NYSE”) and trade under the ticker symbol “RA.”
On, [●] (the last trading date prior to the Common Shares trading ex-Rights), the last reported net asset value per share
of the Common Shares was $[●] and the last reported sales price per Common Share on the NYSE was $[●].
An investment in the Fund is not appropriate
for all investors. We cannot assure you that the Fund’s investment objective will be achieved. You should read this prospectus
supplement (“Prospectus Supplement”) and the accompanying Prospectus before deciding whether to invest in common shares
and retain it for future reference. The Prospectus Supplement and the accompanying Prospectus contain important information about
us. Material that has been incorporated by reference and other information about us can be obtained from us by calling (855) 777-8001
or from the Securities and Exchange Commission’s (“SEC”) website (http://www.sec.gov). For additional information
all holders of Rights should contact the Information Agent, [●], toll-free at [●] or please send written request to:
[●].
Investing
in preferred shares through Rights involves certain risks that are described in the “Special
Characteristics and Risks of the Rights Offering“ section beginning on page RR-[●] of the Prospectus Supplement.
NEITHER THE SEC NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS SUPPLEMENT IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
|
|
Per
Share
|
|
|
Total
|
|
Subscription price of Common Shares to shareholders exercising Rights
|
|
$
|
|
|
|
$
|
|
|
Proceeds, before expenses, to the Fund (1)
|
|
$
|
|
|
|
$
|
|
|
(1)
|
The aggregate expenses of the offering are estimated to be $[●].
|
The preferred shares are expected to be
ready for delivery in book-entry form through the Depository Trust Company on or about, [●]. If the offer is extended, the
preferred shares are expected to be ready for delivery in book-entry form through the Depository Trust Company on or about, [●].
The
date of this Prospectus Supplement is, [●], 2020
You should rely only on the information
contained or incorporated by reference in this Prospectus Supplement and the accompanying Prospectus. The Fund has not authorized
anyone to provide you with different information. The Fund is not making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should not assume that the information contained in this Prospectus Supplement and
the accompanying Prospectus is accurate as of any date other than the date of this Prospectus Supplement and the accompanying Prospectus,
respectively. Our business, financial condition, results of operations and prospects may have changed since those dates. In this
Prospectus Supplement and in the accompanying Prospectus, unless otherwise indicated, “Fund,” “us,” “our”
and “we” refer to Brookfield Real Assets Income Fund Inc. This Prospectus Supplement also includes trademarks owned
by other persons.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Cautionary
Notice Regarding Forward-Looking Statements
|
RR-5
|
|
|
About
This Prospectus Supplement
|
RR-5
|
|
|
Summary
of the Terms of the Rights Offering
|
RR-6
|
|
|
Terms
of the Series Preferred Shares
|
RR-6
|
|
|
Description
of the Rights Offering
|
RR-7
|
|
|
Use
of Proceeds
|
RR-7
|
|
|
Capitalization
|
RR-7
|
|
|
Asset
Coverage Ratio
|
RR-7
|
|
|
Special
Characteristics and Risks of the Series [●] Preferred Shares
|
RR-8
|
|
|
Taxation
|
RR-11
|
|
|
Legal
Matters
|
RR-11
|
|
Prospectus
|
Cautionary
Notice Regarding Forward-Looking Statements
|
[●]
|
|
|
Prospectus
Summary
|
[●]
|
|
|
Summary
of Fund Expenses
|
[●]
|
|
|
Financial
Highlights
|
[●]
|
|
|
The
Offer
|
[●]
|
|
|
The
Fund
|
[●]
|
|
|
Use
of Proceeds
|
[●]
|
|
|
Description
of Common Shares
|
[●]
|
|
|
Investment
Objective and Investment Policies
|
[●]
|
|
|
Risk
Factors and Special Considerations
|
[●]
|
|
|
Management
of the Fund
|
[●]
|
|
|
Dividends
and Distributions
|
[●]
|
|
|
Dividend
Reinvestment Plan
|
[●]
|
|
|
Description
of Structure
|
[●]
|
|
|
Certain
Provisions of Maryland Law and the Fund’s Charter and Bylaws
|
[●]
|
|
|
Closed-End
Fund Structure
|
[●]
|
|
|
Repurchase
of Common Shares
|
[●]
|
|
|
Net
Asset Value
|
[●]
|
|
|
Limitation
on Directors’ and Officers’ Liability
|
[●]
|
|
|
Taxation
|
[●]
|
|
|
Plan
of Distribution
|
[●]
|
|
|
Custodian,
Sub-Administrator, Fund Accountant, Transfer Agent and Dividend Disbursing Agent
|
[●]
|
|
|
Legal
Matters
|
[●]
|
|
|
Independent
Registered Public Accounting Firm
|
[●]
|
|
|
Additional
Information
|
[●]
|
|
|
Privacy
Principles of the Fund
|
[●]
|
|
|
Table
of Contents of SAI
|
[●]
|
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
STATEMENTS
This Prospectus Supplement, the accompanying
Prospectus and the SAI contain “forward-looking statements.” Forward-looking statements can be identified by the words
“may,” “will,” “intend,” “expect,” “estimate,” “continue,”
“plan,” “anticipate,” and similar terms and the negative of such terms. Such forward-looking statements
may be contained in this Prospectus Supplement as well as in the accompanying Prospectus. By their nature, all forward-looking
statements involve risks and uncertainties, and actual results could differ materially from those contemplated by the forward-looking
statements. Several factors that could materially affect our actual results are the performance of the portfolio of securities
we hold, the price at which our shares will trade in the public markets and other factors discussed in our periodic filings with
the SEC. Currently known risk factors that could cause actual results to differ materially from our expectations include, but are
not limited to, the factors described in the “Risk Factors and Special Considerations” section of the Prospectus. We
urge you to review carefully that section for a more detailed discussion of the risks of an investment in our securities.
Although we believe that the expectations
expressed in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed
in our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements,
are subject to change and are subject to inherent risks and uncertainties, such as those disclosed in the “Risk Factors and
Special Considerations” section of the Prospectus. All forward-looking statements contained or incorporated by reference
in this Prospectus Supplement or the accompanying Prospectus are made as of the date of this Prospectus Supplement or the accompanying
Prospectus, as the case may be. Except for our ongoing obligations under the federal securities laws, we do not intend, and we
undertake no obligation, to update any forward-looking statement. The forward-looking statements contained in this Prospectus Supplement,
the accompanying Prospectus and the SAI are excluded from the safe harbor protection provided by section 27A of the Securities
Act of 1933, as amended.
ABOUT THIS PROSPECTUS SUPPLEMENT
You should rely only on the information
contained or incorporated by reference in this Prospectus Supplement and the accompanying Prospectus. The Fund has not, and the
underwriters have not, authorized anyone to provide you with inconsistent information. If anyone provides you with inconsistent
information, you should not assume that the Fund or the underwriters have authorized or verified it. The Fund is not, and the underwriters
are not, making an offer of these securities in any state where the offer is not permitted. You should not assume that the information
contained in this Prospectus Supplement and the accompanying Prospectus is accurate as of any date other than the date on the front
hereof or thereof. The Fund’s business, financial condition, results of operations and prospects may have changed since those
date.
This document has two parts. The first
part is this Prospectus Supplement, which describes the terms of this offering of Rights to our [common] [preferred] shareholders
to purchase additional shares of the Series [●] Preferred Shares and also adds to and updates information contained
in the accompanying Prospectus. The second part is the accompanying Prospectus, which gives more general information and disclosure.
To the extent the information contained in this Prospectus Supplement differs from or is additional to the information contained
in the accompanying Prospectus, you should rely only on the information contained in this Prospectus Supplement. You should read
this Prospectus Supplement and the accompanying Prospectus before investing in the Rights.
SUMMARY OF THE TERMS OF THE RIGHTS OFFERING
Terms of the Offer
|
|
[To be provided.]
|
|
|
Amount Available for Primary Subscription
|
|
$[●]
|
|
|
Title
|
|
Subscription Rights for Series [●] Preferred Shares
|
|
|
Exercise Price
|
|
Rights may be exercised at a price of $[●] per share (the “Subscription Price”). See “Terms of the Offer.”
|
|
|
Record Date
|
|
Rights will be issued to holders of record of the Fund’s [Common or Preferred] Stock on, [●] (the “Record Date”). See “Terms of the Offer.”
|
|
|
Number of Rights Issued
|
|
Right will be issued in respect of each share of [Common or Preferred] Stock of the Fund outstanding on the Record Date. See “Terms of the Offer.”
|
|
|
Number of Rights Required to Purchase One Preferred Share
|
|
A holder of Rights may purchase a Preferred Share of the Fund for every Right exercised. The number of Rights to be issued to a shareholder on the Record Date will be rounded up to the nearest number of Rights evenly divisible by. See “Terms of the Offer.”
|
|
|
Over-Subscription Privilege
|
|
[To be provided.]
|
|
|
Transfer of Rights
|
|
[To be provided.]
|
|
|
Exercise Period
|
|
The Rights may be exercised at any time after issuance and prior to expiration of the Rights, which will be 5:00 PM Eastern Time on, [●] (the “Expiration Date”) (the “Subscription Period”). See “Terms of the Offer” and “Method of Exercise of Rights.”
|
|
|
Offer Expenses
|
|
The expenses of the Offer are expected to be approximately $[●]. See “Use of Proceeds.”
|
|
|
Sale of Rights
|
|
[To be provided.]
|
|
|
Use of Proceeds
|
|
The Fund estimates the net proceeds of the Offer to be approximately $[●]. This figure is based on the Exercise Price per share of $ and assumes all new shares of Series [●] Preferred Shares offered are sold and that the expenses related to the Offer estimated at approximately $[●] are paid.
|
|
|
|
|
The Investment Adviser anticipates that investment of the proceeds will be made in accordance with the Fund’s investment objective and investment policies as appropriate investment opportunities are identified, which is expected to be substantially completed in approximately three months; however, the identification of appropriate investment opportunities pursuant to the Fund’s investment style or changes in market conditions may cause the investment period to extend as long as six months. Pending such investment, the proceeds will be held in high quality short-term debt securities and instruments. See “Use of Proceeds.”
|
|
|
|
Taxation/ERISA
|
|
See “Employee Plan Considerations.”
|
|
|
Subscription Agent
|
|
[To be provided.]
|
TERMS OF THE SERIES PREFERRED SHARES
Dividend Rate
|
|
Dividends and distributions on Shares of Series [●] Preferred Shares are cumulative from their original issue date at the annual rate of [●]%.
|
|
|
Dividend Payment Rate
|
|
Holders of Shares of Series [●] Preferred Shares shall be entitled to receive, when, as and if declared by, or under authority granted by, the Board of Directors, out of funds legally available therefor, cumulative cash dividends and distributions. Dividends and distributions will be paid [●], commencing on [●].
|
Liquidation Preference
|
|
$[●] per share
|
|
|
[Non-Call Period]
|
|
[The Shares of Series [●] Preferred Shares generally may not be called for redemption at the option of the Fund prior to [●]. The Fund reserves the right, however, to redeem the Shares of Series [●] Preferred Shares at any time if it is necessary, in the judgment of the Board of Directors, to meet tax, regulatory or rating agency asset coverage requirements.
|
|
|
|
|
Commencing [●], and thereafter, to the extent permitted by the 1940 Act and Maryland law, the Fund may at any time, upon notice of redemption, redeem the Shares of Series [●] Preferred Shares in whole or in part at the liquidation preference per share plus accumulated unpaid dividends through the date of redemption.]
|
|
|
[Stock Exchange Listing]
|
|
Application will be made to list the Shares of Series [●] Preferred Shares on the [NYSE]. Prior to the offering, there has been no public market for Shares of Series [●] Preferred Shares. It is anticipated that trading on the [NYSE] will begin within [●] days from the date of this Prospectus Supplement.
|
DESCRIPTION OF THE RIGHTS OFFERING
[To be provided]
USE OF PROCEEDS
The Fund estimates the net proceeds of
the Offer to be $[●], based on the Subscription Price per share of $[●].
The Investment Adviser anticipates that
investment of the net proceeds of the Offer in accordance with the Fund’s investment objective and investment policies will
be completed within three months after completion of the Offer. The Fund intends use the proceeds of the Offer to make investments
consistent with its investment objective. See “The Offer—Purpose of the Offer,” “Investment Objective and
Investment Policies” and, in the SAI, “Investment Restrictions.” Pending such investment, it is anticipated that
the net proceeds will be invested in fixed income securities and other permitted investments. See “Investment Objective and
Investment Policies.”
CAPITALIZATION
[To be provided.]
ASSET COVERAGE RATIO
Pursuant to the 1940 Act, the Fund generally
will not be permitted to declare any dividend, or declare any other distribution, upon any outstanding common shares, or purchase
any such common shares, unless, in every such case, all preferred shares issued by the Fund have at the time of declaration of
any such dividend or distribution or at the time of any such purchase an asset coverage of at least 200% (“1940 Act Asset
Coverage Requirement”) after deducting the amount of such dividend, distribution, or purchase price, as the case may be.
As of the date of this Prospectus Supplement, all of the Fund’s outstanding preferred shares are expected to have asset coverage
on the date of issuance of the Series [●] Preferred Shares of approximately [●]%.
In addition to the 1940 Act Asset Coverage
Requirement, the Fund is subject to certain restrictions on investments imposed by guidelines of one or more rating agencies, which
have issued ratings for certain of the preferred shares and may issue a rating for the Series [●] Preferred Shares.
SPECIAL CHARACTERISTICS AND RISKS OF
THE SERIES [●] PREFERRED SHARES
Dividends
Holders of Series [●] Preferred
Shares shall be entitled to receive cumulative cash dividends and distributions at the rate of [●]% per annum (computed on
the basis of a 360-day year consisting of twelve 30-day months) of the $[●] liquidation preference on the Series [●]
Preferred Shares. Dividends and distributions on Series [●] Preferred Shares will accumulate from the date of their
original issue, which is [●].
Dividends and distributions will be payable
quarterly on [●] (each a “Dividend Payment Date”) commencing on [●] (or, if any such day is not a business
day, then on the next succeeding business day) to holders of record of Series [●] Preferred Shares as they appear on
the shareholder register of the Fund at the close of business on the fifth preceding business day. Dividends and distributions
on Series [●] Preferred Shares shall accumulate from the date on which the shares are originally issued. Each period
beginning on and including a Dividend Payment Date (or the date of original issue, in the case of the first dividend period after
issuance of the Series [●] Preferred Shares) and ending on but excluding the next succeeding Dividend Payment Date is
referred to herein as a “Dividend Period.” Dividends and distributions on account of arrears for any past Dividend
Period or in connection with the redemption of Series [●] Preferred Shares may be declared and paid at any time, without
reference to any Dividend Payment Date, to holders of record on such date as shall be fixed by the Board of Directors.
No full dividends or distributions will
be declared or paid on Series [●] Preferred Shares for any Dividend Period or part thereof unless full cumulative dividends
and distributions due through the most recent Dividend Payment Dates therefor for all series of preferred shares of the Fund ranking
on a parity with the Series [●] Preferred Shares as to the payment of dividends and distributions have been or contemporaneously
are declared and paid through the most recent Dividend Payment Dates therefor. If full cumulative dividends and distributions due
have not been paid on all outstanding preferred shares of the Fund, any dividends and distributions being paid on such preferred
shares (including the Series [●] Preferred Shares) will be paid as nearly pro rata as possible in proportion
to the respective amounts of dividends and distributions accumulated but unpaid on each such series of preferred shares on the
relevant Dividend Payment Date.
Restrictions on Dividend, Redemption and Other Payments
Under the 1940 Act, the Fund is not permitted
to issue preferred shares (such as the Series [●] Preferred Shares) unless immediately after such issuance the Fund
will have an asset coverage of at least 200% (or such other percentage as may in the future be specified in or under the 1940 Act
as the minimum asset coverage for senior securities representing shares of a closed-end investment company as a condition of declaring
distributions, purchases or redemptions of its shares). In general, the term “asset coverage” for this purpose means
the ratio the value of the total assets of the Fund, less all liabilities and indebtedness not represented by senior securities,
bears to the aggregate amount of senior securities representing indebtedness of the Fund plus the aggregate of the involuntary
liquidation preference of the preferred shares. The involuntary liquidation preference refers to the amount to which the preferred
shares would be entitled on the involuntary liquidation of the Fund in preference to a security junior to them. The Fund also is
not permitted to declare any cash dividend or other distribution on its common shares or purchase its common shares unless, at
the time of such declaration or purchase, the Fund satisfies this 200% asset coverage requirement after deducting the amount of
the distribution or purchase price, as applicable.
In addition, the Fund may be limited in
its ability to declare any cash distribution on its shares of stock (including the Series [●] Preferred Shares) or purchase
its shares of stock (including the Series [●] Preferred Shares) unless, at the time of such declaration or purchase,
the Fund has an asset coverage on its indebtedness, if any, of at least 300% after deducting the amount of such distribution or
purchase price, as applicable. The 1940 Act contains an exception, however, that permits dividends to be declared upon any preferred
shares issued by the Fund (including the Series [●] Preferred Shares) if the Fund’s indebtedness has an asset
coverage of at least 200% at the time of declaration after deducting the amount of the dividend. In general, the term “asset
coverage” for this purpose means the ratio which the value of the total assets of the Fund, less all liabilities and indebtedness
not represented by senior securities, bears to the aggregate amount of senior securities representing indebtedness of the Fund.
The term “senior security”
does not include any promissory note or other evidence of indebtedness in any case where such a loan is for temporary purposes
only and in an amount not exceeding 5% of the value of the total assets of the Fund at the time when the loan is made. A loan
is presumed under the 1940 Act to be for temporary purposes if it is repaid within 60 days and is not extended or renewed; otherwise
it is presumed not to be for temporary purposes. For purposes of determining whether the 200% and 300% asset coverage requirements
described above apply in connection with dividends or distributions on or purchases or redemptions of Series [●] Preferred
Shares, the asset coverage may be calculated on the basis of values calculated as of a time within 48 hours (not including Sundays
or holidays) next preceding the time of the applicable determination.
Voting Rights
Except as otherwise provided in the Fund’s
governing documents or a resolution of the Board of Directors or its delegatee, or as required by applicable law, holders of Series [●]
Preferred Shares shall have no power to vote on any matter except matters submitted to a vote of the Fund’s common shares.
In any matter submitted to a vote of the holders of the common shares, each holder of Series [●] Preferred Shares shall
be entitled to one vote for each share of Series [●] Preferred Shares held and the holders of all outstanding preferred
shares, including Series [●] Preferred Shares, and the common shares shall vote together as a single class; provided,
however, that at any meeting of the shareholders of the Fund held for the election of Directors, the holders of the outstanding
preferred shares, including Series [●] Preferred Shares, shall be entitled, as a class, to the exclusion of the holders
of all other classes of shares of stock of the Fund, to elect a number of Fund directors, such that following the election of directors
at the meeting of the shareholders, the Fund’s Board of Directors shall contain two directors elected by the holders of the
outstanding preferred shares, including the Series [●] Preferred Shares’.
During any period in which any one or more
of the conditions described below shall exist (such period being referred to herein as a “Voting Period”), the number
of directors constituting the Board of Directors shall be increased by the smallest number of additional directors that, when added
to the two directors elected exclusively by the holders of outstanding preferred shares, would constitute a simple majority of
the Board of Directors as so increased by such smallest number, and the holders of outstanding preferred shares, including the
Series [●] Preferred Shares, voting separately as one class (to the exclusion of the holders of all other classes of
shares of stock of the Fund) shall be entitled to elect such smallest number of additional directors. The Fund and the Board of
Directors shall take all necessary actions, including amending the Fund’s governing documents, to effect an increase in the
number of directors as described in the preceding sentence. A Voting Period shall commence:
|
(i)
|
if at any time accumulated dividends and distributions on the outstanding shares of Series [●] Preferred Shares equal to at least two full years’ dividends and distributions shall be due and unpaid; or
|
|
(ii)
|
if at any time holders of any other preferred shares are entitled to elect a majority of the Directors of the Fund under the 1940 Act or Statement or other instrument creating such shares.
|
Redemption
Mandatory
Redemption. Under certain circumstances, the Series [●] Preferred Shares will be subject to mandatory redemption
by the Fund out of funds legally available therefor in accordance with the Statement and applicable law.
If the Fund fails to have asset coverage,
as determined in accordance with Section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding senior
securities of the Fund which are shares, including all outstanding Series [●] Preferred Shares (or such other asset
coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are
shares of a closed-end investment company as a condition of declaring dividends on its common shares), and such failure is not
cured as of the cure date specified in the Statement, (i) the Fund shall give a notice of redemption with respect to the redemption
of a sufficient number of preferred shares, which at the Fund’s determination (to the extent permitted by the 1940 Act and
Maryland law) may include any proportion of Series [●] Preferred Shares, to enable it to meet the asset coverage requirements,
and, at the Fund’s discretion, such additional number of shares of Series [●] Preferred Shares or other preferred
shares in order for the Fund to have asset coverage with respect to the Series [●] Preferred Shares and any other preferred
shares remaining outstanding after such redemption as great as 210%, and (ii) deposit an amount with U.S. Bancorp Fund Services,
LLC, and its successors or any other dividend-disbursing agent appointed by the Fund, having an initial combined value sufficient
to effect the redemption of the Series [●] Preferred Shares or other preferred shares to be redeemed.
On such cure date, the Fund shall redeem,
out of funds legally available therefor, the number of preferred shares, which, to the extent permitted by the 1940 Act and Maryland
law, at the option of the Fund may include any proportion of Series [●] Preferred Shares or any other series of preferred
shares, equal to the minimum number of shares the redemption of which, if such redemption had occurred immediately prior to the
opening of business on such cure date, would have resulted in the Fund having asset coverage immediately prior to the opening of
business on such cure date in compliance with the 1940 Act or, if asset coverage cannot be so restored, all of the outstanding
Series [●] Preferred Shares, at a price equal to $[●] per share plus accumulated but unpaid dividends and distributions
(whether or not earned or declared by the Fund) through the date of redemption.
Optional
Redemption. Prior to [●], the Series [●] Preferred Shares are not subject to optional redemption by
the Fund unless the redemption is necessary, in the judgment of the Board of Directors, to maintain the Fund’s status as
a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. Commencing [●] and thereafter,
to the extent permitted by the 1940 Act and Maryland law, the Fund may at any time upon notice redeem the Series [●]
Preferred Shares in whole or in part at a price equal to the liquidation preference per share plus accumulated but unpaid dividends
through the date of redemption.
Liquidation
In the event of any liquidation, dissolution
or winding up of the affairs of the Fund, whether voluntary or involuntary, the holders of Series [●] Preferred Shares
shall be entitled to receive out of the assets of the Fund available for distribution to shareholders, after satisfying claims
of creditors but before any distribution or payment shall be made in respect of the Fund’s common shares or any other shares
of the Fund ranking junior to the Series [●] Preferred Shares as to liquidation payments, a liquidation distribution
in the amount of $[●] per share (the “Liquidation Preference”), plus an amount equal to all unpaid dividends
and distributions accumulated to and including the date fixed for such distribution or payment (whether or not earned or declared
by the Fund, but excluding interest thereon), and such holders shall be entitled to no further participation in any distribution
or payment in connection with any such liquidation, dissolution or winding up of the Fund.
If, upon any liquidation, dissolution or
winding up of the affairs of the Fund, whether voluntary or involuntary, the assets of the Fund available for distribution among
the holders of all outstanding shares of Series [●] Preferred Shares, and any other outstanding shares of a class or
series of the Fund’s preferred shares ranking on a parity with the Series [●] Preferred Shares as to payment upon
liquidation, shall be insufficient to permit the payment in full to such holders of Series [●] Preferred Shares of the
Liquidation Preference plus accumulated and unpaid dividends and distributions and the amounts due upon liquidation with respect
to such other preferred shares of the Fund, then such available assets shall be distributed among the holders of Series [●]
Preferred Shares and such other preferred shares of the Fund ratably in proportion to the respective preferential liquidation amounts
to which they are entitled. Unless and until the Liquidation Preference plus accumulated and unpaid dividends and distributions
has been paid in full to the holders of Series [●] Preferred Shares, no dividends or distributions will be made to holders
of the Fund’s common shares or any other shares of the Fund ranking junior to the Series [●] Preferred Shares
as to liquidation.
Stock Exchange Listing
Application has been made to list the Series [●]
Preferred Shares on the [NYSE]. The shares of Series [●] Preferred Shares are expected to commence trading on the [NYSE]
within [●] days of the date of issuance.
Risks
Risk is inherent in all investing. Therefore,
before investing in the Series [●] Preferred Shares you should consider the risks carefully. See “Risk Factors
and Special Considerations” in the Prospectus. Primary risks associated with an investment in the Series [●] Preferred
Shares include:
Market
Price Risk. The market price for the Series [●] Preferred Shares will be influenced by changes in interest
rates, the perceived credit quality of the Series [●] Preferred Shares and other factors, and may be higher or lower
than the liquidation preference of the Series [●] Preferred Shares. There is currently no market for the Series [●]
Preferred Shares.
Liquidity
Risk. Currently, there is no public market for the Series [●] Preferred Shares. As noted above, an application
has been made to list the Series [●] Stock on the [NYSE]. However, during an initial period which is not expected to
exceed [●] days after the date of its issuance, the Series [●] Preferred Shares will not be listed on any securities
exchange.
Redemption
Risk. The Fund may at any time redeem Series [●] Preferred Shares to the extent necessary to meet regulatory
asset coverage requirements or requirements imposed by credit rating agencies. For example, if the value of the Fund’s investment
portfolio declines, thereby reducing the asset coverage for the Series [●] Preferred Shares, the Fund may be obligated
under the terms of the Series [●] Preferred Shares to redeem some or all of the Series [●] Preferred Shares.
In addition, commencing [●], the Fund will be able to call the Series [●] Preferred Shares at the option of the
Fund. Investors may not be able to reinvest the proceeds of any redemption in an investment providing the same or a higher dividend
rate than that of the Series [●] Preferred Shares.
The Series [●] Preferred Shares
are not a debt obligation of the Fund. The Series [●] Preferred Shares are junior in respect of distributions and liquidation
preference to any indebtedness incurred by the Fund, and are of the same ranking as the distributions and liquidation preference
of the Series [●] Preferred Shares. Although unlikely, precipitous declines in the value of the Fund’s assets
could result in the Fund having insufficient assets to redeem all of the Series [●] Preferred Shares for the full redemption
price.
[Credit Rating Risk. The Fund is
seeking a credit rating on the Series [●] Preferred Shares. Any credit rating that is issued on the Series [●]
Preferred Shares could be reduced or withdrawn while an investor holds Series [●] Preferred Shares. A reduction or withdrawal
of the credit rating would likely have an adverse effect on the market value of the Series [●] Preferred Shares. In
addition, a credit rating does not eliminate or mitigate the risks of investing in the Series [●] Preferred Shares.]
Distribution
Risk. The Fund may not meet the asset coverage requirements or earn sufficient income from its investments to make distributions
on the Series [●] Preferred Shares.
TAXATION
[To be provided.]
LEGAL MATTERS
Certain legal matters will be passed on by Paul Hastings LLP,
200 Park Avenue, New York, New York 10166 in connection with the offering of the preferred shares.
Certain
legal matters will be passed on by [●] in connection with the offering of the preferred shares as Maryland counsel
to the Fund.
Brookfield
Real Assets Income Fund Inc.
Shares
% Series [●]
[Cumulative] Preferred Shares
(Liquidation
Preference $[●] per share)
PROSPECTUS SUPPLEMENT
[●], 2020
The information in this
statement of additional information is not complete and may be changed. The Fund may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This statement of additional information is not an offer
to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not
permitted.
Subject to Completion Dated
December 18, 2020
BROOKFIELD REAL ASSETS INCOME FUND INC.
STATEMENT OF ADDITIONAL INFORMATION
Brookfield Real Assets Income Fund Inc.,
a Maryland corporation (the “Fund”), is a diversified, closed-end management investment company registered under the
Investment Company Act of 1940, as amended (the “1940 Act”). The Fund’s investment objective is to seek high
total return, primarily through high current income and secondarily, through growth of capital. An investment in the Fund is not
appropriate for all investors. There can be no assurance that the Fund’s investment objective will be achieved.
Brookfield Public Securities Group LLC
serves as “Investment Adviser” to the Fund. See “Management of the Fund.”
This Statement of Additional Information
(the “SAI”) relating to the offering, from time to time, in one or more offerings, common shares or preferred shares,
each having a par value of $0.001 per share, or subscription rights to purchase our common shares or preferred shares (the “Offer”).
Shares may be offered at prices and on terms to be set forth in one or more supplements to this Prospectus (each a “Prospectus
Supplement”). This SAI does not include all information that a prospective investor should consider before investing in the
Fund’s common shares, and investors should obtain and read the Prospectus and the applicable Prospectus Supplement carefully
before you invest in our shares. A copy of the Fund’s Registration Statement, including the Prospectus and Prospectus Supplements,
may be obtained from the Securities and Exchange Commission (the “SEC”) upon payment of the fee prescribed, or inspected
at the SEC’s office or via its website (http://www.sec.gov) at no charge. Capitalized terms used but not defined in this
SAI have the meaning ascribed to them in the Prospectus.
This Statement of Additional Information
is dated [●], 2020.
Table of contents
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Page
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The
Fund
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1
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Risk Factors and
Special Considerations
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1
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Investment Restrictions
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36
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Management of the
Fund
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38
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Distributions and
Dividends
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54
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Portfolio Transactions
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55
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Portfolio Turnover
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56
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Taxation
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56
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General Information
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62
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Independent Registered
Public Accounting Firm
|
63
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Legal Matters
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63
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Incorporation by
Reference
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64
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Appendix A—Description
of Corporate Debt Ratings
|
A-1
|
Appendix B—Portfolio
Proxy Voting Policies and Procedures
|
B-1
|
The Fund
Brookfield Real Assets Income Fund Inc.
(the “Fund”) is a diversified, closed-end management investment company registered under the Investment Company Act
of 1940, as amended (the “1940 Act”). The Fund was formed from the reorganizations of three closed-end funds, as further
described below, and commenced operations on December 5, 2016. The Fund’s shares are listed on the New York Stock Exchange
(“NYSE”) and trade under the ticker symbol “RA.” The Fund was incorporated under the laws of the State
of Maryland on October 6, 2015.
The Fund was formed from the reorganizations
of each of Brookfield Mortgage Opportunity Income Fund Inc. (NYSE: BOI), Brookfield High Income Fund Inc. (NYSE: HHY), and Brookfield
Total Return Fund Inc. (NYSE: HTR) (collectively, the “Target Funds”) into the Fund (each, a “Reorganization”
and together, the “Reorganizations”). As a result of the Reorganizations, common shareholders of HHY, HTR and BOI,
respectively, received an amount of RA common shares equal to the aggregate net asset value of their holdings of HHY, HTR and BOI
common shares, as applicable, as determined at the close of business on December 2, 2016. As a result of the Reorganizations,
the assets of the Target Funds were combined, and the shareholders of each Target Fund became shareholders of the Fund.
The Fund is treated as the survivor of
the Reorganizations for accounting and performance reporting purposes. Accordingly, all performance and other information shown
for the Fund is from its commencement of operations date on December 5, 2016, and there is no historical performance or other
information to present for the Target Funds.
Since commencement of operations date,
another fund, Brookfield Global Listed Infrastructure Income Fund Inc. (NYSE: INF) was reorganized into the Fund. As a result of
this reorganization, common shareholders of INF received newly issued common shares of RA, par value $0.001 per share, the aggregate
net asset value (not the market value) of which will equal the aggregate net asset value (not the market value) of the common shares
of INF you held immediately prior to the reorganization, less the costs of the Reorganization.
Risk Factors and Special Considerations
The following information supplements the discussion of the
Fund’s risk factors that are described in the Prospectus, any accompanying Prospectus Supplement, and the preceding discussion
of the Fund’s investment objectives, policies and techniques.
Derivatives
Generally, a derivative is a financial
contract the value of which depends upon, or is derived from, the value of an underlying asset, reference rate or index. Derivatives
generally take the form of contracts under which the parties agree to payments between them based upon the performance of a wide
variety of underlying references, such as stocks, bonds, commodities, interest rates, currency exchange rates, and various domestic
and foreign indices. Derivative instruments that the Fund may use include options contracts, futures contracts, options on futures
contracts, and forward currency contracts.
The Fund may use derivatives for a variety
of reasons, including as a substitute for investing directly in securities and currencies, as an alternative to selling a security
short, as part of a hedging strategy (that is, for the purpose of reducing risk to the Fund), or for other purposes related to
the management of the Fund. Derivatives permit the Fund to increase or decrease the level of risk, or change the character of the
risk, to which its portfolio is exposed in much the same way as the Fund can increase or decrease the level of risk, or change
the character of the risk, of its portfolio by making investments in specific securities. However, derivatives may entail investment
exposures that are greater than their cost would suggest. As a result, a small investment in derivatives could have a large impact
on the Fund’s performance.
Derivatives can be volatile and involve
various types and degrees of risk, depending upon the characteristics of the particular derivative and the portfolio as a whole.
If the Fund invests in derivatives at inopportune times or judges market conditions incorrectly, such investments may lower that
Fund’s return or result in a loss. The Fund also could experience losses or limit its gains if the performance of its derivatives
is poorly correlated with the underlying instruments or that Fund’s other investments, or if the Fund is unable to liquidate
its position because of an illiquid secondary market. The market for derivatives is, or suddenly can become, illiquid. Changes
in liquidity may result in significant, rapid and unpredictable changes in the prices for derivatives.
While transactions in some derivatives
may be effected on established exchanges, many other derivatives are privately negotiated and entered into in the over-the-counter
market with a single counterparty. When exchange-traded derivatives are purchased and sold, a clearing agency associated with the
exchange stands between each buyer and seller and effectively guarantees performance of each contract, either on a limited basis
through a guaranty fund or to the full extent of the clearing agency’s balance sheet. Transactions in over-the-counter derivatives
have no such protection. Each party to an over-the-counter derivative bears the risk that its direct counterparty will default.
In addition, over-the-counter derivatives may be less liquid than exchange-traded derivatives since the other party to the transaction
may be the only investor with sufficient understanding of the derivative to be interested in bidding for it.
Derivatives
generally involve leverage in the sense that the investment exposure created by the derivative is significantly greater than the
Fund’s initial investment in the derivative. The Fund may be required to segregate permissible liquid assets, or engage in
other permitted measures, to “cover” the Fund’s obligations relating to its transactions in derivatives. For
example, in the case of futures contracts or forward contracts that are not contractually required to cash settle, the Fund must
set aside liquid assets equal to such contracts’ full notional value (generally, the total numerical value of the asset underlying
a future or forward contract at the time of valuation) while the positions are open. With respect to futures contracts or forward
contracts that are contractually required to cash settle, however, the Fund is permitted to set aside liquid assets in an amount
equal to the Fund’s daily mark-to-market net obligation (i.e., the Fund’s daily net liability) under
the contracts, if any, rather than such contracts’ full notional value. By setting aside assets equal to only its net obligations
under cash-settled futures and forward contracts, the Fund may employ leverage to a greater extent than if the Fund were required
to segregate assets equal to the full notional value of such contracts.
Derivatives also may involve other types
of leverage. For example, an instrument linked to the value of a securities index may return income calculated as a multiple of
the price movement of the underlying index. This leverage will increase the volatility of these derivatives since they may increase
or decrease in value more quickly than the underlying instruments.
The regulation of the derivatives markets
has increased over the past several years, and additional future regulation of the derivatives markets may make derivatives more
costly, may limit the availability or reduce the liquidity of derivatives, or may otherwise adversely affect the value or performance
of derivatives. Any such adverse future developments could impair the effectiveness of the Fund’s derivative transactions
and cause the Fund to lose value. Recent U.S. and non-U.S. legislative and regulatory reforms, including those related to the Dodd-Frank
Wall Street Reform and Consumer Protection Act have resulted in, and may in the future result in, new regulation of derivative
instruments and the Fund’s use of such instruments. New regulations could, among other things, restrict the Fund’s
ability to engage in derivative transactions (for example, by making certain types of derivative instruments or transactions no
longer available to the Fund) and/or increase the costs of derivatives transactions, and the Fund may as a result be unable to
execute its investment strategies in a manner that the Adviser might otherwise choose.
Options
A call option is a contract that gives
the holder of the option the right to buy from the writer of the call option, in return for a premium, the security or currency
underlying the option at a specified exercise price at any time during the term of the option. The writer of the call option has
the obligation, upon exercise of the option, to deliver the underlying security or currency upon payment of the exercise price
during the option period.
A put option is a contract that gives the
holder of the option the right, in return for a premium, to sell to the seller the underlying security at a specified price. The
seller of the put option has the obligation to buy the underlying security upon exercise at the exercise price.
A call option is “covered”
if the Fund owns the underlying instrument covered by the call or has an absolute and immediate right to acquire that instrument
without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon
conversion or exchange of other instruments held in its portfolio. A call option is also covered if the Fund holds a call option
on the same instrument as the call option written where the exercise price of the call option held is (i) equal to or less
than the exercise price of the call option written or (ii) greater than the exercise price of the call option written if the
difference is maintained by the Fund in cash, U.S. government securities or other high -grade short-term obligations in a segregated
account with its custodian. A call option is “uncovered” if the underlying security covered by the call is not held
by the Fund. A put option is “covered” if the Fund maintains cash or other liquid securities with a value equal to
the exercise price in a segregated account with its custodian, or else holds a put option on the same instrument as the put option
written where the exercise price of the put option held is equal to or greater than the exercise price of the put option written.
If the Fund has written an option, it may
terminate its obligation by effecting a closing purchase transaction. This is accomplished by purchasing an option of the same
series as the option previously written. However, once the Fund has been assigned an exercise notice, the Fund will be unable to
effect a closing purchase transaction. Similarly, if the Fund is the holder of an option it may liquidate its position by effecting
a closing sale transaction. This is accomplished by selling an option of the same series as the option previously purchased. There
can be no assurance that either a closing purchase or sale transaction can be effected when the Fund so desires.
The Fund will realize a profit from a closing
transaction if the price of the transaction is less than the premium received from writing the option, or is more than the premium
paid to purchase the option; the Fund will realize a loss from a closing transaction if the price of the transaction is more than
the premium received from writing the option, or is less than the premium paid to purchase the option. Since call option prices
generally reflect increases in the price of the underlying security, any loss resulting from the repurchase of a call option may
also be wholly or partially offset by unrealized appreciation of the underlying security. Other principal factors affecting the
market value of a put or a call option include supply and demand, interest rates, the current market price and price volatility
of the underlying security and the time remaining until the expiration date of the option. Gains and losses on investments in options
depend, in part, on the ability of the Investment Adviser to correctly predict the effect of these factors. The use of options
cannot serve as a complete hedge since the price movement of securities underlying the options will not necessarily follow the
price movements of the portfolio securities subject to the hedge.
An option position may be closed out only
on an exchange that provides a secondary market for an option of the same series or in a private transaction. Although the Fund
will generally purchase or write only those options for which there appears to be an active secondary market, there is no assurance
that a liquid secondary market on an exchange will exist for any particular option. In such event it might not be possible to effect
closing transactions in particular options, in which case the Fund would have to exercise its options in order to realize any profit
and would incur brokerage commissions upon the exercise of call options and upon the subsequent disposition of underlying securities
for the exercise of put options. If the Fund, as a covered call option writer, is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying security until the option expires or it delivers the underlying
security upon exercise, or otherwise covers the position.
To the extent that the Fund purchases options
pursuant to a hedging strategy, the Fund will be subject to the following additional risks. If a put or call option purchased by
the Fund is not sold when it has remaining value, and if the market price of the underlying security remains equal to or greater
than the exercise price (in the case of a put), or remains less than or equal to the exercise price (in the case of a call), the
Fund will lose its entire investment in the option.
Where a put or call option on a particular
security is purchased to hedge against price movements in that or a related security, the price of the put or call option may move
more or less than the price of the security. If restrictions on exercise are imposed, the Fund may be unable to exercise an option
it has purchased. If the Fund is unable to close out an option that it has purchased on a security, it will have to exercise the
option in order to realize any profit, or the option may expire worthless.
Options on Securities Indices
Options on securities indices are similar
to options on shares except that, rather than the right to take or make delivery of stock at a specified price, an option on a
securities index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of
the securities index upon which the option is based is greater than, in the case of a call option, or less than, in the case of
a put option, the exercise price of the option.
The Fund’s successful use of options
on indices depends upon its ability to predict the direction of the market and is subject to various additional risks. The correlation
between movements in the index and the price of the securities being hedged against is imperfect and the risk from imperfect correlation
increases as the composition of the Fund diverges from the composition of the relevant index. Accordingly, a decrease in the value
of the securities being hedged against may not be wholly offset by a gain on the exercise or sale of a securities index put option
held by the Fund.
Options on Foreign Currencies
Instead of purchasing or selling currency
futures (as described below), the Fund may attempt to accomplish similar objectives by purchasing put or call options on currencies
or by writing put options or call options on currencies either on exchanges or in OTC markets. A put option gives the Fund the
right to sell a currency at the exercise price until the option expires. A call option gives the Fund the right to purchase a currency
at the exercise price until the option expires. Both types of options serve to insure against adverse currency price movements
in the underlying portfolio assets designated in a given currency. The Fund’s use of options on currencies will be subject
to the same limitations as its use of options on securities described above and in the Prospectus. Currency options may be subject
to position limits that may limit the ability of the Fund to fully hedge its positions by purchasing the options.
As in the case of interest rate futures
contracts and options thereon, described below, the Fund may hedge against the risk of a decrease or increase in the U.S. dollar
value of a foreign currency denominated debt security that the Fund owns or intends to acquire by purchasing or selling options
contracts, futures contracts or options thereon with respect to a foreign currency other than the foreign currency in which such
debt security is denominated, where the values of such different currencies (vis-a-vis the U.S. dollar) historically have a high
degree of positive correlation.
Futures Contracts and Options on Futures
A financial futures contract is an agreement
to purchase or sell an agreed amount of securities or currencies at a set price for delivery in the future. These futures contracts
and related options may be on debt securities, financial indices, securities indices, U.S. government securities and foreign currencies.
The Fund will not enter into futures contracts
or options on futures contracts unless (i) the aggregate initial margins and premiums do not exceed 5% of the fair market
value of its assets and (ii) the aggregate market value of its outstanding futures contracts and the market value of the currencies
and futures contracts subject to outstanding options written by the Fund, as the case may be, do not exceed 50% of its total assets.
It is anticipated that these investments, if any, will be made by the Fund solely for the purpose of hedging against changes in
the value of its portfolio securities and in the value of securities it intends to purchase. Such investments will only be made
if they are economically appropriate to the reduction of risks involved in the management of the Fund. In this regard, the Fund
may enter into futures contracts or options on futures for the purchase or sale of securities indices or other financial instruments
including but not limited to U.S. government securities.
A “sale” of a futures contract
(or a “short” futures position) means the assumption of a contractual obligation to deliver the securities underlying
the contract at a specified price at a specified future time. A “purchase” of a futures contract (or a “long”
futures position) means the assumption of a contractual obligation to acquire the securities underlying the contract at a specified
price at a specified future time. Certain futures contracts, including stock and bond index futures, are settled on a net cash
payment basis rather than by the sale and delivery of the securities underlying the futures contracts.
No consideration will be paid or received
by the Fund upon the purchase or sale of a futures contract. Initially, the Fund will be required to deposit with the broker an
amount of cash or cash equivalents equal to approximately 1% to 10% of the contract amount (this amount is subject to change by
the exchange or board of trade on which the contract is traded and brokers or members of such board of trade may charge a higher
amount). This amount is known as the “initial margin” and is in the nature of a performance bond or good faith deposit
on the contract. Subsequent payments, known as “variation margin,” to and from the broker will be made daily as the
price of the index or security underlying the futures contract fluctuates. At any time prior to the expiration of the futures contract,
the Fund may elect to close the position by taking an opposite position, which will operate to terminate its existing position
in the contract.
An option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a futures contract at a specified exercise price at
any time prior to the expiration of the option. Upon exercise of an option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer’s futures
margin account attributable to that contract, which represents the amount by which the market price of the futures contract exceeds,
in the case of a call option, or is less than, in the case of a put option, the exercise price of the option on the futures contract.
The potential loss related to the purchase of an option on a futures contract is limited to the premium paid for the option (plus
transaction costs). Because the value of the option purchased is fixed at the point of sale, there are no daily cash payments by
the purchaser to reflect changes in the value of the underlying contract; however, the value of the option does change daily and
that change would be reflected in the net assets of the Fund.
Futures and options on futures entail certain
risks, including but not limited to the following: no assurance that futures contracts or options on futures can be offset at favorable
prices, possible reduction of the yield of the Fund due to the use of hedging, possible reduction in value of both the securities
hedged and the hedging instrument, possible lack of liquidity due to daily limits on price fluctuations, imperfect correlation
between the contracts and the securities being hedged, losses from investing in futures transactions that are potentially unlimited
and the segregation requirements described below.
In the event the Fund sells a put option
or enters into long futures contracts, under current interpretations of the 1940 Act, an amount of cash, U.S. government securities
or other liquid securities equal to the market value of the contract must be deposited and maintained in a segregated account with
the Fund’s custodian (the “Custodian”) to collateralize the positions, in order for the Fund to avoid being treated
as having issued a senior security in the amount of its obligations. For short positions in futures contracts and sales of call
options, the Fund may establish a segregated account (not with a futures commission merchant or broker) with cash, U.S. government
securities or other high grade debt securities that, when added to amounts deposited with a futures commission merchant or a broker
as margin, equal the market value of the instruments or currency underlying the futures contracts or call options, respectively
(but are no less than the stock price of the call option or the market price at which the short positions were established).
Interest Rate Futures Contracts and Options Thereon
The Fund may purchase or sell interest
rate futures contracts to take advantage of or to protect the Fund against fluctuations in interest rates affecting the value of
debt securities that the Fund holds or intends to acquire. For example, if interest rates are expected to increase, the Fund might
sell futures contracts on debt securities, the values of which historically have a high degree of positive correlation to the values
of the Fund’s portfolio securities. Such a sale would have an effect similar to selling an equivalent value of the Fund’s
portfolio securities. If interest rates increase, the value of the Fund’s portfolio securities will decline, but the value
of the futures contracts to the Fund will increase at approximately an equivalent rate thereby keeping the net asset value (“NAV”)
of the Fund from declining as much as it otherwise would have. The Fund could accomplish similar results by selling debt securities
with longer maturities and investing in debt securities with shorter maturities when interest rates are expected to increase. However,
since the futures market may be more liquid than the cash market, the use of futures contracts as a risk management technique allows
the Fund to maintain a defensive position without having to sell its portfolio securities.
Similarly, the Fund may purchase interest
rate futures contracts when it is expected that interest rates may decline. The purchase of futures contracts for this purpose
constitutes a hedge against increases in the price of debt securities (caused by declining interest rates), which the Fund intends
to acquire. Since fluctuations in the value of appropriately selected futures contracts should approximate that of the debt securities
that will be purchased, the Fund can take advantage of the anticipated rise in the cost of the debt securities without actually
buying them. Subsequently, the Fund can make its intended purchase of the debt securities in the cash market and currently liquidate
its futures position. To the extent the Fund enters into futures contracts for this purpose, it will maintain in a segregated asset
account with the Fund’s Custodian, assets sufficient to cover the Fund’s obligations with respect to such futures contracts,
which will consist of cash or other liquid securities from its portfolio in an amount equal to the difference between the fluctuating
market value of such futures contracts and the aggregate value of the initial margin deposited by the Fund with its Custodian with
respect to such futures contracts.
The purchase of a call option on a futures
contract is similar in some respects to the purchase of a call option on an individual security. Depending on the pricing of the
option compared to either the price of the futures contract upon which it is based or the price of the underlying debt securities,
it may or may not be less risky than ownership of the futures contract or underlying debt securities. As with the purchase of futures
contracts, when the Fund is not fully invested it may purchase a call option on a futures contract to hedge against a market advance
due to declining interest rates.
The purchase of a put option on a futures
contract is similar to the purchase of protective put options on portfolio securities. The Fund will purchase a put option on a
futures contract to hedge the Fund’s portfolio against the risk of rising interest rates and a consequent reduction in the
value of portfolio securities.
The writing of a call option on a futures
contract constitutes a partial hedge against declining prices of the securities that are deliverable upon exercise of the futures
contract. If the futures price at expiration of the option 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 portfolio holdings.
The writing of a put option on a futures contract constitutes a partial hedge against increasing prices of the securities that
are deliverable upon exercise of the futures contract. If the futures price at expiration of the option is higher than the exercise
price, the Fund will retain the full amount of the option premium, which provides a partial hedge against any increase in the price
of debt securities that the Fund intends to purchase. If a put or call option the Fund has written is exercised, the Fund will
incur a loss which will be reduced by the amount of the premium it received. Depending on the degree of correlation between changes
in the value of its portfolio securities and changes in the value of its futures positions, the Fund’s losses from options
on futures it has written may to some extent be reduced or increased by changes in the value of its portfolio securities.
Currency Futures and Options Thereon
Generally, foreign currency futures contracts
and options thereon are similar to the interest rate futures contracts and options thereon discussed previously. By entering into
currency futures and options thereon, the Fund will seek to establish the rate at which it will be entitled to exchange U.S. dollars
for another currency at a future time. By selling currency futures, the Fund will seek to establish the number of dollars it will
receive at delivery for a certain amount of a foreign currency. In this way, whenever the Fund anticipates a decline in the value
of a foreign currency against the U.S. dollar, the Fund can attempt to “lock in” the U.S. dollar value of some or all
of the securities held in its portfolio that are denominated in that currency. By purchasing currency futures, the Fund can establish
the number of dollars it will be required to pay for a specified amount of a foreign currency in a future month. Thus, if the Fund
intends to buy non-U.S. denominated securities in the future and expects the U.S. dollar to decline against the relevant foreign
currency during the period before the purchase is effected, the Fund can attempt to “lock in” the price in U.S. dollars
of the securities it intends to acquire.
The purchase of options on currency futures
will allow the Fund, for the price of the premium and related transaction costs it must pay for the option, to decide whether or
not to buy (in the case of a call option) or to sell (in the case of a put option) a futures contract at a specified price at any
time during the period before the option expires. If the Fund, in purchasing an option, has been correct in its judgment concerning
the direction in which the price of a foreign currency would move against the U.S. dollar, the Fund may exercise the option and
thereby take a futures position to hedge against the risk it had correctly anticipated or close out the option position at a gain
that will offset, to some extent, currency exchange losses otherwise suffered by the Fund. If exchange rates move in a way the
Fund did not anticipate, however, the Fund will have incurred the expense of the option without obtaining the expected benefit;
any such movement in exchange rates may also thereby reduce, rather than enhance, the Fund’s profits on its underlying securities
transactions.
Securities Index Futures Contracts and Options Thereon
Purchases or sales of securities index
futures contracts are used for hedging purposes to attempt to protect the Fund’s current or intended investments from broad
fluctuations in stock or bond prices. For example, the Fund may sell securities index futures contracts in anticipation of or during
a market decline to attempt to offset the decrease in market value of the Fund’s securities portfolio that might otherwise
result. If such decline occurs, the loss in value of portfolio securities may be offset, in whole or part, by gains on the futures
position. When the Fund is not fully invested in the securities market and anticipates a significant market advance, it may purchase
securities index futures contracts in order to gain rapid market exposure that may, in part or entirely, offset increases in the
cost of securities that the Fund intends to purchase. As such purchases are made, the corresponding positions in securities index
futures contracts may be closed out. The Fund may write put and call options on securities index futures contracts for hedging
purposes.
Forward Currency Exchange Contracts
Subject to guidelines of the Board of Directors,
the Fund may enter into forward foreign currency exchange contracts to protect the value of its portfolio against uncertainty in
the level of future currency exchange rates between a particular foreign currency and the U.S. dollar or between foreign currencies
in which its securities are or may be denominated. The Fund may enter into such contracts on a spot (i.e., cash) basis at
the rate then prevailing in the currency exchange market or on a forward basis, by entering into a forward contract to purchase
or sell currency. A forward contract on foreign currency is an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days agreed upon by the parties from the date of the contract at a price set on the date of the
contract. Forward currency contracts (i) are traded in a market conducted directly between currency traders (typically, commercial
banks or other financial institutions) and their customers, (ii) generally have no deposit requirements and (iii) are
typically consummated without payment of any commissions. The Fund, however, may enter into forward currency contracts requiring
deposits or involving the payment of commissions. To assure that its forward currency contracts are not used to achieve investment
leverage, the Fund will segregate liquid assets consisting of cash, U.S. government securities or other liquid securities with
its Custodian, or a designated sub-custodian, in an amount at all times equal to or exceeding its commitment with respect to the
contracts.
The dealings of the Fund in forward foreign
currency exchange contracts are limited to hedging involving either specific transactions or portfolio positions. Transaction hedging
is the purchase or sale of one forward foreign currency for another currency with respect to specific receivables or payables of
the Fund accruing in connection with the purchase and sale of its portfolio securities or its payment of distributions and dividends.
Position hedging is the purchase or sale of one forward foreign currency for another currency with respect to portfolio security
positions denominated or quoted in the foreign currency to offset the effect of an anticipated substantial appreciation or depreciation,
respectively, in the value of the currency relative to the U.S. dollar. In this situation, the Fund also may, for example, enter
into a forward contract to sell or purchase a different foreign currency for a fixed U.S. dollar amount where it is believed that
the U.S. dollar value of the currency to be sold or bought pursuant to the forward contract will fall or rise, as the case may
be, whenever there is a decline or increase, respectively, in the U.S. dollar value of the currency in which its portfolio securities
are denominated (this practice being referred to as a “cross hedge”).
In hedging a specific transaction, the
Fund may enter into a forward contract with respect to either the currency in which the transaction is denominated or another currency
deemed appropriate by the Investment Adviser. The amount the Fund may invest in forward currency contracts is limited to the amount
of its aggregate investments in foreign currencies.
The use of forward currency contracts may
involve certain risks, including the failure of the counterparty to perform its obligations under the contract, and such use may
not serve as a complete hedge because of an imperfect correlation between movements in the prices of the contracts and the prices
of the currencies hedged or used for cover. The Fund will only enter into forward currency contracts with parties that the Investment
Adviser believes to be creditworthy institutions.
A forward contract on foreign currency
is an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days agreed upon by
the parties from the date of the contract at a price set on the date of the contract. Forward currency contracts (i) are traded
in a market conducted directly between currency traders (typically, commercial banks or other financial institutions) and their
customers, (ii) generally have no deposit requirements and (iii) are typically consummated without payment of any commissions.
The Fund, however, may enter into forward currency contracts requiring deposits or involving the payment of commissions. To assure
that its forward currency contracts are not used to achieve investment leverage, the Fund will segregate liquid assets consisting
of cash, U.S. government securities or other liquid securities with its Custodian, or a designated sub -custodian, in an amount
at all times equal to or exceeding its commitment with respect to the contracts.
The dealings of the Fund in forward foreign
currency exchange are limited to hedging involving either specific transactions or portfolio positions. Transaction hedging is
the purchase or sale of one forward foreign currency for another currency with respect to specific receivables or payables of the
Fund accruing in connection with the purchase and sale of its portfolio securities or its payment of distributions and dividends.
Position hedging is the purchase or sale of one forward foreign currency for another currency with respect to portfolio security
positions denominated or quoted in the foreign currency to offset the effect of an anticipated substantial appreciation or depreciation,
respectively, in the value of the currency relative to the U.S. dollar. In this situation, the Fund also may, for example, enter
into a forward contract to sell or purchase a different foreign currency for a fixed U.S. dollar amount where it is believed that
the U.S. dollar value of the currency to be sold or bought pursuant to the forward contract will fall or rise, as the case may
be, whenever there is a decline or increase, respectively, in the U.S. dollar value of the currency in which its portfolio securities
are denominated (this practice being referred to as a “cross-hedge”).
In hedging a specific transaction, the
Fund may enter into a forward contract with respect to either the currency in which the transaction is denominated or another currency
deemed appropriate by the Investment Adviser. The amount the Fund may invest in forward currency contracts is limited to the amount
of its aggregate investments in foreign currencies.
The use of forward currency contracts may
involve certain risks, including the failure of the counterparty to perform its obligations under the contract, and such use may
not serve as a complete hedge because of an imperfect correlation between movements in the prices of the contracts and the prices
of the currencies hedged or used for cover. The Fund will only enter into forward currency contracts with parties that the Investment
Adviser believes to be creditworthy institutions.
Special Risk Considerations Relating to Futures and Options
Thereon
The Fund’s ability to establish and
close out positions in futures contracts and options thereon will be subject to the development and maintenance of liquid markets.
Although the Fund generally will purchase or sell only those futures contracts and options thereon for which there appears to be
a liquid market, there is no assurance that a liquid market on an exchange will exist for any particular futures contract or option
thereon at any particular time. In the event no liquid market exists for a particular futures contract or option thereon in which
the Fund maintains a position, it may not be possible to effect a closing transaction in that contract or to do so at a satisfactory
price and the Fund would have to either make or take delivery under the futures contract or, in the case of a written option, wait
to sell the underlying securities until the option expires or is exercised or, in the case of a purchased option, exercise the
option. In the case of a futures contract or an option thereon which the Fund has written and which the Fund is unable to close,
the Fund would be required to maintain margin deposits on the futures contract or option thereon and to make variation margin payments
until the contract is closed.
Successful use of futures contracts and
options thereon and forward contracts by the Fund is subject to the ability of the Investment Adviser to predict correctly movements
in the direction of interest and foreign currency rates. If the Investment Adviser’s expectations are not met, the Fund will
be in a worse position than if a hedging strategy had not been pursued. For example, if the Fund has hedged against the possibility
of an increase in interest rates that would adversely affect the price of securities in its portfolio and the price of such securities
increases instead, the Fund will lose part or all of the benefit of the increased value of its securities because it will have
offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash to meet daily variation
margin requirements, it may have to sell securities to meet the requirements. These sales may be, but will not necessarily be,
at increased prices that reflect the rising market. The Fund may have to sell securities at a time when it is disadvantageous to
do so.
Additional Risks of Foreign Options, Futures Contracts, Options
on Futures Contracts and Forward Contracts
Options, futures contracts and options
thereon and forward contracts on securities and 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, securities of foreign issuers (“Foreign
Securities”). The value of such positions also could be adversely affected by (i) other complex foreign political, legal
and economic factors, (ii) lesser availability than in the United States of data on which to make trading decisions, (iii) delays
in the Fund’s ability to act upon economic events occurring in the foreign markets during non-business hours in the United
States, (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the
United States and (v) less trading volume.
Exchanges on which options, futures, options
on futures and forward contracts are traded may impose limits on the positions that the Fund may take in certain circumstances.
Exclusion from Definition of Commodity Pool Operator
Pursuant to amendments by the Commodity
Futures Trading Commission to Rule 4.5 under the Commodity Exchange Act (“CEA”), the Investment Adviser has filed
a notice of exemption from registration as a “commodity pool operator” with respect to the Fund. The Fund and the Investment
Adviser are therefore not subject to registration or regulation as a commodity pool operator under the CEA. In order to claim the
Rule 4.5 exemption, the Fund is significantly limited in its ability to invest in commodity futures, options and swaps (including
securities futures, broad-based stock index futures and financial futures contracts).
Risks of Currency Transactions
Currency transactions are also subject
to risks different from those of other portfolio transactions. Because currency control is of great importance to the issuing governments
and influences economic planning and policy, purchases and sales of currency and related instruments can be adversely affected
by government exchange controls, limitations or restrictions on repatriation of currency, and manipulation, or exchange restrictions
imposed by governments. These forms of governmental action can result in losses to the Fund if it is unable to deliver or receive
currency or monies in settlement of obligations and could also cause hedges it has entered into to be rendered useless, resulting
in full currency exposure as well as incurring transaction costs.
Swap Agreements and Options on Swap Agreements
Swap agreements
are two party contracts entered into 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, which may be adjusted for an interest factor. The gross returns to be exchanged or “swapped”
between the parties are generally 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 or commodities representing a particular index. A “quanto” or “differential”
swap combines both an interest rate and a currency transaction. Other forms of swap agreements include interest rate caps, under
which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified
rate, or “cap”; interest rate floors, under which, in return for a premium, one party agrees to make payments to the
other to the extent that interest rates fall below a specified rate, or “floor”; and interest rate collars, under which
a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding
given minimum or maximum levels.
The Fund may also invest in commodity swap
agreements. For example, an investment in a commodity swap agreement may involve the exchange of floating-rate interest payments
for the total return on a commodity index. In a total return commodity swap, the Fund will receive the price appreciation of a
commodity index, a portion of the index, or a single commodity in exchange for paying an agreed-upon fee. If the commodity swap
is for one period, a party may pay a fixed fee, established at the outset of the swap. However, if the term of the commodity swap
is more than one period, with interim swap payments, a party may pay an adjustable or floating fee. With a “floating”
rate, the fee may be pegged to a base rate, such as the London Interbank Offered Rate, and is adjusted each period. Therefore,
if interest rates increase over the term of the swap contract, a party may be required to pay a higher fee at each swap reset date.
The Fund also may enter into swap options.
A swap option is a contract that gives a counterparty the right (but not the obligation) in return for payment of a premium, to
enter into a new swap agreement or to shorten, extend, cancel or otherwise modify an existing swap agreement, at some designated
future time on specified terms. Depending on the terms of the particular option agreement, the Fund will generally incur a greater
degree of risk when it writes a swap option than it will incur when it purchases a swap option. When the Fund purchases a swap
option, it risks losing only the amount of the premium it has paid should it decide to let the option expire unexercised. However,
when the Fund writes a swap option, upon exercise of the option the Fund will become obligated according to the terms of the underlying
swap agreement.
Some types of swap agreements entered into
by the Fund calculate the obligations of the parties to the agreements on a “net basis.” Consequently, the Fund’s
current obligations (or rights) under such swap agreements will generally be equal only to the net amount to be paid or received
under the agreements based on the relative values of the positions held by each party to the agreement (the “net amount”).
The Fund’s current obligations under a swap agreement will be accrued daily (offset against any amounts owed to that Fund).
A swap agreement may be considered a form
of leverage, and could magnify the Fund’s gains or losses. Whether the Fund’s use of swap agreements or swap options
will be successful will depend on the Investment Adviser’s ability to predict correctly 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. Moreover, the 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.
Certain restrictions imposed on the Fund by the Internal Revenue Code of 1986, as amended (the “Code”) may limit the
Fund’s ability to use swap agreements. It is possible that developments in the swaps market, including potential government
regulation, could adversely affect the Fund’s ability to terminate existing swap agreements or to realize amounts to be received
under such agreements.
Swaps are highly specialized instruments
that require investment techniques, risk analyses, and tax planning different from those associated with traditional investments.
The use of a swap requires an understanding not only of the referenced asset, reference rate, or index but also of the swap itself,
without the benefit of observing the performance of the swap under all possible market conditions. Swap agreements may be subject
to liquidity risk, which exists when a particular swap is difficult to purchase or sell. If a swap transaction is particularly
large or if the relevant market is illiquid (as is the case with many over -the-counter swaps), it may not be possible to initiate
a transaction or liquidate a position at an advantageous time or price, which may result in significant losses.
Like most other investments, swap agreements
are subject to the risk that the market value of the instrument will change in a way detrimental to the Fund’s interest.
The Fund bears the risk that the Investment Adviser will not accurately forecast future market trends or the values of assets,
reference rates, indexes, or other economic factors in establishing swap positions for the Fund. If the Investment Adviser attempts
to use a swap as a hedge against, or as a substitute for, a portfolio investment, the Fund will be exposed to the risk that the
swap will have or will develop imperfect or no correlation with the portfolio investment. This could cause substantial losses for
the Fund. While hedging strategies involving swap instruments can reduce the risk of loss, they can also reduce the opportunity
for gain or even result in losses by offsetting favorable price movements in other Fund investments. Many swaps are complex and
often valued subjectively.
Credit Default Swaps
Credit default swap agreements that the
Fund may use may have as reference obligations one or more securities that are not currently held by that Fund. The protection
“buyer” in a credit default contract is generally obligated to pay the protection “seller” an upfront or
a periodic stream of payments over the term of the contract provided that no credit event, such as a default, on a reference obligation
has occurred. If a credit event occurs, the seller generally must pay the buyer the “par value” (full notional value)
of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the
seller may be required to deliver the related net cash amount, if the swap is cash settled. The Fund may be either the buyer or
seller in the transaction. If the Fund is a buyer and no credit event occurs, the Fund may recover nothing if the swap is held
through its termination date. However, if a credit event occurs, the buyer generally may elect to receive the full notional value
of the swap in exchange for an equal face amount of deliverable obligations of the reference entity whose value may have significantly
decreased. As a seller, the Fund generally receives an upfront payment or a fixed rate of income throughout the term of the swap
provided that there is no credit event. As the seller, the Fund would effectively add leverage to its portfolio because, in addition
to its total net assets, the Fund would be subject to investment exposure on the notional amount of the swap.
Credit default swap agreements involve
greater risks than if the Fund had invested in the reference obligation directly since, in addition to general market risks, credit
default swaps are subject to illiquidity risk, counterparty risk and credit risk. A buyer generally also will lose its investment
and recover nothing should no credit event occur and the swap is held to its termination date. If a credit event were to occur,
the value of any deliverable obligation received by the seller, coupled with the upfront or periodic payments previously received,
may be less than the full notional value it pays to the buyer, resulting in a loss of value to the seller.
Event-Linked Bonds
The Fund may invest in “event-linked”
bonds, which sometimes are referred to as “insurance-linked” or “catastrophe” bonds. Event-linked bonds
are debt obligations for which the return of principal and the payment of interest are contingent on the non-occurrence of a pre-defined
“trigger” event, such as a hurricane or an earthquake of a specific magnitude. For some event-linked bonds, the trigger
event’s magnitude may be based on losses to a company or industry, index-portfolio losses, industry indexes or readings of
scientific instruments rather than specified actual losses. If a trigger event, as defined within the terms of an event-linked
bond, involves losses or other metrics exceeding a specific magnitude in the geographic region and time period specified therein,
the Fund may lose a portion or all of its accrued interest and/or principal invested in such event-linked bond. The Fund is entitled
to receive principal and interest payments so long as no trigger event occurs of the description and magnitude specified by the
instrument.
Event-linked bonds may be issued by government
agencies, insurance companies, reinsurers, special purpose corporations or other on-shore or off-shore entities. In addition to
the specified trigger events, event-linked bonds may also expose the Fund to other risks, including but not limited to issuer (credit)
default, adverse regulatory or jurisdictional interpretations and adverse tax consequences. Event-linked bonds are subject to the
risk that the model used to calculate the probability of a trigger event was not accurate and underestimated the likelihood of
a trigger event. This may result in more frequent and greater than expected loss of principal and/or interest, which would adversely
impact the Fund’s total returns. Further, to the extent there are events that involve losses or other metrics, as applicable,
that are at, or near, the threshold for a trigger event, there may be some delay in the return of principal and/or interest until
it is determined whether a trigger event has occurred. Finally, to the extent there is a dispute concerning the definition of the
trigger event relative to the specific manifestation of a catastrophe, there may be losses or delays in the payment of principal
and/or interest on the event-linked bond. As a relatively new type of financial instrument, there is limited trading history for
these securities, and there can be no assurance that a liquid market in these instruments will develop. Lack of a liquid market
may impose the risk of higher transactions costs and the possibility that the Fund may be forced to liquidate positions when it
would not be advantageous to do so.
Event-linked bonds are typically rated
by at least one nationally recognized rating agency, but also may be unrated. Although each rating agency utilizes its own general
guidelines and methodology to evaluate the risks of an event-linked bond, the average rating in the current market for event-linked
bonds is “BB” by Standard & Poor’s or the equivalent rating for another NRSROs. However, there are event-linked
bonds rated higher or lower than “BB.”
The Fund’s investments in event-linked
bonds generally will be rated B, BB or BBB at the time of purchase, although the Fund may invest in event-linked bonds rated higher
or lower than these ratings, as well as event-linked bonds that are unrated. The rating for an event-linked bond primarily reflects
the rating agency’s calculated probability that a pre-defined trigger event will occur. This rating also assesses the bond’s
credit risk and model used to calculate the probability of the trigger event.
Event-linked bonds typically are restricted
to qualified institutional buyers and, therefore, are not subject to registration with the SEC or any state securities commission
and are not listed on any national securities exchange. The amount of public information available with respect to event-linked
bonds is generally less extensive than that available for issuers of registered or exchange listed securities. Event-linked bonds
may be subject to the risks of adverse regulatory or jurisdictional determinations. There can be no assurance that future regulatory
determinations will not adversely affect the overall market for event-linked bonds.
Event-Linked Swaps
The Fund may obtain event-linked exposure
by investing in event-linked swaps, which typically are contingent, or formulaically related to defined trigger events, or by pursuing
similar event-linked derivative strategies. Trigger events include hurricanes, earthquakes and weather-related phenomena. If a
trigger event occurs, the Fund may lose the swap’s notional amount. As derivative instruments, event-linked swaps are subject
to risks in addition to the risks of investing in event-linked bonds, including counterparty risk and leverage risk.
Government Regulation of Derivatives
It is possible that government regulation
of various types of derivative instruments, including futures and swap agreements, may limit or prevent the Fund from using such
instruments as a part of its investment strategy, and could ultimately prevent the Fund from being able to achieve its investment
objectives. It is impossible to fully predict the effects of past, present or future legislation and regulation in this area, but
the effects could be substantial and adverse.
The futures markets are subject to comprehensive
statutes, regulations, and margin requirements. In addition, the SEC, CFTC and the exchanges are authorized to take extraordinary
actions in the event of a market emergency, including, for example, the implementation or reduction of speculative position limits,
the implementation of higher margin requirements, the establishment of daily price limits and the suspension of trading.
The regulation of swaps and futures transactions
in the U.S. is a rapidly changing area of law and is subject to modification by government and judicial action. There is a possibility
of future regulatory changes altering, perhaps to a material extent, the nature of an investment in the Fund or the ability of
the Fund to continue to implement its investment strategies. In particular, the Dodd-Frank Act sets forth a legislative framework
for OTC derivatives, such as swaps, in which the Fund may invest. Title VII of the Dodd-Frank Act makes broad changes to the OTC
derivatives market, grants significant new authority to the SEC and the CFTC to regulate OTC derivatives and market participants,
and, among other things, requires clearing of many OTC derivatives transactions and imposes minimum margin and capital requirements
on uncleared OTC derivatives transactions.
In addition, in December 2015, the
SEC proposed new regulations applicable to registered investment companies’ use of derivatives and related instruments. If
adopted as proposed, these regulations could significantly limit or impact the Fund’s ability to invest in derivatives and
other instruments, limit the Fund’s ability to employ certain strategies that use such instruments, including the use of
leverage, and/or adversely affect the Fund’s performance, efficiency in implementing its strategy, liquidity and/or ability
to pursue its investment objectives.
Convertible Securities
The Fund may invest in convertible securities.
Convertible securities are preferred stocks or debt obligations that are convertible at a stated exchange rate or formula into
common stock or other equity securities. Convertible securities generally offer lower interest or dividend yields than non-convertible
securities of similar quality. Convertible securities rank senior to common stocks in an issuer’ capital structure and consequently
may be of higher quality and entail less risk than the issuer’s common stock. A convertible security entitles the holder
to receive interest that is generally paid or accrued until the convertible security matures, or is redeemed, converted or exchanged.
Convertible securities have both equity and fixed-income risk characteristics. Like all fixed-income securities, the value of convertible
securities is susceptible to the risk of market losses attributable to changes in interest rates. Generally, the market value of
convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. However,
when the market price of the common stock underlying a convertible security approaches or exceeds the conversion price of the convertible
security, the convertible security tends to reflect the market price of the underlying common stock. As the market price of the
underlying common stock declines, the convertible security, like a fixed-income security, tends to trade increasingly on a yield
basis, and thus, may not decline in price to the same extent as the underlying common stock. The markets for convertible securities
may be less liquid than markets for common stocks or bonds. A convertible security may also be called for redemption or conversion
by the issuer after a particular date and under certain circumstances (including a specified price) established upon issue. If
a convertible security held by the Fund is called for redemption or conversion, the Fund could be required to tender it for redemption,
convert it into the underlying common stock, or sell it to a third party. Convertible securities are also subject to credit risk,
and are often lower-quality securities.
Securities of Investment Companies
To the extent the Fund invests in securities
of other investment companies, shareholders in the Fund may be subject to duplicative advisory fees.
Exchange-Traded
Funds. ETFs are generally structured as open-end investment companies whose shares are listed on a national securities
exchange. An ETF is similar to a traditional mutual fund, but trades at different prices during the day on a security exchange
like a stock. Similar to investments in other investment companies discussed above, the Fund’s investments in ETFs will involve
duplication of management fees and other expenses since the Fund will be investing in another investment company. In addition,
the Fund’s investment in ETFs is also subject to its limitations on investments in investment companies discussed above.
To the extent the Fund invests in ETFs that focus on a particular market segment or industry, the Fund will also be subject to
the risks associated with investing in those sectors or industries. The shares of the ETFs in which the Fund invests will be listed
on a national securities exchange and the Fund will purchase or sell these shares on the secondary market at their current market
price, which may be more or less than their net asset value (“NAV”) per share.
As a purchaser of ETF shares on the secondary
market, the Fund will be subject to the market risk associated with owning any security whose value is based on market price. ETF
shares historically have tended to trade at or near their NAV per share, but there is no guarantee that they will continue to do
so. Unlike traditional mutual funds, shares of an ETF may also be purchased and redeemed directly from an ETF only in large blocks
(typically 50,000 shares or more) and only through participating organizations that have entered into contractual agreements with
the ETF. The Fund does not expect to enter into such agreements and therefore will be unable to purchase and redeem its ETF shares
directly from the ETF.
An investment company’s investments
in other investment companies are typically subject to statutory limitations prescribed by the 1940 Act. Many ETFs, however, have
obtained exemptive relief from the SEC to permit unaffiliated funds, such as the Fund, to invest in their shares beyond these statutory
limits, subject to certain conditions and pursuant to contractual arrangements between the ETFs and the investing funds. The Fund
may rely on these exemptive orders in investing in ETFs.
Equity Securities and Related Investments
Investments
in Equity Securities. Equity securities, such as common stock, generally represent an ownership interest in a company.
While equity securities have historically generated higher average returns than fixed income securities, equity securities have
also experienced significantly more volatility in those returns. An adverse event, such as an unfavorable earnings report, may
depress the value of a particular equity security held by the Fund. Also, the prices of equity securities, particularly common
stocks, are sensitive to general movements in the stock market. A drop in the stock market may depress the price of equity securities
held by the Fund.
Preferred
Securities Risk. The Fund may invest in preferred shares. Preferred shares are securities that represent an ownership
interest providing the holder with claims on the issuer’s earnings and assets before common shareholders, but after bond
holders and other creditors. Preferred shares are equity securities, but they have many characteristics of fixed income securities,
such as a fixed (or floating) dividend payment rate and/or a liquidity preference over the issuer’s common shares. However,
because preferred shares are equity securities, they may be more susceptible to risks traditionally associated with equity investments
than the Fund’s fixed income securities. Unlike debt securities, the obligations of an issuer of preferred stock, including
dividend and other payment obligations, may not typically be accelerated by the holders of such preferred stock on the occurrence
of an event of default or other non-compliance by the issuer of the preferred stock. Investments in preferred stock present market
and liquidity risks. The value of a preferred stock may be highly sensitive to the economic condition of the issuer, and markets
for preferred stock may be less liquid than the market for the issuer’s common stock.
Preferred stocks may differ in many of
their provisions. Among the features that differentiate preferred stocks from one another are the dividend rights, which may be
cumulative or noncumulative and participating or non-participating, redemption provisions, and voting rights. Such features will
establish the income return and may affect the prospects for capital appreciation or risks of capital loss.
The market prices of preferred stocks are
subject to changes in interest rates and are more sensitive to changes in an issuer’s creditworthiness than are the prices
of debt securities. Shareholders of preferred stock may suffer a loss of value if dividends are not paid. Under ordinary circumstances,
preferred stock does not carry voting rights.
Warrants and Rights
The Fund may invest in warrants, rights
and stock purchase rights. Stock purchase rights are instruments, frequently distributed to an issuer’s shareholders as a
dividend, that entitle the holder to purchase a specific number of common shares on a specific date or during a specific period
of time. The exercise price on the rights is normally at a discount from market value of the common shares at the time of distribution.
The rights do not carry with them the right to dividends or to vote and may or may not be transferable. Stock purchase rights are
frequently used outside of the United States as a means of raising additional capital from an issuer’s current shareholders.
As a result, an investment in warrants
or stock purchase rights may be considered more speculative than certain other types of investments. In addition, the value of
a warrant or a stock purchase right does not necessarily change with the value of the underlying securities, and warrants and stock
purchase rights expire worthless if they are not exercised on or prior to their expiration date.
Repurchase Agreements
Repurchase agreements involve the acquisition
by the Fund of a security, subject to an obligation of the seller to repurchase, and the Fund to resell, the security at a fixed
price, usually not more than one week after its purchase. The Fund’s custodian will have custody of securities acquired by
the Fund under a repurchase agreement. Repurchase agreements are considered by the SEC to be loans by the Fund. In an attempt to
reduce the risk of incurring a loss on the repurchase agreement, the Fund will enter into repurchase agreements only with domestic
banks with total assets in excess of one billion dollars or primary government securities dealers reporting to the Federal Reserve
Bank of New York with respect to the highest rated securities of the type in which the Fund may invest. It will also require that
the repurchase agreement be at all times fully collateralized in an amount at least equal to the repurchase price including accrued
interest earned on the underlying securities, and that the underlying securities be marked to market every business day to assure
that the repurchase agreement remains fully collateralized. Certain costs may be incurred by the Fund in connection with the sale
of the securities if the seller does not repurchase them in accordance with the repurchase agreement. If bankruptcy proceedings
are commenced with respect to the seller of the securities, realization on the securities by the Fund may be delayed or limited.
The Fund will consider on an ongoing basis the creditworthiness of the institutions with which it enters into repurchase agreements.
Reverse Repurchase Agreements
Reverse repurchase agreements involve sales
by the Fund of portfolio assets concurrently with an agreement by the Fund to repurchase the same assets at a later date at a fixed
price. Generally, the effect of such a transaction is that the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, which the Fund will be able to keep the interest income
associated with those portfolio securities. Such transactions are advantageous only if the interest cost to the Fund of the reverse
repurchase transaction is less than the cost of obtaining the cash otherwise. Opportunities to achieve this advantage may not always
be available, and the Fund intends to use the reverse repurchase technique only when this will be advantageous to the Fund.
Borrowing
The use of borrowing by the Fund involves
special risk considerations that may not be associated with other funds having similar objectives and policies. Since substantially
all of the Fund’s assets fluctuate in value, while the interest obligation resulting from a borrowing will be fixed by the
terms of the Fund’s agreement with its lender, the NAV per share of the Fund will tend to increase more when its portfolio
securities increase in value and to decrease more when its portfolio assets decrease in value than would otherwise be the case
if the Fund did not borrow. In addition, interest costs on borrowings may fluctuate with changing market rates of interest and
may partially offset or exceed the return earned on borrowed funds. Under adverse market conditions, the Fund might have to sell
portfolio securities to meet interest or principal payments at a time when fundamental investment considerations would not favor
such sales.
Securities Lending
Securities lending is subject to the risk
that loaned securities may not be available to the Fund on a timely basis and the Fund may therefore lose the opportunity to sell
the securities at a desirable price. Any loss in the market price of securities loaned by the Fund that occurs during the term
of the loan would be borne by that Fund and would adversely affect that Fund’s performance. Also, there may be delays in
recovery, or no recovery, of securities loaned or even a loss of rights in the collateral should the borrower of the securities
fail financially while the loan is outstanding.
Loans of Portfolio Securities
The advantage of such loans is that the
Fund continues to receive the income on the loaned securities while at the same time earns interest on the cash amounts deposited
as collateral, which will be invested in short-term obligations. The Fund will not lend its portfolio securities if such loans
are not permitted by the laws or regulations of any state in which its shares are qualified for sale.
The SEC currently requires that the following
conditions must be met whenever the Fund’s portfolio securities are loaned: (1) the Fund must receive at least 100%
cash collateral from the borrower; (2) the borrower must increase such collateral whenever the market value of the securities
rises above the level of such collateral; (3) the Fund must be able to terminate the loan at any time; (4) the Fund must
receive reasonable interest on the loan, as well as any dividends, interest or other distributions on the loaned securities, and
any increase in market value; (5) the Fund may pay only reasonable custodian fees approved by the Board in connection with
the loan; (6) while voting rights on the loaned securities may pass to the borrower, the Board must terminate the loan and
regain the right to vote the securities if a material event adversely affecting the investment occurs; and (7) the Fund may
not loan its portfolio securities if the value of the loaned securities is more than one-third of its total asset value, including
collateral received from such loans. These conditions may be subject to future modification.
The Fund’s loans of portfolio securities
will be collateralized in accordance with applicable regulatory requirements and no loan will cause the value of all loaned securities
to exceed 20% of the value of the Fund’s total assets. The Fund’s ability to lend portfolio securities may be limited
by rating agency guidelines.
A loan generally may be terminated by the
borrower on one business days’ notice, or by the Fund on five business days’ notice. If the borrower fails to deliver
the loaned securities within five days after receipt of notice, the Fund could use the collateral to replace the securities while
holding the borrower liable for any excess of replacement cost over collateral. As with any extensions of credit, there are risks
of delay in recovery and in some cases even loss of rights in the collateral should the borrower of the securities fail financially.
However, these loans of portfolio securities will only be made to firms deemed by the Investment Adviser to be creditworthy and
when the income that can be earned from such loans justifies the attendant risks. The Investment Adviser and the Board of Directors
will each oversee the creditworthiness of the contracting parties on an ongoing basis. Upon termination of the loan, the borrower
is required to return the securities to the Fund. Any gain or loss in the market price during the loan period would inure to the
Fund. The risks associated with loans of portfolio securities are substantially similar to those associated with repurchase agreements.
Thus, if the counterparty to the loan petitions for bankruptcy or becomes subject to the U.S. Bankruptcy Code, the law regarding
the rights of the Fund is unsettled. As a result, in rare circumstances, there may be a restriction on the Fund’s ability
to sell the collateral and the Fund would suffer a loss. When voting or consent rights which accompany loaned securities pass to
the borrower, the Fund will follow the policy of calling the loaned securities, to be delivered within one day after notice, to
permit the exercise of such rights if the matters involved would have a material effect on the Fund’s investment in such
loaned securities. The Fund will pay reasonable finders, administrative and custodial fees in connection with a loan of its securities.
Temporary Defensive Investments
Subject to the Fund’s investment
restrictions, when a temporary defensive period is believed by the Investment Adviser to be warranted (“temporary defensive
periods”), the Fund may, without limitation, hold cash or invest its assets in securities of U.S. government sponsored instrumentalities,
in repurchase agreements in respect of those instruments, and in certain high grade commercial paper instruments. During temporary
defensive periods, the Fund may without limitation hold cash or invest its assets in money market instruments and repurchase agreements
in respect of those instruments. Obligations of certain agencies and instrumentalities of the U.S. government, such as the Government
National Mortgage Association, are supported by the “full faith and credit” of the U.S. government; others, such as
those of the Export-Import Bank of the United States, are supported by the right of the issuer to borrow from the U.S. Treasury;
others, such as those of the Federal National Mortgage Association, are supported by the discretionary authority of the U.S. government
to purchase the agency’s obligations; and still others, such as those of the Student Loan Marketing Association, are supported
only by the credit of the instrumentality. No assurance can be given that the U.S. government would provide financial support to
U.S. government sponsored instrumentalities if it is not obligated to do so by law. During temporary defensive periods, the Fund
may be less likely to achieve its investment objective.
U.S. Government Securities
U.S. government securities in which the
Fund invests include debt obligations of varying maturities issued by the U.S. Treasury or issued or guaranteed by an agency, authority
or instrumentality of the U.S. government, including the Federal Housing Administration, Federal Financing Bank, Farm Service Agency,
Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association (“GNMA”),
General Services Administration, National Bank for Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks (“FHLBs”),
Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”), Maritime
Administration, Tennessee Valley Authority and various institutions that previously were or currently are part of the Farm Credit
System (which has been undergoing reorganization since 1987). Some U.S. government securities, such as U.S. Treasury bills, Treasury
notes and Treasury bonds, which differ only in their interest rates, maturities and times of issuance, are supported by the full
faith and credit of the United States. Others are supported by: (i) the right of the issuer to borrow from the U.S. Treasury,
such as securities of the FHLBs; (ii) the discretionary authority of the U.S. government to purchase the agency’s obligations,
such as securities of FNMA; or (iii) only the credit of the issuer. Although the U.S. government has recently provided financial
support to FNMA and FHLMC, no assurance can be given that the U.S. government will provide financial support in the future to these
or other U.S. government agencies, authorities or instrumentalities that are not supported by the full faith and credit of the
United States. Securities guaranteed as to principal and interest by the U.S. government, its agencies, authorities or instrumentalities
include: (i) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued
by the U.S. government or any of its agencies, authorities or instrumentalities; (ii) participations in loans made to non-U.S.
governments or other entities that are so guaranteed; and (iii) as a result of initiatives introduced in response to the recent
financial market difficulties, securities of commercial issuers or financial institutions that qualify for guarantees by U.S. government
agencies like the FDIC. The secondary market for certain loan participations described above is limited and, therefore, the participations
may be regarded as illiquid.
U.S. government securities may include
zero coupon securities that may be purchased when yields are attractive and/or to enhance portfolio liquidity. Zero coupon U.S.
government securities are debt obligations that are issued or purchased at a significant discount from face value. The discount
approximates the total amount of interest the security will accrue and compound over the period until maturity or the particular
interest payment date at a rate of interest reflecting the market rate of the security at the time of issuance. Zero coupon U.S.
government securities do not require the periodic payment of interest. These investments may experience greater volatility in market
value than U.S. government securities that make regular payments of interest. The Fund accrues income on these investments for
tax and accounting purposes, which is distributable to shareholders and which, because no cash is received at the time of accrual,
may require the liquidation of other portfolio securities to satisfy the Fund’s distribution obligations, in which case the
Fund will forgo the purchase of additional income producing assets with these funds. Zero coupon U.S. government securities include
STRIPS and CUBES, which are issued by the U.S. Treasury as component parts of U.S. Treasury bonds and represent scheduled interest
and principal payments on the bonds.
Inverse Floating Rate Securities
The Fund may invest in inverse floating
rate obligations. The interest 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.
Debt Obligations of Non-U.S. Governments
The Fund may invest in debt obligations
of non-U.S. governments. An investment in debt obligations of non-U.S. governments and their political subdivisions (sovereign
debt) involves special risks that are not present in corporate debt obligations. The non-U.S. issuer of the sovereign debt or the
non-U.S. governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest
when due, and the Fund may have limited recourse in the event of a default. During periods of economic uncertainty, the market
prices of sovereign debt may be more volatile than prices of debt obligations of U.S. issuers. In the past, certain non-U.S. countries
have encountered difficulties in servicing their debt obligations, withheld payments of principal and interest and declared moratoria
on the payment of principal and interest on their sovereign debt.
A sovereign debtor’s willingness
or ability to repay principal and pay interest in a timely manner may be affected by, among other factors, its cash flow situation,
the extent of its foreign currency reserves, the availability of sufficient foreign exchange, the relative size of the debt service
burden, the sovereign debtor’s policy toward its principal international lenders and local political constraints. Sovereign
debtors may also be dependent on expected disbursements from non-U.S. governments, multinational agencies and other entities to
reduce principal and interest arrearages on their debt. The failure of a sovereign debtor to implement economic reforms, achieve
specified levels of economic performance or repay principal or interest when due may result in the cancellation of third-party
commitments to lend funds to the sovereign debtor, which may further impair such debtor’s ability or willingness to service
its debts.
Eurodollar Instruments and Samurai and Yankee Bonds
The Fund may invest in Eurodollar instruments
and Samurai and Yankee bonds. Eurodollar instruments are bonds of corporate and government issuers that pay interest and principal
in U.S. dollars but are issued in markets outside the United States, primarily in Europe. Samurai bonds are yen-denominated bonds
sold in Japan by non-Japanese issuers. Yankee bonds are U.S. dollar denominated bonds typically issued in the United States by
non-U.S. governments and their agencies and non-U.S. banks and corporations. The Fund may also invest in Eurodollar Certificates
of Deposit (“ECDs”), Eurodollar Time Deposits (“ETDs”) and Yankee Certificates of Deposit (“Yankee
CDs”). ECDs are U.S. dollar-denominated certificates of deposit issued by non-U.S. branches of domestic banks; ETDs are U.S.
dollar-denominated deposits in a non-U.S. branch of a U.S. bank or in a non-U.S. bank; and Yankee CDs are U.S. dollar- denominated
certificates of deposit issued by a U.S. branch of a non-U.S. bank and held in the United States. These investments involve risks
that are different from investments in securities issued by U.S. issuers, including potential unfavorable political and economic
developments, non-U.S. withholding or other taxes, seizure of non- U.S. deposits, currency controls, interest limitations or other
governmental restrictions which might affect payment of principal or interest.
Bank Obligations
Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time (in no event longer than seven days) at a stated interest rate.
Time deposits which may be held by the Fund will not benefit from insurance from the Bank Insurance Fund or the Savings Association
Insurance Fund administered by the FDIC. Certificates of deposit are certificates evidencing the obligation of a bank to repay
funds deposited with it for a specified period of time. Bankers’ acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect the obligation both of the bank and of the drawer
to pay the face amount of the instrument upon maturity.
Commercial Paper
Commercial paper includes short-term unsecured
promissory notes, variable rate demand notes, and variable rate master demand notes issued by domestic and foreign bank holding
companies, corporations, and financial institutions (see “Variable and Floating Rate Demand and Master Demand Notes”
below for more details) as well as similar taxable and tax-exempt instruments issued by government agencies and instrumentalities.
The Fund establishes its own standards of creditworthiness for issuers of such instruments.
Certificates of Deposit
Domestic commercial banks organized under
federal law are supervised and examined by the Comptroller of the Currency and are required to be members of the Federal Reserve
System and to have their deposits insured by the FDIC. Domestic banks organized under state law are supervised and examined by
state banking authorities but are members of the Federal Reserve System only if they elect to join. In addition, state banks whose
certificates of deposit (“CDs”) may be purchased by the Fund are insured by the FDIC (although such insurance may not
be of material benefit to the Fund, depending upon the principal amount of the CDs of each bank held by the Fund) and are subject
to federal examination and to a substantial body of federal law and regulation. As a result of federal or state laws and regulations,
domestic banks, among other things, generally are required to maintain specified levels of reserves, limited in the amounts which
they can loan to a single borrower and subject to other regulations designed to promote financial soundness.
The Fund may purchase CDs issued by banks,
savings and loan associations, and similar institutions with less than one billion dollars in assets, which have deposits insured
by the Bank Insurance Fund or the Savings Association Insurance Fund administered by the FDIC, provided the Fund purchases any
such CD in a principal amount of no more than $250,000, which amount would be fully insured by the FDIC. Interest payments on such
a CD are not insured by the FDIC. The Fund would not own more than one such CD per issuer.
Variable and Floating Rate Demand and Master Demand Notes
The Fund may, from time to time, buy variable
or floating rate demand notes issued by corporations, bank holding companies, and financial institutions, and similar taxable and
tax exempt instruments issued by government agencies and instrumentalities. These securities will typically have a maturity longer
than one year but carry with them the right of the holder to put the securities to a remarketing agent or other entity at designated
time intervals and on specified notice. The obligation of the issuer of the put to repurchase the securities may be backed up by
a letter of credit or other obligation issued by a financial institution. The purchase price is ordinarily par plus accrued and
unpaid interest. Generally, the remarketing agent will adjust the interest rate every seven days (or at other specified intervals)
in order to maintain the interest rate at the prevailing rate for securities with a seven-day or other designated maturity.
The Fund may also buy variable rate master
demand notes. The terms of these obligations permit the Fund to invest fluctuating amounts at varying rates of interest pursuant
to direct arrangements between the Fund, as lender, and the borrower. These instruments permit weekly and, in some instances, daily
changes in the amounts borrowed. The Fund has the right to increase the amount under the note at any time up to the full amount
provided by the note agreement, or to decrease the amount, and the borrower may repay up to the full amount of the note without
penalty. The notes may or may not be backed by bank letters of credit. Because the notes are direct lending arrangements between
the Fund and borrower, it is not generally contemplated that they will be traded, and there is no secondary market for them, although
they are redeemable (and, thus, immediately repayable by the borrower) at the principal amount, plus accrued interest, at any time.
In connection with any such purchase and on an ongoing basis, the Investment Adviser will consider the earning power, cash flow,
and other liquidity ratios of the issuer, and its ability to pay principal and interest on demand, including a situation in which
all holders of such notes make demand simultaneously. While master demand notes, as such, are not typically rated by credit rating
agencies, the Fund may, under its minimum rating standards, invest in them only if, at the time of an investment, the issuer meets
the criteria set forth in this SAI for commercial paper obligations.
Limited Partnerships
The Fund may obtain interests in limited
partnerships. A limited partnership interest entitles the Fund to participate in the investment return of the partnership’s
assets as defined by the agreement among the partners. As a limited partner, the Fund generally is not permitted to participate
in the management of the partnership. However, unlike a general partner whose liability is not limited, a limited partner’s
liability generally is limited to the amount of its commitment to the partnership.
Master Limited Partnerships
MLPs are limited partnerships or limited
liability companies taxable as partnerships. MLPs may derive income and gains from the exploration, development, mining or production,
processing, refining, transportation (including pipelines transporting gas, oil, or products thereof), or the marketing of any
mineral or natural resources. MLPs generally have two classes of owners, the general partner and limited partners. When investing
in an MLP, the Fund intends to purchase publicly traded common units issued to limited partners of the MLP. The general partner
is typically owned by a major energy company, an investment fund, the direct management of the MLP or is an entity owned by
one or more of such parties. The general partner may be structured as a private or publicly traded corporation or other entity.
The general partner typically controls the operations and management of the MLP through and up to 2% equity interest in the MLP
plus, in many cases, ownership of common units and subordinated units. Limited partners own the remainder of the partnership, through
ownership of common units, and have a limited role in the partnership’s operations and management.
Investments in publicly traded MLPs, which
are limited partnerships or limited liability companies taxable as partnerships, involve some risks that differ from an investment
in the common stock of a corporation. MLPs may derive income and gains from the exploration, development, mining or production,
processing, refining, transportation (including pipelines transporting gas, oil, or products thereof), or the marketing of any
mineral or natural resources. MLPs generally have two classes of owners, the general partner and limited partners. When investing
in an MLP, the Fund generally purchases publicly traded common units issued to limited partners of the MLP. The general partner
is typically owned by a major energy company, an investment fund, the direct management of the MLP or is an entity owned by one
or more of such parties. The general partner may be structured as a private or publicly traded corporation or other entity. The
general partner typically controls the operations and management of the MLP through an up to 2% equity interest in the MLP plus,
in many cases, ownership of common units and subordinated units. Limited partners own the remainder of the partnership, through
ownership of common units, and have a limited role in the partnership’s operations and management. As compared to common
shareholders of a corporation, holders of MLP common units have more limited control and limited rights to vote on matters affecting
the partnership.
MLPs are typically structured such that
common units and general partner interests have first priority to receive quarterly cash distributions up to an established minimum
amount (“minimum quarterly distributions” or “MQD”). Common and general partner interests also accrue arrearages
in distributions to the extent the MQD is not paid. Once common and general partner interests have been paid, subordinated units
receive distributions of up to the MQD; however, subordinated units do not accrue arrearages. Distributable cash in excess of the
MQD paid to both common and subordinated units is distributed to both common and subordinated units generally on a pro rata basis.
The general partner is also eligible to receive incentive distributions if the general partner operates the business in a manner
which results in distributions paid per common unit surpassing specified target levels. As the general partner increases cash distributions
to the limited partners, the general partner receives an increasingly higher percentage of the incremental cash distributions.
A common arrangement provides that the general partner can reach a tier where it receives 50% of every incremental dollar paid
to common and subordinated unit holders. These incentive distributions encourage the general partner to streamline costs, increase
capital expenditures and acquire assets in order to increase the partnership’s cash flow and raise the quarterly cash distribution
in order to reach higher tiers. Such results benefit all security holders of the MLP.
MLP common units represent a limited partnership
interest in the MLP. Common units are listed and traded on U.S. securities exchanges, with their value fluctuating predominantly
based on prevailing market conditions and the success of the MLP. The Fund will generally purchase common units in market transactions.
Unlike owners of common stock of a corporation, owners of common units have limited voting rights and have no ability to elect
directors. In the event of liquidation, common units have preference over subordinated units, but not over debt or preferred units,
to the remaining assets of the MLP.
MLP Equity
Securities. Equity securities issued by MLPs currently consist of general partner or managing member interests, common
units, subordinated units and preferred units as described more fully below.
MLP General
Partner or Managing Member Interests. The general partner or managing member interest in MLPs is typically retained
by the original sponsors of an MLP, such as its founders, corporate partners and entities that sell assets to the MLP. The holder
of the general partner or managing member interest can be liable in certain circumstances for amounts greater than the amount of
the holder’s investment in the general partner or managing member. General partner or managing member interests often confer
direct board participation rights in, and in many cases control over the operations of, the MLP. General partner or managing member
interests can be privately held or owned by publicly traded entities. General partner or managing member interests receive cash
distributions, typically in an amount of up to 2% of available cash, which is contractually defined in the partnership or limited
liability company agreement. In addition, holders of general partner or managing member interests typically receive incentive distribution
rights (“IDRs”), which provide them with an increasing share of the entity’s aggregate cash distributions upon
the payment of per common unit distributions that exceed specified threshold levels above the MQD. Due to the IDRs, general partners
of MLPs have higher distribution growth prospects than their underlying MLPs, but quarterly incentive distribution payments would
also decline at a greater rate than the decline rate in quarterly distributions to common, preferred and subordinated unit holders
in the event of a reduction in the MLP’s quarterly distribution. The ability of the limited partners or members to remove
the general partner or managing member without cause is typically very limited. In addition, some MLPs permit the holder of IDRs
to reset, under specified circumstances, the incentive distribution levels and receive compensation in exchange for the distribution
rights given up in the reset.
MLP Common
Units. MLP common units are typically listed and traded on U.S. securities exchanges, including the New York Stock Exchange
(the “NYSE”) and the NASDAQ Stock Market (the “NASDAQ”). The Fund will purchase MLP common units through
open market transactions and underwritten offerings, but may also acquire common units through direct placements and privately
negotiated transactions. Holders of MLP common units typically have limited control and voting rights and such common units are
typically entitled to receive the MQD, including arrearage rights, from the issuer. Generally, an MLP must pay (or set aside for
payment) the MQD to holders of common units before any distributions may be paid to subordinated unit holders. In addition, incentive
distributions are typically not paid to the general partner or managing member unless the quarterly distributions on the common
units after any distributions have been paid to preferred unit holders but before any distributions paid to subordinate holders
exceed specified threshold levels above the MQD. In the event of a liquidation, common unit holders are intended to have a preference
to the remaining assets of the issuer over holders of subordinated units. Master limited partnerships also issue different classes
of common units that may have different voting, trading, and distribution rights. The Fund may invest in different classes of common
units.
MLP Subordinated
Units. Subordinated units, which, like common units, represent limited partner or member interests, are not typically
listed on an exchange or publicly traded. The Fund will typically purchase outstanding subordinated units through negotiated transactions
directly with holders of such units or newly-issued subordinated units directly from the issuer. Holders of such subordinated units
are generally entitled to receive a distribution only after the MQD and any arrearages from prior quarters have been paid to holders
of common units. Holders of subordinated units typically have the right to receive distributions before any incentive distributions
are payable to the general partner or managing member. Subordinated units generally do not provide arrearage rights. Most MLP subordinated
units are convertible into common units after the passage of a specified period of time or upon the achievement by the issuer of
specified financial goals. Master limited partnerships also issue different classes of subordinated units that may have different
voting, trading, and distribution rights. The Fund may invest in different classes of subordinated units.
MLP Preferred
Units. MLP preferred units may be traded on an exchange or unlisted, in which case the Fund may purchase MLP preferred
units through negotiated transactions directly with MLPs, affiliates of MLPs and institutional holders of such units. Holders of
MLP preferred units can be entitled to a wide range of voting and other rights, depending on the structure of each separate security.
In most cases, holders of preferred units are entitled to receive distributions before distributions are made to common unitholders
that are either equal to the MQD, or set at a fixed rate that is above the MLP’s current distribution. Preferred units are
senior in the capital structure to common units, but are subordinate to debt holders.
Other
MLP Equity Securities. The Fund may invest in equity securities, including I-Shares, issued by affiliates of MLPs, including
the general partners or managing members of MLPs. Such issuers may be organized and/or taxed as corporations and therefore may
not offer the advantageous tax characteristics of MLP units. The Fund intends to purchase MLP equity securities through open market
transactions, but may also do so through direct placements.
I-Shares.
I-Shares represent an ownership interest issued by an MLP affiliate. The MLP affiliate uses the proceeds from the sale of I-Shares
to purchase limited partnership interests in the MLP in the form of I-units. Thus, I-Shares represent an indirect interest
in a MLP limited partnership interest. I-units have similar features as MLP common units in terms of voting rights, liquidation
preference and distribution. I-Shares themselves have limited voting rights and are similar in that respect to MLP common units.
I-Shares differ from MLP common units primarily in that instead of receiving cash distributions, holders of I-Shares will receive
distributions of additional I-Shares in an amount equal to the cash distributions received by common unit holders. I-Shares are
traded on the NYSE and NASDAQ.
MLPs typically achieve distribution growth
by internal and external means. MLPs achieve growth internally by experiencing higher commodity volume driven by the economy and
population, and through the expansion of existing operations including increasing the use of underutilized capacity, pursuing projects
that can leverage and gain synergies with existing infrastructure and pursuing so called “greenfield projects.” External
growth is achieved by making accretive acquisitions. MLPs also may achieve external growth due to higher commodity prices.
MLPs are subject to various federal, state
and local environmental laws and health and safety laws as well as laws and regulations specific to their particular activities.
These laws and regulations address: health and safety standards for the operation of facilities, transportation systems and the
handling of materials; air and water pollution requirements and standards; solid waste disposal requirements; land reclamation
requirements; and requirements relating to the handling and disposition of hazardous materials. MLPs are subject to the costs of
compliance with such laws applicable to them, and changes in such laws and regulations may adversely affect their results of operations.
MLPs operating interstate pipelines and
storage facilities are subject to substantial regulation by the Federal Energy Regulatory Commission (the “FERC”),
which regulates interstate transportation rates, services and other matters regarding natural gas pipelines including: the establishment
of rates for service; regulation of pipeline storage and liquified natural gas facility construction; issuing certificates of need
for companies intending to provide energy services or constructing and operating interstate pipeline and storage facilities; and
certain other matters. FERC also regulates the interstate transportation of crude oil, including: regulation of rates and practices
of oil pipeline companies; establishing equal service conditions to provide shippers with equal access to pipeline transportation;
and establishment of reasonable rates for transporting petroleum and petroleum products by pipeline.
MLPs may be subject to liability relating
to the release of substances into the environment, including liability under federal “Superfund” and similar state
laws for investigation and remediation of releases and threatened releases of hazardous materials, as well as liability for injury
and property damage for accidental events, such as explosions or discharges of materials causing personal injury and damage to
property. Such potential liabilities could have a material adverse effect upon the financial condition and results of operations
of MLPs.
MLPs are subject to numerous business related
risks, including: deterioration of business fundamentals reducing profitability due to development of alternative energy sources,
consumer sentiment with respect to global warming, changing demographics in the markets served, unexpectedly prolonged and precipitous
changes in commodity prices and increased competition that reduces the MLP’s market share; the lack of growth of markets
requiring growth through acquisitions; disruptions in transportation systems; the dependence of certain MLPs upon the energy exploration
and development activities of unrelated third parties; availability of capital for expansion and construction of needed facilities;
a significant decrease in natural gas production due to depressed commodity prices or otherwise; the inability of MLPs to successfully
integrate recent or future acquisitions; and the general level of the economy.
Zero Coupon and Payment In-Kind Securities
The Fund may invest in zero coupon bonds,
deferred interest bonds, and bonds on which the interest is payable in -kind (“PIK securities”). Zero coupon and deferred
interest bonds are debt obligations which are issued at a significant discount from face value. The discount approximates the total
amount of interest the bonds will accrue and compound over the period until maturity or the first interest accrual date at a rate
of interest reflecting the market rate of the security at the time of issuance. While zero coupon bonds do not require the periodic
payment of interest, deferred interest bonds provide for a period of delay before the regular payment of interest begins. Although
this period of delay is different for each deferred interest bond, a typical period is approximately one-third of the bond’s
term to maturity. PIK securities are debt obligations which provide that the issuer thereof may, at its option, pay interest on
such bonds in cash or in the form of additional debt obligations. Such investments benefit the issuer by mitigating its need for
cash to meet debt service, but also require a higher rate of return to attract investors who are willing to defer receipt of such
cash. Such investments experience greater volatility in market value due to changes in interest rates than debt obligations which
provide for regular payments of interest. The Fund will accrue income on such investments based on an effective interest method,
which is distributable to shareholders and which, because no cash is received at the time of accrual, may require the liquidation
of other portfolio securities to satisfy the Fund’s dividend and distribution obligations. As a result, the Fund may have
to sell securities at a time when it may be disadvantageous to do so.
Foreign Securities
The Fund may invest in securities of foreign
issuers, including securities quoted or denominated in a currency other than U.S. dollars. Investments in foreign securities may
offer potential benefits not available from investments solely in U.S. dollar-denominated or quoted securities of domestic issuers.
Such benefits may include the opportunity to invest in foreign issuers that appear, in the opinion of the Investment Adviser, to
offer the potential for better long term growth of capital and income than investments in U.S. securities, the opportunity to invest
in foreign countries with economic policies or business cycles different from those of the United States and the opportunity to
reduce fluctuations in portfolio value by taking advantage of foreign securities markets that do not necessarily move in a manner
parallel to U.S. markets. Investing in the securities of foreign issuers also involves, however, certain special risks, including
those discussed in the Fund’s Prospectus and those set forth below, which are not typically associated with investing in
U.S. dollar-denominated securities or quoted securities of U.S. issuers. Many of these risks are more pronounced for investments
in emerging countries.
With respect to investments in certain
foreign countries, there exist certain economic, political and social risks, including the risk of adverse political developments,
nationalization, military unrest, social instability, war and terrorism, confiscation without fair compensation, expropriation
or confiscatory taxation, limitations on the movement of funds and other assets between different countries, or diplomatic developments,
any of which could adversely affect the Fund’s investments in those countries. Governments in certain foreign countries continue
to participate to a significant degree, through ownership interest or regulation, in their respective economies. Action by these
governments could have a significant effect on market prices of securities and dividend payments.
Many countries throughout the world are
dependent on a healthy U.S. economy and are adversely affected when the U.S. economy weakens or its markets decline. Additionally,
many foreign country economies are heavily dependent on international trade and are adversely affected by protective trade barriers
and economic conditions of their trading partners. Protectionist trade legislation enacted by those trading partners could have
a significant adverse effect on the securities markets of those countries. Individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.
Investments in foreign securities often
involve currencies of foreign countries. Accordingly, the Fund may be affected favorably or unfavorably by changes in currency
rates and in exchange control regulations and may incur costs in connection with conversions between various currencies. The Fund
may be subject to currency exposure independent of its securities positions. To the extent that the Fund is fully invested in foreign
securities while also maintaining net currency positions, it may be exposed to greater combined risk. Currency exchange rates may
fluctuate significantly over short periods of time. They generally are determined by the forces of supply and demand in the foreign
exchange markets and the relative merits of investments in different countries, actual or anticipated changes in interest rates
and other complex factors, as seen from an international perspective. Currency exchange rates also can be affected unpredictably
by intervention (or the failure to intervene) by U.S. or foreign governments or central banks or by currency controls or political
developments in the United States or abroad. To the extent that a portion of the Fund’s total assets, adjusted to reflect
the Fund’s net position after giving effect to currency transactions, is denominated or quoted in the currencies of foreign
countries, the Fund will be more susceptible to the risk of adverse economic and political developments within those countries.
The Fund’s net currency positions may expose it to risks independent of its securities positions.
The Fund may hold foreign securities and
cash with foreign banks, agents and securities depositories appointed by that Fund’s custodian (each a “Foreign Custodian”).
Some Foreign Custodians may be recently organized or new to the foreign custody business. In some countries, Foreign Custodians
may be subject to little or no regulatory oversight over or independent evaluation of their operations. Further, the laws of certain
countries may place limitations on the Fund’s ability to recover its assets if a Foreign Custodian enters bankruptcy.
Because foreign issuers generally are not
subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable
to U.S. companies, there may be less publicly available information about a foreign company than about a comparable U.S. company.
Volume and liquidity in most foreign securities markets are less than in the United States markets and securities of many foreign
companies are less liquid and more volatile than securities of comparable U.S. companies. The securities of foreign issuers may
be listed on foreign securities exchanges or traded in foreign OTC markets. Fixed commissions on foreign securities exchanges are
generally higher than negotiated commissions on U.S. exchanges, although the Fund endeavors to achieve the most favorable net results
on its portfolio transactions. There is generally less government supervision and regulation of foreign securities markets and
exchanges, brokers, dealers and listed and unlisted companies than in the United States, and the legal remedies for investors may
be more limited than the remedies available in the United States. For example, there may be no comparable provisions under certain
foreign laws to insider trading and similar investor protections that apply with respect to securities transactions consummated
in the United States. Mail service between the United States and foreign countries may be slower or less reliable than within the
United States, thus increasing the risk of delayed settlement of portfolio transactions or loss of certificates for portfolio securities.
Foreign markets also have different clearance
and settlement procedures, and in certain markets there have been times when settlements have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such transactions. Such delays in settlement could result in
temporary periods when some of the Fund’s assets are uninvested and no return is earned on such assets. The inability of
the Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could result either in losses to the Fund due to subsequent
declines in value of the portfolio securities or, if the Fund has entered into a contract to sell the securities, could result
in possible liability to the purchaser.
The Fund may invest in foreign securities
which take the form of sponsored and unsponsored American Depository Receipts (“ADRs”), Global Depository Receipts
(“GDRs”), European Depository Receipts (“EDRs”) or other similar instruments representing securities of
foreign issuers (together, “Depositary Receipts”). ADRs represent the right to receive securities of foreign issuers
deposited in a domestic bank or a correspondent bank. ADRs are traded on domestic exchanges or in the U.S. OTC market and, generally,
are in registered form. EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. bank similar to that for ADRs and
are designed for use in the non-U.S. securities markets. EDRs and GDRs are not necessarily quoted in the same currency as the underlying
security.
To the extent the Fund acquires Depositary
Receipts through banks which do not have a contractual relationship with the foreign issuer of the security underlying the Depositary
Receipts to issue and service such unsponsored Depositary Receipts, there may be an increased possibility that the Fund would not
become aware of and be able to respond to corporate actions such as stock splits or rights offerings involving the foreign issuer
in a timely manner. In addition, the lack of information may result in inefficiencies in the valuation of such instruments. Investment
in Depositary Receipts does not eliminate all the risks inherent in investing in securities of non-U.S. issuers. The market value
of Depositary Receipts is dependent upon the market value of the underlying securities and fluctuations in the relative value of
the currencies in which the Depositary Receipts and the underlying securities are quoted. However, by investing in Depositary Receipts,
such as ADRs, which are quoted in U.S. dollars, the Fund may avoid currency risks during the settlement period for purchases and
sales.
As described more fully below, the Fund
may invest in countries with emerging economies or securities markets. Political and economic structures in many of such countries
may be undergoing significant evolution and rapid development, and such countries may lack the social, political and economic stability
characteristic of more developed countries. Certain of such countries have in the past failed to recognize private property rights
and have at times nationalized or expropriated the assets of private companies. As a result, the risks described above, including
the risks of nationalization or expropriation of assets, may be heightened.
Emerging Markets Securities
The securities markets of emerging countries
are less liquid and subject to greater price volatility, and have a smaller market capitalization, than the U.S. securities markets.
In certain countries, there may be fewer publicly traded securities and the market may be dominated by a few issues or sectors.
Issuers and securities markets in such countries are not subject to as extensive and frequent accounting, financial and other reporting
requirements or as comprehensive government regulations as are issuers and securities markets in the U.S. In particular, the assets
and profits appearing on the financial statements of emerging country issuers may not reflect their financial position or results
of operations in the same manner as financial statements for U.S. issuers. Substantially less information may be publicly available
about emerging country issuers than is available about issuers in the United States.
Emerging country securities markets are
typically marked by a high concentration of market capitalization and trading volume in a small number of issuers representing
a limited number of industries, as well as a high concentration of ownership of such securities by a limited number of investors.
The markets for securities in certain emerging countries are in the earliest stages of their development. Even the markets for
relatively widely traded securities in emerging countries may not be able to absorb, without price disruptions, a significant increase
in trading volume or trades of a size customarily undertaken by institutional investors in the securities markets of developed
countries. The limited size of many of these securities markets can cause prices to be erratic for reasons apart from factors that
affect the soundness and competitiveness of the securities issuers. For example, prices may be unduly influenced by traders who
control large positions in these markets. Additionally, market making and arbitrage activities are generally less extensive in
such markets, which may contribute to increased volatility and reduced liquidity of such markets. The limited liquidity of emerging
country securities may also affect the Fund’s ability to accurately value its portfolio securities or to acquire or dispose
of securities at the price and time it wishes to do so or in order to meet redemption requests.
With respect to investments in certain
emerging market countries, antiquated legal systems may have an adverse impact on the Fund. For example, while the potential liability
of a shareholder of a U.S. corporation with respect to acts of the corporation is generally limited to the amount of the shareholder’s
investment, the notion of limited liability is less clear in certain emerging market countries. Similarly, the rights of investors
in emerging market companies may be more limited than those of shareholders of U.S. corporations.
Transaction costs, including brokerage
commissions or dealer mark-ups, in emerging countries may be higher than in the United States and other developed securities markets.
In addition, existing laws and regulations are often inconsistently applied. As legal systems in emerging countries develop, foreign
investors may be adversely affected by new or amended laws and regulations. In circumstances where adequate laws exist, it may
not be possible to obtain swift and equitable enforcement of the law.
Custodial and/or settlement systems in
emerging markets countries may not be fully developed. To the extent the Fund invests in emerging markets, Fund assets that are
traded in such markets and which have been entrusted to such sub-custodians in those markets may be exposed to risks for which
the sub-custodian will have no liability.
Foreign investment in the securities markets
of certain emerging countries is restricted or controlled to varying degrees. These restrictions may limit the Fund’s investment
in certain emerging countries and may increase the expenses of the Fund. Certain emerging countries require governmental approval
prior to investments by foreign persons or limit investment by foreign persons to only a specified percentage of an issuer’s
outstanding securities or a specific class of securities which may have less advantageous terms (including price) than securities
of the company available for purchase by nationals. In addition, the repatriation of both investment income and capital from emerging
countries may be subject to restrictions which require governmental consents or prohibit repatriation entirely for a period of
time. Even where there is no outright restriction on repatriation of capital, the mechanics of repatriation may affect certain
aspects of the operation of the Fund. The Fund may be required to establish special custodial or other arrangements before investing
in certain emerging countries.
Emerging countries may be subject to a
substantially greater degree of economic, political and social instability and disruption than is the case in the United States,
Japan and most Western European countries. This instability may result from, among other things, the following: (i) authoritarian
governments or military involvement in political and economic decision making, including changes or attempted changes in governments
through extra-constitutional means; (ii) popular unrest associated with demands for improved political, economic or social
conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring countries; (v) ethnic, religious
and racial disaffection or conflict; and (vi) the absence of developed legal structures governing foreign private investments
and private property. Such economic, political and social instability could disrupt the principal financial markets in which the
Fund may invest and adversely affect the value of the Fund’s assets. The Fund’s investments can also be adversely affected
by any increase in taxes or by political, economic or diplomatic developments.
The Fund may seek investment opportunities
within former “Eastern bloc” countries. Most of these countries had a centrally planned, socialist economy for a substantial
period of time. The governments of many of these countries have more recently been implementing reforms directed at political and
economic liberalization, including efforts to decentralize the economic decision-making process and move towards a market economy.
However, business entities in many of these countries do not have an extended history of operating in a market-oriented economy,
and the ultimate impact of these countries’ attempts to move toward more market-oriented economies is currently unclear.
In addition, any change in the leadership or policies of these countries may halt the expansion of or reverse the liberalization
of foreign investment policies now occurring and adversely affect existing investment opportunities.
The economies of emerging countries may
differ unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, capital reinvestment,
resources, self-sufficiency and balance of payments. Many emerging countries have experienced in the past, and continue to experience,
high rates of inflation. In certain countries inflation has at times accelerated rapidly to hyperinflationary levels, creating
a negative interest rate environment and sharply eroding the value of outstanding financial assets in those countries. Other emerging
countries, on the other hand, have recently experienced deflationary pressures and are in economic recessions. The economies of
many emerging countries are heavily dependent upon international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners. In addition, the economies of some emerging countries are vulnerable to
weakness in world prices for their commodity exports.
The Fund’s income and, in some cases,
capital gains from foreign stocks and securities will be subject to applicable taxation in certain of the countries in which it
invests, and treaties between the U.S. and such countries may not be available in some cases to reduce the otherwise applicable
tax rates.
Structured Notes
The Fund may invest in a broad category
of instruments known as “structured notes.” These instruments are debt obligations issued by industrial corporations,
financial institutions or governmental or international agencies. Traditional debt obligations typically obligate the issuer to
repay the principal plus a specified rate of interest. Structured notes, by contrast, obligate the issuer to pay amounts of principal
or interest that are determined by reference to changes in some external factor or factors, or the principal and interest rate
may vary from the stated rate because of changes in these factors. For example, the issuer’s obligations could be determined
by reference to changes in the value of a foreign currency, an index of securities (such as the S&P 500 Index) or an interest
rate (such as the U.S. Treasury bill rate). In some cases, the issuer’s obligations are determined by reference to changes
over time in the difference (or “spread”) between two or more external factors (such as the U.S. prime lending rate
and the total return of the stock market in a particular country, as measured by a stock index). In some cases, the issuer’s
obligations may fluctuate inversely with changes in an external factor or factors (for example, if the U.S. prime lending rate
goes up, the issuer’s interest payment obligations are reduced). In some cases, the issuer’s obligations may be determined
by some multiple of the change in an external factor or factors (for example, three times the change in the U.S. Treasury bill
rate). In some cases, the issuer’s obligations remain fixed (as with a traditional debt instrument) so long as an external
factor or factors do not change by more than the specified amount (for example, if the value of a stock index does not exceed some
specified maximum), but if the external factor or factors change by more than the specified amount, the issuer’s obligations
may be sharply reduced.
Structured notes can serve many different
purposes in the management of the Fund. For example, they can be used to increase the Fund’s exposure to changes in the value
of assets that the Fund would not ordinarily purchase directly (such as stocks traded in a market that is not open to U.S. investors).
They also can be used to hedge the risks associated with other investments the Fund holds. For example, if a structured note has
an interest rate that fluctuates inversely with general changes in a country’s stock market index, the value of the structured
note would generally move in the opposite direction to the value of holdings of stocks in that market, thus moderating the effect
of stock market movements on the value of the Fund’s portfolio as a whole. The cash flow on the underlying instruments may
be apportioned among the newly issued structured notes to create securities with different investment characteristics such as varying
maturities, payment priorities or interest rate provisions; the extent of the payments made with respect to structured notes is
dependent on the extent of the cash flow on the underlying instruments.
Structured notes involve special risks.
As with any debt obligation, structured notes involve the risk that the issuer will become insolvent or otherwise default on its
payment obligations. This risk is in addition to the risk that the issuer’s obligations (and thus the value of the Fund’s
investment) will be reduced because of adverse changes in the external factor or factors to which the obligations are linked. The
value of structured notes will in many cases be more volatile (that is, will change more rapidly or severely) than the value of
traditional debt instruments. Volatility will be especially high if the issuer’s obligations are determined by reference
to some multiple of the change in the external factor or factors. Structured notes also may be more difficult to accurately price
than less complex securities and instruments or more traditional debt securities. Many structured notes have limited or no liquidity,
so that the Fund would be unable to dispose of the investment prior to maturity. As with all investments, successful use of structured
notes depends in significant part on the accuracy of the Investment Adviser’s analysis of the issuer’s creditworthiness
and financial prospects, and of the Investment Adviser’s forecast as to changes in relevant economic and financial market
conditions and factors. In instances where the issuer of a structured note is a foreign entity, the usual risks associated with
investments in foreign securities apply. Structured notes may be considered derivative securities.
Structured Securities
The Fund may invest in structured securities.
The value of the principal and/or interest on such securities is determined by reference to changes in the value of specific currencies,
interest rates, commodities, indices or other financial indicators (the “Reference”) or the relative change in two
or more References. The interest rate or the principal amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the Reference. The terms of the structured securities may provide in certain circumstances that no principal
is due at maturity and therefore may result in a loss of the Fund’s investment. Changes in the interest rate or principal
payable at maturity may be a multiple of the changes in the value of the Reference. Structured securities are a type of derivative
instrument and the payment and credit qualities from these securities derive from the assets embedded in the structure from which
they are issued. Structured securities may entail a greater degree of risk than other types of fixed income securities.
Inflation-Linked Fixed-Income Securities
The Fund may invest in inflation-linked
fixed-income securities. Inflation-linked fixed-income securities are securities which have a principal value that is periodically
adjusted according to the rate of inflation. If an index measuring inflation falls, the principal value of inflation-indexed bonds
will typically be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller
principal amount) will be reduced. In the case of Treasury Inflation-Protected Securities, also known as TIPS, repayment of original
bond principal upon maturity (as adjusted for inflation) is guaranteed by the U.S. Treasury. For inflation-linked bonds that do
not provide a similar guarantee, the adjusted principal value of the inflation-linked bond repaid at maturity may be less than
the original principal.
Such bonds may also be issued by or related
to sovereign governments of developed countries, by countries deemed to be emerging markets, and inflation-linked bonds issued
by or related to companies or other entities not affiliated with governments. Because of their inflation adjustment feature, inflation-linked
bonds typically have lower yields than conventional fixed-rate bonds. In addition, inflation-linked bonds also normally decline
in price when real interest rates rise. In the event of deflation, in which prices decline over time, the principal and income
of inflation-linked bonds would likely decline, resulting in losses to the Fund.
The Fund’s investments in inflation-linked
debt securities can cause the Fund to accrue income for tax purposes without a corresponding receipt of cash, which, because no
cash is received at the time of accrual, may require the liquidation of assets (including when not advantageous to do so) to satisfy
the Fund’s distribution obligations as a regulated investment company.
Subordinated Securities
The Fund may also invest in other types
of fixed income securities which are subordinated or “junior” to more senior securities of the issuer, or which represent
interests in pools of such subordinated or junior securities. Such securities may include so-called “high yield” or
“junk” bonds (i.e., bonds that are rated below investment grade by a rating agency or that are of equivalent
quality) and preferred stock. Under the terms of subordinated securities, payments that would otherwise be made to their holders
may be required to be made to the holders of more senior securities, and/or the subordinated or junior securities may have junior
liens, if they have any rights at all, in any collateral (meaning proceeds of the collateral are required to be paid first to the
holders of more senior securities). As a result, subordinated or junior securities will be disproportionately adversely affected
by a default or even a perceived decline in creditworthiness of the issuer.
Floating Rate Loans
The Fund may invest in floating rate securities.
A floating rate loan is typically originated, negotiated and structured by a U.S. or foreign commercial bank, insurance company,
finance company or other financial institution for a group of investors. The financial institution typically acts as an agent for
the investors, administering and enforcing the loan on their behalf. In addition, an institution, typically but not always the
agent, holds any collateral on behalf of the investors.
The interest rates are adjusted based on
a base rate plus a premium or spread or minus a discount. The base rate usually is the London Interbank Offered Rate (“LIBOR”),
the Federal Reserve federal funds rate, the prime rate or other base lending rates used by commercial lenders LIBOR is an average
interest rate, determined by the ICE Benchmark Administration, that banks charge one another for the use of short-term money. The
United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has announced plans to phase out the use of LIBOR by
the end of 2021. There remains uncertainty regarding the future utilization of LIBOR and the nature of any replacement rate, and
any potential effects of the transition away from LIBOR on the Fund or on certain instruments in which the Fund invests are not
known. The transition process may involve, among other things, increased volatility or illiquidity in markets for instruments that
currently rely on LIBOR, particularly insofar as the documentation governing such instruments does not include “fall back”
provisions addressing the transition from LIBOR. With respect to most LIBOR-based instruments in which the Fund may invest, the
pricing and other terms governing the adoption of any successor rate are expected to limit or eliminate the direct effect of the
transition to a successor rate on the value of such instruments. However, uncertainty and volatility arising from the transition
may result in a reduction in the value of certain LIBOR-based instruments held by the Fund or reduce the effectiveness of related
Fund transactions such as hedges. Any such effects of the transition away from LIBOR, as well as other unforeseen effects, could
result in losses to the Fund.
Floating rate loans include loans to corporations
and institutionally traded floating rate debt obligations issued by an asset-backed pool, and interests therein. The Fund may invest
in loans in different ways. The Fund may: (i) make a direct investment in a loan by participating as one of the lenders; (ii) purchase
an assignment of a loan; or (iii) purchase a participation interest in a loan.
Direct Investment in Loans
It can be advantageous to the Fund to make
a direct investment in a loan as one of the lenders. When a new issue is purchased, such an investment is typically made at par.
This means that the Fund receives a return at the full interest rate for the loan. Secondary purchases of loans may be made at
par, at a premium from par or at a discount from par. When the Fund invests in an assignment of, or a participation interest in,
a loan, the Fund may pay a fee or forgo a portion of the interest payment. Consequently, the Fund’s return on such an investment
may be lower than it would have been if the Fund had made a direct investment in the underlying corporate loan. The Fund may be
able, however, to invest in corporate loans only through assignments or participation interests at certain times when reduced direct
investment opportunities in corporate loans may exist. At other times, however, such as recently, assignments or participation
interests may trade at significant discounts from par.
Assignments
An assignment represents a portion of a
loan previously attributable to a different lender. The purchaser of an assignment typically succeeds to all the rights and obligations
under the loan agreement of the assigning investor and becomes an investor under the loan agreement with the same rights and obligations
as the assigning investor. Assignments may, however, be arranged through private negotiations between potential assignees and potential
assignors, and the rights and obligations acquired by the purchaser of an assignment may differ from, and be more limited than,
those held by the assigning investor.
Participation Interests
Participation interests are interests issued
by a lender or other financial institution that represent a fractional interest in a corporate loan. The Fund may acquire participation
interests from the financial institution or from another investor. The Fund typically will have a contractual relationship only
with the financial institution that issued the participation interest. As a result, the Fund may have the right to receive payments
of principal, interest and any fees to which it is entitled only from the financial institution and only upon receipt by such entity
of such payments from the borrower. In connection with purchasing a participation interest, the Fund generally will have no right
to enforce compliance by the borrower with the terms of the loan agreement, nor any rights with respect to any funds acquired by
other investors through set-off against the borrower and the Fund may not directly benefit from the collateral supporting the loan
in which it has purchased the participation interest. As a result, the Fund may assume the credit risk of both the borrower and
the financial institution issuing the participation interest. In the event of the insolvency of the financial institution issuing
a participation interest, the Fund may be treated as a general creditor of such entity.
Short Sales
The Fund may, subject to investment restrictions,
engage in short sale transactions, for hedging purposes. When the Fund makes a short sale, it generally must borrow the security
sold short and deliver it to a broker-dealer through which it made the short sale as collateral for its obligation to deliver the
security upon conclusion of the sale. The Fund may have to pay a fee to borrow particular securities and is often obligated to
pay over any payments received on the borrowed securities. The Fund’s obligation to replace the borrowed security will generally
be secured by collateral deposited with the broker-dealer, usually cash, U.S. Government securities or other highly liquid securities
similar to those borrowed. The Fund will also be required to deposit similar collateral with its custodian to the extent, if any,
necessary so that the value of both collateral deposits in the aggregate is at all times equal to at least 100% of the current
market value of the security sold short. To the extent that the value of the collateral deposited by the Fund with its custodian
does not equal 100% of the current market value of the security sold short, in the view of the SEC, a senior security will be deemed
to have been created. Any senior security so created will be indebtedness and will be subject to the Fund’s fundamental investment
restriction concerning aggregate indebtedness. That restriction limits the aggregate amount of the Fund’s senior securities
in the form of preferred shares and indebtedness to no more than 33 1/3% of the Fund’s total assets. Depending on arrangements
made with the broker-dealer from which it borrowed the security, the Fund may not receive any payments (including interest) on
its collateral deposited with the broker-dealer. To the extent the Fund makes short sales of U.S. Treasury securities in lieu of
futures, these requirements to borrow securities and provide collateral may not apply.
The Fund may also make short sales “against
the box.” In this type of short sale, at the time of the sale, the Fund owns or has the immediate and unconditional right
to acquire at no additional cost the identical security. In that situation, any gain or loss on the short sale is offset by the
corresponding loss or gain on the long position.
When-Issued, Forward Commitment and Delayed Delivery Transactions
The Fund may purchase securities on a “when-issued”
and “delayed delivery” basis and may purchase or sell securities on a “forward commitment” basis in order
to hedge against anticipated changes in interest rates and prices and secure a favorable rate of return. When such transactions
are negotiated, the price, which is generally expressed in yield terms, is fixed at the time the commitment is made, but delivery
and payment for the securities take place at a later date, which can be a month or more after the date of the transaction. At the
time the Fund makes the commitment to purchase securities on a when-issued, forward commitment or delayed delivery basis, it will
record the transaction and thereafter reflect the value of such securities in determining its NAV. At the time the Fund enters
into a transaction on a when-issued, forward commitment or delayed delivery basis, a segregated account consisting of cash or liquid
securities equal to the value of the when-issued, forward commitment or delayed delivery securities will be established and maintained
with the custodian and will be marked to market daily. On the delivery date, the Fund will meet its obligations from securities
that are then maturing or sales of the securities held in the segregated asset account and/or from then available cash flow. When-issued
securities, forward commitments and delayed delivery may be sold prior to the settlement date. If the Fund disposes of the right
to acquire a when-issued or delayed delivery security prior to its acquisition or disposes of its right to deliver or receive against
a forward commitment, it can incur a gain or loss due to market fluctuation. There is always a risk that the securities may not
be delivered and that the Fund may incur a loss or will have lost the opportunity to invest the amount set aside for such transaction
in the segregated asset account. Settlements in the ordinary course are not treated by the Fund as when-issued, forward commitment
or delayed delivery transactions and, accordingly, are not subject to the foregoing limitations even though some of the risks described
above may be present in such transactions.
Mortgage-Backed Securities
The Fund may invest in mortgage pass-through
certificates and multiple-class pass-through securities, such as real estate mortgage investment conduits (“REMIC”)
pass-through certificates, collateralized mortgage obligations (“CMOs”) and stripped mortgage-backed securities (“SMBS”),
and other types of mortgage-backed securities (“MBS”) that may be available in the future. A mortgage-backed security
is an obligation of the issuer backed by a mortgage or pool of mortgages or a direct interest in an underlying pool of mortgages.
Some mortgage-backed securities, such as CMOs, make payments of both principal and interest at a variety of intervals; others make
semi-annual interest payments at a predetermined rate and repay principal at maturity (like a typical bond). Mortgage-backed securities
are based on different types of mortgages including those on commercial real estate or residential properties. Mortgage-backed
securities often have stated maturities of up to thirty years when they are issued, depending upon the length of the mortgages
underlying the securities. In practice, however, unscheduled or early payments of principal and interest on the underlying mortgages
may make the securities’ effective maturity shorter than this, and the prevailing interest rates may be higher or lower than
the current yield of the Fund’s portfolio at the time the Fund receives the payments for reinvestment. Mortgage-backed securities
may have less potential for capital appreciation than comparable fixed income securities, due to the likelihood of increased prepayments
of mortgages as interest rates decline. If the Fund buys mortgage-backed securities at a premium, mortgage foreclosures and prepayments
of principal by mortgagors (which may be made at any time without penalty) may result in some loss of the Fund’s principal
investment to the extent of the premium paid.
The value of mortgage-backed securities
may also change due to shifts in the market’s perception of issuers. In addition, regulatory or tax changes may adversely
affect the mortgage securities markets as a whole. Non-governmental mortgage-backed securities may offer higher yields than those
issued by government entities, but also may be subject to greater price changes than governmental issues.
Through its investments in mortgage-backed
securities, including those that are issued by private issuers, the Fund may have exposure to subprime loans as well as to the
mortgage and credit markets generally. Private issuers include commercial banks, savings associations, mortgage companies, investment
banking firms, finance companies and special purpose finance entities (called special purpose vehicles or “SPVs”) and
other entities that acquire and package mortgage loans for resale as MBS.
Unlike mortgage-backed
securities issued or guaranteed by the U.S. government or one of its sponsored entities, mortgage-backed securities issued by private
issuers do not have a government or government-sponsored entity guarantee, but may have credit enhancement provided by external
entities such as banks or financial institutions or achieved through the structuring of the transaction itself. Examples of such
credit support arising out of the structure of the transaction include the issue of senior and subordinated securities (e.g.,
the issuance of securities by an SPV in multiple classes or “tranches,” with one or more classes being senior to other
subordinated classes as to the payment of principal and interest, with the result that defaults on the underlying mortgage loans
are borne first by the holders of the subordinated class); creation of “reserve funds” (in which case cash or investments,
sometimes funded from a portion of the payments on the underlying mortgage loans, are held in reserve against future losses); and
“overcollateralization” (in which case the scheduled payments on, or the principal amount of, the underlying mortgage
loans exceeds that required to make payment of the securities and pay any servicing or other fees). However, there can be no guarantee
that credit enhancements, if any, will be sufficient to prevent losses in the event of defaults on the underlying mortgage loans.
In addition, mortgage-backed securities
that are issued by private issuers are not subject to the underwriting requirements for the underlying mortgages that are applicable
to those mortgage-backed securities that have a government or government-sponsored entity guarantee. As a result, the mortgage
loans underlying private mortgage-backed securities may, and frequently do, have less favorable collateral, credit risk or other
underwriting characteristics than government or government-sponsored mortgage-backed securities and have wider variances in a number
of terms including interest rate, term, size, purpose and borrower characteristics. Privately issued pools more frequently include
second mortgages, high loan-to-value mortgages and manufactured housing loans. The coupon rates and maturities of the underlying
mortgage loans in a private mortgage-backed securities pool may vary to a greater extent than those included in a government guaranteed
pool, and the pool may include subprime mortgage loans. Subprime loans refer to loans made to borrowers with weakened credit histories
or with a lower capacity to make timely payments on their loans. For these reasons, the loans underlying these securities have
had in many cases higher default rates than those loans that meet government underwriting requirements.
The risk of non-payment is greater for
mortgage-backed securities that are backed by mortgage pools that contain subprime loans, but a level of risk exists for all loans.
Market factors adversely affecting mortgage loan repayments may include a general economic turndown, high unemployment, a general
slowdown in the real estate market, a drop in the market prices of real estate, or an increase in interest rates resulting in higher
mortgage payments by holders of adjustable rate mortgages.
If the Fund purchases subordinated mortgage-backed
securities, the subordinated mortgage-backed securities may serve as a credit support for the senior securities purchased by other
investors. In addition, the payments of principal and interest on these subordinated securities generally will be made only after
payments are made to the holders of securities senior to the Fund’s securities. Therefore, if there are defaults on the underlying
mortgage loans, the Fund will be less likely to receive payments of principal and interest, and will be more likely to suffer a
loss.
Privately issued mortgage-backed securities
are not traded on an exchange and there may be a limited market for the securities, especially when there is a perceived weakness
in the mortgage and real estate market sectors. Without an active trading market, mortgage-backed securities held in the Fund’s
portfolio may be particularly difficult to value because of the complexities involved in assessing the value of the underlying
mortgage loans.
In the case of private issue mortgage-related
securities whose underlying assets are neither U.S. government securities nor U.S. government-insured mortgages, to the extent
that real properties securing such assets may be located in the same geographical region, the security may be subject to a greater
risk of default than other comparable securities in the event of adverse economic, political or business developments that may
affect such region and, ultimately, the ability of residential homeowners to make payments of principal and interest on the underlying
mortgages.
Guaranteed Mortgage Pass-Through Securities
The guaranteed mortgage pass-through securities
in which the Fund will invest include certificates issued or guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac, which represent
interests in underlying residential mortgage loans. These mortgage pass-through securities provide for the pass-through to investors
of their pro-rata share of monthly payments (including any prepayments) made by the individual borrowers on the pooled mortgage
loans, net of any fees paid to the guarantor of such securities and the servicer of the underlying mortgage loans. GNMA, FNMA,
and FHLMC guarantee timely distributions of interest and principal to certificate holders.
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Ginnie Mae Certificates. Ginnie Mae is a wholly-owned corporate instrumentality of the U.S. Department
of Housing and Urban Development. Ginnie Mae guarantees the timely payment of the principal of and interest on certificates that
are based on and backed by certain pools of mortgage loans. The full faith and credit of the U.S. Government is pledged to payment
of all amounts that may be required to be paid under any guaranty. In order to meet its obligations under such guaranty, Ginnie
Mae is authorized to borrow from the U.S. Treasury with no limitations as to amount. Ginnie Mae Certificates represent a pro rata
interest in pools of mortgage loans. All of these mortgage loans will be FHA Loans or VA Loans and, except as otherwise specified
above, will be fully-amortizing loans secured by first liens on one-to four-family housing units.
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Fannie Mae Certificates. Fannie Mae is a federally chartered and privately owned corporation organized
and existing under the Federal National Mortgage Association Charter Act of 1938. The obligations of FNMA are not backed by the
full faith and credit of the U.S. Government. Each Fannie Mae Certificate represents a pro rata interest in one or more pools of
FHA Loans, VA Loans or conventional mortgage loans (i.e., mortgage loans that are not insured or guaranteed by any governmental
agency).
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Freddie Mac Certificates. Freddie Mac is a corporate instrumentality of the United States created
pursuant to the Emergency Home Finance Act of 1970, as amended (the “FHLMC Act”). The obligations of Freddie Mac are
obligations solely of Freddie Mac and are not backed by the full faith and credit of the United States Government. Freddie Mac
Certificates represent a pro rata interest in one or more pools of FHA Loans, VA Loans or conventional mortgage loans. The mortgage
loans underlying the Freddie Mac Certificates will consist of fixed rate or adjustable rate mortgage loans with original terms
to maturity of between ten and thirty years, substantially all of which are secured by first liens on one- to four-family residential
properties or multifamily projects. Each mortgage loan must meet the applicable standards set forth in the FHLMC Act. A Freddie
Mac Certificate group may include whole loans, participation interests in whole loans and undivided interests in whole loans and
participations comprising another Freddie Mac Certificate group.
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Multiple-Class Pass-Through Securities and Collateralized
Mortgage Obligations (“CMOs”)
CMOs and REMIC pass-through or participation
certificates may be issued by, among others, U.S. government agencies and instrumentalities as well as private issuers. REMICs
are CMO vehicles that qualify for special tax treatment under the Code and invest in mortgages principally secured by interests
in real property and other investments permitted by the Code. CMOs and REMIC certificates are issued in multiple classes and the
principal of and interest on the mortgage assets may be allocated among the several classes of CMOs or REMIC certificates in various
ways. Each class of CMO or REMIC certificate, often referred to as a “tranche,” is issued at a specific adjustable
or fixed interest rate and must be fully retired no later than its final distribution date. Generally, interest is paid or accrues
on all classes of CMOs or REMIC certificates on a monthly basis.
Typically, CMOs are collateralized by GNMA,
FNMA or FHLMC certificates but also may be collateralized by other mortgage assets such as whole loans or private mortgage pass-through
securities. Debt service on CMOs is provided from payments of principal and interest on collateral of mortgaged assets and any
reinvestment income thereon.
Stripped Mortgage-Backed Securities (“SMBS”)
SMBS are multiple-class mortgage-backed
securities that are created when a U.S. government agency or a financial institution separates the interest and principal components
of a mortgage-backed security and sells them as individual securities. The Fund may invest in SMBS that are usually structured
with two classes that receive different proportions of interest and principal distributions on a pool of mortgage assets. A typical
SMBS will have one class receiving some of the interest and most of the principal, while the other class will receive most of the
interest and the remaining principal. The holder of the “principal-only” security (“PO”) receives the principal
payments made by the underlying mortgage-backed security, while the holder of the “interest-only” security (“IO”)
receives interest payments from the same underlying security. The prices of SMBS may be particularly affected by changes in interest
rates. As interest rates fall, prepayment rates tend to increase, which tends to reduce prices of IOs and increase prices of POs.
Rising interest rates can have the opposite effect. The Investment Adviser may determine that certain SMBS issued by the U.S. government,
its agencies or instrumentalities are not readily marketable. If so, these securities, together with privately-issued SMBS, will
be considered illiquid for purposes of the Fund’s limitation on investments in illiquid securities. The yields and market
risk of interest-only and principal-only SMBS, respectively, may be more volatile than those of other fixed income securities.
The Fund also may invest in planned amortization
class (“PAC”) and target amortization class (“TAC”) CMO bonds which involve less exposure to prepayment,
extension and interest rate risks than other mortgage-backed securities (“MBS”), provided that prepayment rates remain
within expected prepayment ranges or “collars.” To the extent that the prepayment rates remain within these prepayment
ranges, the residual or support tranches of PAC and TAC CMOs assume the extra prepayment, extension and interest rate risks associated
with the underlying mortgage assets.
Other Risk Factors Associated with Mortgage-Backed Securities.
Investing in MBS involves certain risks,
including the failure of a counterparty to meet its commitments, adverse interest rate changes and the effects of prepayments on
mortgage cash flows. In addition, investing in the lowest tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities. However, due to adverse tax consequences under current tax laws, the Fund does
not intend to acquire “residual” interests in REMICs. Further, the yield characteristics of MBS differ from those of
traditional fixed income securities. The major differences typically include more frequent interest and principal payments (usually
monthly), the adjustability of interest rates of the underlying instrument, and the possibility that prepayments of principal may
be made substantially earlier than their final distribution dates.
Prepayment rates are influenced by changes
in current interest rates and a variety of economic, geographic, social and other factors and cannot be predicted with certainty.
Both adjustable rate mortgage loans and fixed rate mortgage loans may be subject to a greater rate of principal prepayments in
a declining interest rate environment and to a lesser rate of principal prepayments in an increasing interest rate environment.
Under certain interest rate and prepayment rate scenarios, the Fund may fail to recoup fully its investment in mortgage-backed
securities notwithstanding any direct or indirect governmental, agency or other guarantee. When the Fund reinvests amounts representing
payments and unscheduled prepayments of principal, it may obtain a rate of interest that is lower than the rate on existing adjustable
rate mortgage pass-through securities. Thus, MBS, and adjustable rate mortgage pass-through securities in particular, may be less
effective than other types of U.S. government securities as a means of “locking in” interest rates.
Investment Grade Corporate Securities
Investment Grade Corporate Securities are
fixed income securities issued by U.S. corporations, including debt securities, convertible securities and preferred stock. The
Fund may also hold common stock issued by corporations, if such stock was received as a result of exercising a convertible security.
The Fund, at the discretion of the Investment Adviser, may purchase investment grade corporate securities, which are securities
rated BBB- or above by Standard and Poor’s Corporation or Fitch IBCA or Baa3 or above by Moody’s Investors Service, Inc.
or, if non-rated, are determined by the Investment Adviser to be of comparable credit quality.
Hybrid Instruments
A hybrid instrument is a type of derivative
that combines a traditional stock or bond with an option or forward contract. Generally, the principal amount, amount payable upon
maturity or redemption, or interest rate of a hybrid is tied (positively or negatively) to the price of some currency or securities
index or another interest rate or some other economic factor (each a “benchmark”). The interest rate or (unlike most
fixed income securities) the principal amount payable at maturity of a hybrid security may be increased or decreased, depending
on changes in the value of the benchmark. An example of a hybrid could be a bond issued by an oil company that pays a small base
level of interest with additional interest that accrues in correlation to the extent to which oil prices exceed a certain predetermined
level. Such a hybrid instrument would be economically similar to a combination of a bond and a call option on oil.
Hybrids can be used as an efficient means
of pursuing a variety of investment goals, including currency hedging, duration management and increased total return. Hybrids
may not bear interest or pay dividends. The value of a hybrid or its interest rate may be a multiple of a benchmark and, as a result,
may be leveraged and move (up or down) more steeply and rapidly than the benchmark. These benchmarks may be sensitive to economic
and political events, such as currency devaluations, which cannot be readily foreseen by the purchaser of a hybrid. Under certain
conditions, the redemption value of a hybrid could be zero. Thus, an investment in a hybrid may entail significant market risks
that are not associated with a similar investment in a traditional, U.S. dollar-denominated bond that has a fixed principal amount
and pays a fixed rate or floating rate of interest. The purchase of hybrids also exposes the Fund to the credit risk of the issuer
of the hybrids. These risks may cause significant fluctuations in the NAV of the Fund.
Certain hybrid instruments may provide
exposure to the commodities markets. These are derivative securities with one or more commodity-linked components that have payment
features similar to commodity futures contracts, commodity options or similar instruments. Commodity-linked hybrid instruments
may be either equity or debt securities, leveraged or unleveraged, and are considered hybrid instruments because they have both
security and commodity-like characteristics. A portion of the value of these instruments may be derived from the value of a commodity,
futures contract, index or other economic variable and therefore are subject to many of the same risks as investments in those
underlying securities, instruments or commodities.
Certain issuers of structured products
such as hybrid instruments may be deemed to be investment companies as defined in the 1940 Act. As a result, the Fund’s investments
in these products may be subject to limits applicable to investments in investment companies and may be subject to restrictions
contained in the 1940 Act.
Real Estate Investment Trusts
The Fund may invest in Real Estate Investment
Trusts (“REITs”). REITs are companies that invest primarily in income producing real estate or real estate-related
loans or interests. REITs are generally classified as equity REITs, mortgage REITs or a combination of equity and mortgage REITs.
Equity REITs invest the majority of their assets directly in real property and derive income primarily from the collection of rents.
Equity REITs can also realize capital gains by selling properties that have appreciated in value. Mortgage REITs invest the majority
of their assets in real estate mortgages and derive income from the collection of interest payments. REITs are not taxed on income
distributed to shareholders provided they comply with the applicable requirements of the Internal Revenue Code of 1986, as amended
(the “Code”). The Fund will indirectly bear its proportionate share of any management and other expenses paid by REITs
in which it invests in addition to the expenses paid by that Fund. Debt securities issued by REITs are, for the most part, general
and unsecured obligations and are subject to risks associated with REITs.
Investing in REITs involves certain unique
risks in addition to those risks associated with investing in the real estate industry in general. An equity REIT may be affected
by changes in the value of the underlying properties owned by the REIT. A mortgage REIT may be affected by changes in interest
rates and the ability of the issuers of its portfolio mortgages to repay their obligations. REITs are dependent upon the skills
of their managers and are not diversified. REITs are generally dependent upon maintaining cash flows to repay borrowings and to
make distributions to shareholders and are subject to the risk of default by lessees or borrowers. REITs whose underlying assets
are concentrated in properties used by a particular industry, such as health care, are also subject to risks associated with such
industry.
REITs (especially mortgage REITs) are also
subject to interest rate risk. When interest rates decline, the value of a REIT’s investment in fixed rate obligations can
be expected to rise. Conversely, when interest rates rise, the value of a REIT’s investment in fixed rate obligations can
be expected to decline. If the REIT invests in adjustable rate mortgage loans the interest rates on which are reset periodically,
yields on a REIT’s investments in such loans will gradually align themselves to reflect changes in market interest rates.
This causes the value of such investments to fluctuate less dramatically in response to interest rate fluctuations than would investments
in fixed rate obligations.
REITs may have limited financial resources,
may trade less frequently and in a limited volume and may be subject to more abrupt or erratic price movements than larger company
securities. Historically REITs have been more volatile in price than the larger capitalization shares included in Standard &
Poor’s 500 Stock Index (the “S&P 500”).
Debt Securities Issued by Real Estate Investment Trusts
The Fund may invest in debt securities,
convertible securities and preferred stock issued by real estate investment trusts (“REIT Debt Securities”). The Fund
may also hold common stock issued by REITs, if such stock was received as a result of exercising a convertible security. REITs
are pooled investment vehicles which invest primarily in income producing real estate or real estate related loans or interests
and have elected and qualified for REIT status under the Internal Revenue Code of 1986, as amended (the “Code”). Generally,
REITs can be classified as equity REITs, mortgage REITs, or hybrid REITs. Equity REITs invest the majority of their assets directly
in real property and derive income primarily from the collection of rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. Hybrid REITs combine the characteristics of both equity REITs and mortgage REITs.
REIT Debt Securities, for the most part,
are general and unsecured obligations. These securities typically have corporate bond features such as semi-annual interest coupons,
no amortization and strong prepayment protection. Further, REITs are subject to heavy cash flow dependency, default by borrowers,
self-liquidation, and the possibilities of failing to qualify for the exemption from tax on distributed income under the Code and
failing to maintain their exemptions from the 1940 Act. Additionally, real estate related unsecured debt generally contains covenants
restricting the level of secured and total debt and requires a minimum debt service coverage ratio and net worth level.
Environmental Risk
Assets may be subject to numerous laws,
rules and regulations relating to environmental protection. Under various environmental statutes, rules and regulations,
a current or previous owner or operator of real property may be liable for non-compliance with applicable environmental and health
and safety requirements and for the costs of investigation, monitoring, removal or remediation of hazardous materials. These laws
often impose liability, whether or not the owner or operator knew of or was responsible for the presence of hazardous materials.
The presence of these hazardous materials on a property could also result in personal injury or property damage or similar claims
by private parties. Persons who arrange for the disposal or treatment of hazardous materials may also be liable for the costs of
removal or remediation of these materials at the disposal or treatment facility, whether or not that facility is or ever was owned
or operated by that person. The Fund may be exposed to substantial risk of loss from environmental claims arising in respect of
its investments and such loss may exceed the value of such investments. Furthermore, changes in environmental laws or in the environmental
condition of a portfolio investment may create liabilities that did not exist at the time of acquisition of an investment and that
could not have been foreseen.
Exchange-Traded Notes
The Fund may invest in exchange-traded
notes (“ETNs”). ETNs are a type of senior, unsecured, unsubordinated debt security issued by financial institutions
that combines both aspects of bonds and ETFs. An ETN’s returns are based on the performance of a market index minus fees
and expenses. Similar to ETFs, ETNs are listed on an exchange and traded in the secondary market. However, unlike an ETF, an ETN
can be held until the ETN’s maturity, at which time the issuer will pay a return linked to the performance of the market
index to which the ETN is linked minus certain fees.
Unlike regular bonds, ETNs do not make
periodic interest payments and principal is not protected. ETNs are subject to credit risk and the value of an ETN may drop due
to a downgrade in the issuer’s credit rating, despite the underlying market benchmark or strategy remaining unchanged. The
value of an ETN may also be influenced by time to maturity, level of supply and demand for the ETN, volatility and lack of liquidity
in underlying assets, changes in the applicable interest rates, changes in the issuer’s credit rating, and economic, legal,
political, or geographic events that affect the referenced underlying asset. When the Fund invests in ETNs it will bear its proportionate
share of any fees and expenses borne by the ETN. The Fund’s decision to sell its ETN holdings may be limited by the availability
of a secondary market. In addition, although an ETN may be listed on an exchange, the issuer may not be required to maintain the
listing and there can be no assurance that a secondary market will exist for an ETN.
ETNs are also subject to tax risk. No assurance
can be given that the Internal Revenue Service (“IRS”) will accept, or a court will uphold, how the Fund characterizes
and treats ETNs for tax purposes. Further, the IRS and Congress have considered proposals that would change the timing and character
of income and gains from ETNs.
An ETN that is tied to a specific market
benchmark or strategy may not be able to replicate and maintain exactly the composition and relative weighting of securities, commodities
or other components in the applicable market benchmark or strategy. Some ETNs that use leverage can, at times, be relatively illiquid
and, thus, they may be difficult to purchase or sell at a fair price. Leveraged ETNs are subject to the same risk as other instruments
that use leverage in any form.
The market value of ETN shares may differ
from their market benchmark or strategy. This difference in price may be due to the fact that the supply and demand in the market
for ETN shares at any point in time is not always identical to the supply and demand in the market for the securities, commodities
or other components underlying the market benchmark or strategy that the ETN seeks to track. As a result, there may be times when
an ETN share trades at a premium or discount to its market benchmark or strategy.
Illiquid Securities and Rule 144A Securities
The Fund may invest its net assets in securities
as to which a liquid trading market does not exist, provided such investments are consistent with the Fund’s investment objective.
Such securities may include securities that are not readily marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, repurchase agreements providing for settlement in more than seven days after notice, and certain
privately negotiated, non-exchange traded options and securities used to cover such options. As to these securities, the Fund is
subject to a risk that should the Fund desire to sell them when a ready buyer is not available at a price the Fund deems representative
of their value, the value of the Fund’s net assets could be adversely affected. Illiquid securities do not include securities
eligible for resale pursuant to Rule 144A of the Securities Act of 1933, as amended (the “Securities Act”), or
other restricted securities, which have been determined to be liquid in accordance with procedures established by the Board.
Securities that have not been registered
under the Securities Act are referred to as private placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Restricted or illiquid securities have the potential for delays on resale and uncertainty in valuation.
Limitations on resale may have an adverse effect on the marketability of portfolio securities and the Fund might be unable to dispose
of restricted or illiquid securities promptly or at reasonable prices and might thereby experience difficulty satisfying redemptions
within seven days. The Fund might also have to register such restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering of securities.
A large institutional market has developed
for certain securities that are not registered under the Securities Act, including repurchase agreements, commercial paper, foreign
securities, municipal securities, and corporate bonds and notes. Institutional investors depend on an efficient institutional market
in which the unregistered security can be readily resold or on an issuer’s ability to honor a demand for repayment. As a
result, the fact that there are contractual or legal restrictions on resale to the general public or to certain institutions may
not be indicative of the liquidity of such investments.
Rule 144A under the Securities Act
allows a broader institutional trading market for securities otherwise subject to restriction on resale to the general public.
Rule 144A establishes a “safe harbor” from the registration requirements of the Securities Act applicable to resales
of certain securities to qualified institutional buyers. It is the intent of the Fund to invest, pursuant to procedures established
by the Board and subject to applicable investment restrictions, in securities eligible for resale under Rule 144A which are
determined to be liquid based upon the trading markets for the securities.
The Investment Adviser will monitor the
liquidity of restricted securities eligible for resale under Rule 144A in the Fund’s portfolio under the supervision
of the Trustees. In reaching liquidity decisions, the Investment Adviser will consider, inter alia, the following factors: (1) the
frequency of trades and quotes for the security over the course of six months or as determined in the discretion of the Investment
Adviser; (2) the number of dealers wishing to purchase or sell the security and the number of other potential purchasers over
the course of six months or as determined in the discretion of the Investment Adviser; (3) dealer undertakings to make a market
in the security; (4) the nature of the security and the nature of how the marketplace trades (e.g., the time needed
to dispose of the security, the method of soliciting offers, and the mechanics of the transfer); and (5) other factors, if
any, which the Investment Adviser deems relevant.
Special Risks Related to Cyber Security
As the use of technology has become more
prevalent in the course of business, each Fund has become potentially more susceptible to operational and informational security
risks resulting from breaches in cyber security. A breach in cyber security refers to both intentional and unintentional cyber
events that may, among other things, cause the Fund to lose proprietary information, suffer data corruption and/or destruction,
lose operational capacity, result in the unauthorized release or other misuse of confidential information, or otherwise disrupt
normal business operations. Cyber security breaches may involve unauthorized access to the Fund’s digital information systems
(e.g., through “hacking” or malicious software coding), but may also result from outside attacks such as denial-of-service
attacks (i.e., efforts to make network services unavailable to intended users). In addition, cyber security breaches involving
the Fund’s third party service providers (including but not limited to advisers, administrators, transfer agents, custodians,
distributors and other third parties), trading counterparties or issuers in which the Fund invests in can also subject the Fund
to many of the same risks associated with direct cyber security breaches. Moreover, cyber security breaches involving trading counterparties
or issuers in which the Fund invests in could adversely impact such counterparties or issuers and cause the Fund’s investment
to lose value. Cyber security failures or breaches may result in financial losses to the Fund and its shareholders. These failures
or breaches may also result in disruptions to business operations, potentially resulting in financial losses; interference with
the Fund’s ability to calculate its NAV, process shareholder transactions or otherwise transact business with shareholders;
impediments to trading; violations of applicable privacy and other laws; regulatory fines; penalties; reputational damage; reimbursement
or other compensation costs; additional compliance costs and cyber security risk management costs and other adverse consequences.
In addition, substantial costs may be incurred in an attempt to prevent any cyber incidents in the future.
Like with operational risk in general,
the Fund has established risk management systems and business continuity plans designed to reduce the risks associated with cyber
security. However, there are inherent limitations in these plans and systems, including that certain risks may not have been identified,
in large part because different or unknown threats may emerge in the future. As such, there is no guarantee that such efforts will
succeed, especially because the Fund does not directly control the cyber security systems of issuers in which the Fund may invest,
trading counterparties or third party service providers to the Fund. There is also a risk that cyber security breaches may not
be detected. The Fund and its shareholders could be negatively impacted as a result.
Government Intervention in Financial Markets
Global economies and financial markets
are increasingly interconnected, which increases the possibility that conditions in one country or region may adversely affect
companies in a different country or region. In the past, instability in the financial markets has led governments and regulators
around the world to take a number of unprecedented actions designed to support certain financial institutions and segments of the
financial markets that have experienced extreme volatility, and in some cases a lack of liquidity. Governments, their regulatory
agencies, or self-regulatory organizations may take actions that affect the regulation of the instruments in which the Fund invests,
or the issuers of such instruments, in ways that are unforeseeable. Legislation or regulation may also change the way in which
the Fund itself is regulated. Such legislation or regulation could limit or preclude the Fund’s ability to achieve its investment
objective.
Governments or their agencies may also
acquire distressed assets from financial institutions and acquire ownership interests in those institutions. The implications of
government ownership and disposition of these assets are unclear, and such a program may have positive or negative effects on the
liquidity, valuation and performance of the Fund’s portfolio holdings. Furthermore, volatile financial markets can expose
the Fund to greater market and liquidity risk and potential difficulty in valuing portfolio instruments held by the Fund.
The SEC and its staff have been engaged
in various initiatives and reviews that seek to improve and modernize the regulatory structure governing investment companies.
These efforts have been focused on risk identification and controls in various areas, including imbedded leverage through the use
of derivatives and other trading practices, cybersecurity, liquidity, enhanced regulatory and public reporting requirements and
the evaluation of systemic risks. Any new rules, guidance or regulatory initiatives resulting from these efforts could increase
the Fund’s expenses and impact its returns to stockholders or, in the extreme case, impact or limit its use of various portfolio
management strategies or techniques and adversely impact the Fund.
The U.S. presidential election occurred
on November 3, 2020. Commencing January 2021, the Democratic Party is expected to control the executive branch of government.
Control of the legislative branch of government is uncertain and may remain uncertain for several weeks. Changes in federal policy,
including tax policies, and at regulatory agencies occur over time through policy and personnel changes following elections, which
lead to changes involving the level of oversight and focus on the financial services industry or the tax rates paid by corporate
entities. The nature, timing and economic and political effects of potential changes to the current legal and regulatory framework
affecting markets remain highly uncertain. Uncertainty surrounding future changes may adversely affect the Fund’s operating
environment and therefore its investment performance.
The global pandemic outbreak of an infectious
respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has now
been detected globally. On March 11, 2020, the World Health Organization announced that it had made the assessment that COVID-19
can be characterized as a pandemic. COVID-19 and concern about its spread has resulted in severe disruptions to global financial
markets, border closings, restrictions on travel and gatherings of any measurable amount of people, “shelter in place”
orders (or the equivalent) for states, cities, metropolitan areas and countries, expedited and enhanced health screenings, quarantines,
cancellations, business and school closings, disruptions to employment and supply chains, reduced productivity, severely impacted
customer and client activity in virtually all markets and sectors, and a virtual cessation of normal economic activity. These events
have contributed to severe market volatility, which may result in reduced liquidity, heightened volatility and negatively impact
Fund performance and the value of your investment in the Fund.
Affiliated Transactions Restrictions
The 1940 Act contains prohibitions and restrictions relating
to transactions between investment companies and their affiliates (including the Adviser), principal underwriters and affiliates
of those affiliates or underwriters. Under these restrictions, the Fund and any portfolio company that the Fund controls are generally
prohibited from knowingly participating in a joint transaction, including co-investments in a portfolio company, with an affiliated
person, including any trustees or officers of the Fund, the Adviser or any entity controlled or advised by any of them. These restrictions
also generally prohibit the Fund’s affiliates, principal underwriters and affiliates of those affiliates or underwriters
from knowingly purchasing from or selling to the Fund or any portfolio company controlled by the Fund certain securities or other
property and from lending to and borrowing from the Fund or any portfolio company controlled by the Fund monies or other properties.
The Fund and its affiliates may be precluded from co-investing in private placements of securities, including in any portfolio
companies controlled by the Fund. The Fund, its affiliates and portfolio companies controlled by the Fund may from time to time
engage in certain joint transactions, purchases, sales and loans in reliance upon and in compliance with the conditions of certain
positions promulgated by the SEC and its staff. There can be no assurance that the Fund would be able to satisfy these conditions
with respect to any particular transaction. As a result of these prohibitions, restrictions may be imposed on the size of positions
or the type of investments that the Fund could make.
Private Investment Risk
The Fund may invest in unregistered or
restricted securities, including private investment in public equities (“PIPE”). Unregistered or restricted securities
may not be readily marketable and are often more difficult to value. Further, the Adviser may not have timely or accurate information
about the business, financial condition and results of operations which may adversely affect the Adviser’s ability to value
those investments. PIPE investors may purchase securities directly from a publicly traded company in a private placement transaction,
typically at a discount to the market price of the company’s common stock. In a PIPE transaction, the Fund may bear the price
risk from the time of pricing until the time of closing. In addition, the Fund may have to commit to purchase a specified number
of shares at a fixed price, with the closing conditioned upon, among other things, the SEC’s preparedness to declare effective
a resale registration statement covering the resale, from time to time, of the shares sold in the private financing. Because the
sale of the securities is not registered under the 1933 Act, the securities are “restricted” and cannot be immediately
resold by the investors into the public markets. Accordingly, PIPE securities may be deemed illiquid.
Private Company Management Risk
Private companies are more likely to depend
on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination
of one or more of these persons could have a material adverse impact on the company. The Fund generally does not intend to hold
controlling positions in the private companies in which it invests. As a result, the Fund is subject to the risk that a company
may make business decisions with which the Fund disagrees, and that the management and/or shareholders of a portfolio company may
take risks or otherwise act in ways that are adverse to the Fund’s interests. Due to the lack of liquidity of such private
investments, the Fund may not be able to dispose of its investments in the event it disagrees with the actions of a portfolio company
and may therefore suffer a decrease in the value of the investment.
Private Company Liquidity Risk
Securities issued by private companies
are typically illiquid. If there is no readily available trading market for privately issued securities, the Fund may not be able
to readily dispose of such investments at prices that approximate those at which the Fund could sell them if they were more widely
traded.
Private Company Valuation Risk
There is typically not a readily available
market value for the Fund’s private investments. The Fund values private company investments in accordance with valuation
guidelines adopted by the Board of Trustees, that the Board of Trustees believes are designed to accurately reflect the fair value
of securities valued in accordance with such guidelines. The Fund is not required to but may utilize the services of one or more
independent valuation firms to aid in determining the fair value of these investments. Valuation of private company investments
may involve application of one or more of the following factors: (i) analysis of valuations of publicly traded companies in
a similar line of business, (ii) analysis of valuations for comparable merger or acquisition transactions, (iii) yield
analysis and (iv) discounted cash flow analysis. Due to the inherent uncertainty and subjectivity of determining the fair
value of investments that do not have a readily available market value, the fair value of the Fund’s private investments
may differ significantly from the values that would have been used had a readily available market value existed for such investments
and may differ materially from the amounts the Fund may realize on any dispositions of such investments. In addition, the impact
of changes in the market environment and other events on the fair
Risks Associated with Long Term Objective — Not a Complete
Investment Program
The Fund is intended for investors seeking
a high level of total return, with an emphasis on income. The Fund is not meant to provide a vehicle for those who wish to exploit
short-term swings in the stock market and is intended for long-term investors. An investment in shares of the Fund should not be
considered a complete investment program. Each shareholder should take into account the Fund’s investment objective as well
as the shareholder’s other investments when considering an investment in that Fund.
Investment Restrictions
The Fund is subject to fundamental and
non-fundamental investment policies and limitations. Under the 1940 Act, fundamental investment policies and limitations may not
be changed without the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund.
The following policies and limitations
supplement those described in the Prospectus and this SAI. Investment restrictions numbered 1 through 6 below have been adopted
by the Fund as fundamental policies.
|
1)
|
Diversification. The Fund shall invest at least 75% of its total assets in some combination
of the following: (a) cash and cash items, (b) Government Securities (as defined in the 1940 Act), (c) securities
of other investment companies, and (d) other securities. With regard to (d), other securities (acquired pursuant to this policy)
are limited as to any single issuer to an amount not greater than 5% of the Fund’s total assets and not more than 10% of
the outstanding voting securities of any such issuer, or as otherwise permitted by applicable law.
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|
2)
|
Concentration. Under normal market conditions, the Fund will invest more than 25%
of its total assets in the real estate industry. For purposes of this limitation, obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities will not be considered members of any industry. The Fund will also invest in a
variety of industries related to real assets, including among others, infrastructure and natural resources, as defined in the Prospectus.
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|
3)
|
Commodities and Real Estate. The Fund may not purchase or hold real estate, except
the Fund may purchase and hold securities or other instruments that are secured by, or linked to, real estate or interests therein,
securities of real estate investment trusts, mortgage related securities and securities of issuers engaged in the real estate business,
and the Fund may purchase and hold real estate as a result of the ownership of securities or other instruments. The Fund may not
purchase or sell commodities or commodity contracts, except as otherwise permitted by applicable law.
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|
4)
|
Senior Securities and Borrowings. The Fund may not issue senior securities to the
extent such issuance would violate the 1940 Act. The Fund may not borrow money, except as permitted by the 1940 Act.
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|
5)
|
Lending. The Fund may not lend its assets or money to other persons, except by (a) purchasing
debt obligations (including privately placed debt obligations), (b) lending cash or securities as permitted by applicable
law, (c) entering into repurchase agreements, (d) investing in permitted leveraged investments and (e) as otherwise
permitted by applicable law.
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|
6)
|
Underwriting. The Fund may not underwrite any issue of securities, except to the
extent that the sale of portfolio securities in accordance with the Fund’s investment objective, policies and limitations
may be deemed to be an underwriting, and except that the Fund may acquire securities under circumstances in which, if the securities
were sold, the Fund might be deemed to be an underwriter for purposes of the Securities Act of 1933, as amended (the “1933
Act”).
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The following interpretation applies to,
but is not a part of, the fundamental limitation with respect to diversification: Asset- and mortgage - backed securities will
not be considered to have been issued by the same issuer by reason of the securities having the same sponsor, and asset- and mortgage
-backed securities issued by a finance or other special purpose subsidiary that are not guaranteed by the parent company will be
considered to be issued by a separate issuer from the parent company.
With respect to the fundamental policies
relating to borrowing money set forth under “Senior Securities and Borrowing” above, the 1940 Act permits the Fund
to borrow money in amounts of up to one-third of the Fund’s total assets from banks for any purpose, and to borrow up to
5% of the Fund’s total assets from banks or other lenders for temporary purposes. The Fund’s total assets include the
amounts being borrowed. To limit the risks attendant to borrowing, the 1940 requires the Fund to maintain at all times an “asset
coverage” of at least 300% of the amount of its borrowings. Asset coverage means the ratio that the value of the Fund’s
total assets (including amounts borrowed), minus liabilities other than borrowings, bears to the aggregate amount of all borrowings.
Borrowing money to increase portfolio holdings is known as “leveraging.” Certain trading practices and investments,
such as reverse repurchase agreements, may be considered to be borrowings or involve leverage and thus are subject to the 1940
Act restrictions. In accordance with SEC staff guidance and interpretations, when the Fund engages in such transactions, the Fund
instead of maintaining asset coverage of at least 300%, may segregate or earmark liquid assets, or enter into an offsetting position,
in an amount at least equal to the Fund’s exposure, on a mark-to-market basis, to the transaction (as calculated pursuant
to requirements of the SEC). The policies under “Senior Securities and Borrowing” above will be interpreted to permit
the Fund to engage in trading practices and investments that may be considered to be borrowing or to involve leverage to the extent
permitted by the 1940 Act and to permit the Fund to segregate or earmark liquid assets or enter into offsetting positions in accordance
with the 1940 Act. Short-term credits necessary for the settlement of securities transactions and arrangements with respect to
securities lending will not be considered to be borrowings under the policy. Practices and investments that may involve leverage
but are not considered to be borrowings are not subject to the policy.
With respect to the fundamental policies
set forth under “Underwriting” above, the 1940 Act does not prohibit the Fund from engaging in the underwriting business
or from underwriting the securities of other issuers; in fact, in the case of diversified funds, the 1940 Act permits the Fund
to have underwriting commitments of up to 25% of its assets under certain circumstances. Those circumstances currently are that
the amount of the Fund’s underwriting commitments, when added to the value of the Fund’s investments in issuers where
the Fund owns more than 10% of the outstanding voting securities of those issuers, cannot exceed the 25% cap. The Fund engaging
in transactions involving the acquisition or disposition of portfolio securities may be considered to be an underwriter under the
Securities Act. Although it is not believed that the application of the Securities Act provisions described above would cause the
Fund to be engaged in the business of underwriting, the policy under “Underwriting” above will be interpreted not to
prevent the Fund from engaging in transactions involving the acquisition or disposition of portfolio securities, regardless of
whether the Fund may be considered to be an underwriter under the Securities Act or is otherwise engaged in the underwriting business
to the extent permitted by applicable law.
With respect to the fundamental policies
under “Lending” above, the 1940 Act does not prohibit the Fund from making loans (including lending its securities);
however, SEC staff interpretations currently prohibit funds from lending more than one-third of their total assets (including lending
its securities), except through the purchase of debt obligations or the use of repurchase agreements. In addition, collateral arrangements
with respect to options, forward currency and futures transactions and other derivative instruments (as applicable), as well as
delays in the settlement of securities transactions, will not be considered loans.
Under the 1940 Act, a “senior security”
does not include any promissory note or evidence of indebtedness where such loan is for temporary purposes only and in an amount
not exceeding 5% of the value of the total assets of the issuer at the time the loan is made. A loan is presumed to be for temporary
purposes if it is repaid within sixty days and is not extended or renewed. Both transactions involving indebtedness and preferred
shares issued by the Fund would be considered senior securities under the 1940 Act. The Fund may only enter into transactions involving
indebtedness if the asset coverage (as defined in the 1940 Act) would be at least 300% of the indebtedness. The Fund may only issue
preferred shares if the asset coverage (as defined in the 1940 Act) would be at least 200% after such issuance.
The Fund invests, under normal circumstances,
at least 80% of its net assets plus borrowings for investment purposes in the types of investments implied by its name. The Fund
will provide shareholders at least 60 days’ prior written notice before changing this non-fundamental policy.
In addition, the Fund’s policy of
investing at least 25% of its assets in normal circumstances in the infrastructure industry is a fundamental policy. Unless specifically
stated as such, no policy of the Fund is fundamental and each policy may be changed by the Board of Directors without shareholder
approval.
Management of the Fund
Directors and officers
The business and affairs of the Fund are
managed under the direction of the Board of Directors. The Board of Directors approves all significant agreements between the Fund
and the companies that furnish the Fund with services, including agreements with the Investment Adviser, the Fund’s Custodian
and the Fund’s Transfer Agent. The day-to-day operations of the Fund are delegated to the Investment Adviser, subject to
the supervision of the Board of Directors.
The names and business addresses of the
Directors and principal officers of the Fund are set forth in the following table, together with their positions and their principal
occupations during the past five years and, in the case of the Directors, their positions with certain other organizations and
companies.
Name, position(s),
address(1) and year of
birth
|
|
Term of office
and length of
time served(2)
|
|
Number of
funds in
Fund Complex
overseen by
Director(3)
|
|
Principal occupation(s)
during past five years
|
|
Other directorships
held by
director during past
five years
|
INDEPENDENT DIRECTORS(5):
|
|
|
|
|
|
|
|
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Louis P. Salvatore
Director, Chairman of the Audit Committee, Member of the Nominating and Compensation Committee
Born: 1946
|
|
Since 2016
|
|
7
|
|
Employee of Arthur Andersen LLP (2002-Present); Principal of Trimblestone Investment Co. (2019-Present).
|
|
Director/Trustee of several investment companies advised by the Investment Adviser (2005-Present); Director of SP Fiber Technologies, Inc. (2012-2015); Director of Gramercy Property Trust (2012-2018); Director of Turner Corp. (2003-Present).
|
Heather Goldman(5)
Director, Member of the Audit Committee, Member of the Nominating and Compensation Committee
Born: 1967
|
|
Since 2016
|
|
7
|
|
Co-Founder and CEO of Capstak, Inc. (2014-2018).
|
|
Director/Trustee of several investment companies advised by the Investment Adviser (2013-Present); Board Director of Gesher USA (2015-Present); Trustee of Nevada Museum of Art (2016-2018); Member of the Honorary Board of University Settlement House (2014-Present); Chairman of Capstak, Inc. (2016-2018).
|
Name, position(s),
address(1) and year of
birth
|
|
Term of office
and length of
time served(2)
|
|
Number of
funds in
Fund Complex
overseen by
Director(3)
|
|
Principal occupation(s)
during past five years
|
|
Other directorships
held by
director during past
five years
|
Edward A. Kuczmarski
Director, Independent Chairman of the Board, Member of the Audit Committee, Chairman of the Nominating and Compensation Committee
Born: 1949
|
|
Since 2016
|
|
7
|
|
Retired. Prior to that, Partner at Crowe Horwath LLP (1980-2013).
|
|
Director/Trustee of several investment companies advised by the Adviser (2011-Present); Director of ISI Funds (2007-2015); Trustee of the Daily Income Fund (2006-2015); Director of the California Daily Tax Free Income Fund, Inc. (2006-2015); Trustee of the Stralem Funds (2014-2016).
|
Stuart A. McFarland
Director, Member of the Audit Committee, Member of the Nominating and Compensation Committee
Born: 1947
|
|
Since 2016
|
|
7
|
|
Managing Partner of Federal City Capital Advisors (1997-Present).
|
|
Director/Trustee of several investment companies advised by the Investment Adviser (2006-Present); Director of United Guaranty Corporation (2011-2016); Director of Drive Shack Inc. (formerly, New Castle Investment Corp.) (2000-Present); Director of New America High Income Fund (2013-Present); Director of New Senior Investment Group, Inc. (2014-Present); Director of Steward Partners (2017-Present).
|
William H. Wright II
Director, Member of the Audit Committee, Member of the Nominating and Compensation Committee Born: 1960
|
|
Since August 2020
|
|
7
|
|
Retired. Prior to that, Managing Director, Morgan Stanley (1982-2010).
|
|
Director of Alcentra Capital Corporation (1940 Act BDC) (2018-2019); Director of The Zweig Fund, Inc. and The Zweig Total Return Fund, Inc. (2013-2016); Advisory Director of Virtus Global Dividend & Income Fund (2016-2019); Advisory Director of Virtus Global Multi-Sector Income Fund (2016-2019); Advisory Director of Virtus Total Return Fund (2016-2019); Advisory Director of Duff & Phelps Select Energy MLP Fund (2016-2019).
|
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(1)
|
Address: Brookfield Place, 250 Vesey Street, 15th Floor,
New York, New York, 10281-1023, unless otherwise noted.
|
|
(2)
|
The Fund’s Board is divided into three classes. Each year the term of office of one class expires and the successor or
successors elected to such class serve until the third succeeding annual meeting of shareholders and until their successors are
duly elected and qualify.
|
|
(3)
|
The Fund Complex is comprised of the Fund, Brookfield Investment Funds (5 series of underlying portfolios) and Center Coast
Brookfield MLP & Energy Infrastructure Fund.
|
|
(4)
|
Directors who are not considered to be “interested persons” of the Fund as defined in the 1940 Act are considered
to be “Independent Directors.”
|
|
(5)
|
Heather Goldman was considered an interested Director
until March 22, 2015.
|
Name, position(s)
address(1) and year of
birth
|
|
Term of office
and length of
time served (2)
|
|
Number of
funds in
Fund Complex
overseen by
Director(3)
|
|
Principal occupation(s)
during past five years
|
|
Other directorships
held by
director during past
five years
|
INTERESTED DIRECTORS/OFFICERS:
|
|
|
|
|
|
|
|
|
David Levi
Director
Born: 1971
|
|
Since 2017
|
|
7
|
|
Chief Executive Officer of the Investment Adviser (2019-Present); President of the Adviser (2016-2019); Managing Director and Head of Distribution of the Investment Adviser (2014-2016); Managing Partner of Brookfield Asset Management Inc. (2015-Present).
|
|
Director/Trustee of several investment companies
advised by the Investment Adviser (2017-Present).
|
Brian F. Hurley
President
Born: 1977
|
|
Since 2014
|
|
N/A
|
|
President of several investment companies advised by the Investment Adviser (2014-Present); Managing Director (2014-Present); Assistant General Counsel (2010-2017) and General Counsel (2017-Present) of the Investment Adviser; Managing Partner of Brookfield Asset Management Inc. (2016-Present); Director of Brookfield Soundvest Capital Management (2015-2018).
|
|
N/A
|
Angela W. Ghantous
Treasurer
Born: 1975
|
|
Since 2012
|
|
N/A
|
|
Treasurer of several investment companies advised by the Investment Adviser (2012-Present); Managing Director (2020-Present) and Head of Fund Administration and Accounting of the Investment Adviser (2012-2020); Director of the Adviser (2012-2020).
|
|
N/A
|
Name, position(s)
address(1) and year of
birth
|
|
Term of office
and length of
time served
|
|
Number of
funds in
Fund Complex
overseen by
Director(3)
|
|
Principal occupation(s)
during past five years
|
|
Other directorships
held by
director during past
five years
|
Thomas D. Peeney
Secretary
Born: 1973
|
|
Since 2018
|
|
N/A
|
|
Secretary of several investment companies advised by the Investment Adviser (2018-Present); Director of the Investment Adviser (2018-Present); Vice President of the Investment Adviser (2017-2018); Vice President and Assistant General Counsel of SunAmerica Asset Management, LLC (2013-2017).
|
|
N/A
|
Adam R. Sachs
Chief Compliance Officer (“CCO”)
Born: 1984
|
|
Since 2017
|
|
N/A
|
|
Chief Compliance Officer of several investment companies advised by the Investment Adviser (2017-Present); Director of the Investment Adviser (2017-Present); CCO of Brookfield Investment Management (Canada) Inc. (2017-Present); Senior Compliance Officer of Corporate Legal and Compliance at the Investment Adviser (2011-2017).
|
|
N/A
|
Casey Tushaus
Assistant Treasurer
Born: 1982
|
|
Since 2016
|
|
N/A
|
|
Assistant Treasurer of several investment companies advised by the Investment Adviser (2016-Present); Vice President of the Investment Adviser (2014-Present).
|
|
N/A
|
Mohamed Rasul
Assistant Treasurer
Born: 1981
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Since 2016
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N/A
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Assistant Treasurer of several investment companies advised by the Investment Adviser (2016-Present); Vice President of the Adviser (2019-Present); Assistant Vice President of the Investment Adviser (2014 -2019).
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N/A
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(1)
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Address: Brookfield Place, 250 Vesey Street, 15th Floor,
New York, New York, 10281-1023, unless otherwise noted.
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(2)
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Mr. Levi will hold office as Director for an indefinite term until the earliest of (i) the next meeting of shareholders
if any, called for the purpose of considering the election or re-election of Mr. Levi and until the election and qualification
of his successor, if any, elected at such meeting, or (ii) the date Mr. Levi resigns or retires, or is removed by the
Board or shareholders, in accordance with the Trust’s By-Laws and Declaration of Trust. Each officer will hold office for
an indefinite term or until the date he or she resigns or retires or until his or her successor is elected and qualified.
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(3)
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The Fund Complex is comprised of the Fund, Brookfield Investment Funds (5 series of underlying portfolios) and Center Coast
Brookfield MLP & Energy Infrastructure Fund.
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Additional information concerning our board of directors
The role of the Board
The business and affairs of the Fund are
managed under the direction of the Board. The Board provides oversight of the management and operations of the Fund. As is the
case with virtually all investment companies (as distinguished from operating companies), the day-to-day management and operation
of the Fund is performed by various service providers to the Fund, such as the Fund’s investment adviser and administrator,
the sub-administrator, custodian, and transfer agent. The Board approves all significant agreements between the Fund and its service
providers. The Board has appointed senior employees of the Investment Adviser as officers of the Fund, with responsibility to monitor
and report to the Board on the Fund’s day-to-day operations. In conducting this oversight, the Board receives regular reports
from these officers and service providers regarding the Fund’s operations. For example, the Treasurer of the Fund provides
reports as to financial reporting matters, and investment personnel of the Investment Adviser report on the Fund’s investment
activities and performance. The Board has appointed a Chief Compliance Officer who administers the Fund’s compliance program
and regularly reports to the Board as to compliance matters. Some of these reports are provided as part of formal Board meetings
which are typically held quarterly, in person, and involve the Board’s review of recent Fund operations. From time to time,
one or more members of the Board may also meet with management in less formal settings, between scheduled “Board meetings,”
to discuss various topics. In all cases, however, the role of the Board and of any individual Director is one of oversight and
not of management of the day-to-day affairs of the Fund and its oversight role does not make the Board a guarantor of the Fund’s
investments, operations or activities.
Board leadership structure
The Board has structured itself in a manner
that it believes allows it to perform its oversight function effectively. Currently, 80% of the members of the Board, including
the Chairman of the Board, are not “interested persons,” as defined in the 1940 Act, of the Fund (the “Independent
Directors”), which are Directors that are not affiliated with the Adviser or its affiliates. The Board has established three
standing committees, an Audit Committee, a Nominating and Compensation Committee, and a Qualified Legal Compliance Committee (collectively,
the “Committees”), which are discussed in greater detail below. Each of the Independent Directors helps identify matters
for consideration by the Board and the Chairman has an active role in the agenda setting process for Board meetings. The Audit
Committee Chairman also has an active role in the agenda setting process for the Audit Committee meetings. The Fund’s Board
has adopted Fund Governance Policies and Procedures to ensure that the Board is properly constituted in accordance with the 1940
Act and to set forth examples of certain of the significant matters for consideration by the Board and/or its Committees in order
to facilitate the Board’s oversight function. For example, although the 1940 Act requires that at least 40% of a fund’s
directors not be “interested persons,” as defined in the 1940 Act, the Board has determined that the Independent Directors
should constitute at least a majority of the Board. In addition, each Board also has determined that the structure, function and
composition of the Committees are appropriate means to provide effective oversight on behalf of Fund shareholders. The Independent
Directors have engaged their own independent counsel to advise them on matters relating to their responsibilities to the Fund.
Board oversight of risk management
As part of its oversight function, the
Board receives and reviews various risk management reports and assessments and discusses these matters with appropriate management
and other personnel. Because risk management is a broad concept comprised of many elements, Board oversight of different types
of risks is handled in different ways. For example, the full Board receives and reviews reports from senior personnel of the Investment
Adviser (including senior compliance, financial reporting and investment personnel) or their affiliates regarding various types
of risks, including, but not limited to, operational, compliance, investment, and business continuity risks, and how they are being
managed. From time to time, the full Board meets with the Fund’s Chief Compliance Officer to discuss compliance risks relating
to the Fund, the Investment Adviser and the Fund’s other service providers. The Audit Committee supports the Board’s
oversight of risk management in a variety of ways, including meeting regularly with the Fund’s Treasurer and with the Fund’s
independent registered public accounting firm and, when appropriate, with other personnel employed by the Investment Adviser to
discuss, among other things, the internal control structure of the Fund’s financial reporting function and compliance with
the requirements of the Sarbanes-Oxley Act of 2002. The Audit Committee also meets regularly with the Fund’s Chief Compliance
Officer to discuss compliance and operational risks and receives reports from the Investment Adviser’s internal audit group
as to these and other matters.
Information about each director’s qualification, experience,
attributes or skills
The Board believes that each of the Directors
has the qualifications, experience, attributes and skills (“Director Attributes”) appropriate to serve as a Director
of the Fund in light of the Fund’s business and structure. Certain of these business and professional experiences are set
forth in detail in the table above. The Directors have substantial board experience or other professional experience and have demonstrated
a commitment to discharging their oversight responsibilities as Directors. The Board, with the assistance of the Nominating and
Compensation Committee, annually conducts a “self-assessment” wherein the performance of the Board and the effectiveness
of the Board and the Committees are reviewed.
In addition to the information provided
above, certain additional information regarding the Directors and their Director Attributes is provided below. Although the information
is not all-inclusive, the information describes some of the specific experiences, qualifications, attributes or skills that each
Director possesses to demonstrate that the Directors have the appropriate Director Attributes to serve effectively as Directors
of the Fund. Many Director Attributes involve intangible elements, such as intelligence, integrity and work ethic, the ability
to work together, to communicate effectively, to exercise judgment and ask incisive questions, and commitment to shareholder interests.
Edward
A. Kuczmarski. Mr. Kuczmarski has financial accounting experience as a Certified Public Accountant. He also has
served on the board of directors/trustees for several other investment management companies. In serving on these boards, Mr. Kuczmarski
has come to understand and appreciate the role of a trustee and has been exposed to many of the challenges facing a board and the
appropriate ways of dealing with those challenges. Mr. Kuczmarski serves as Chairman of the Board of Directors, Chairman of
the Nominating and Compensation Committee, and is a member of the Audit Committee.
Stuart
A. McFarland. Mr. McFarland has extensive experience in executive leadership, business development and operations,
corporate restructuring and corporate finance. He previously served in senior executive management roles in the private sector,
including serving as the Executive Vice President and Chief Financial Officer of Fannie Mae and as the Executive Vice President
and General Manager of GE Capital Mortgage Services, Corp. Mr. McFarland currently serves on the board of directors for
various other investment management companies and non-profit entities, and is the Managing Partner of Federal City Capital Advisers.
Mr. McFarland is a member of the Audit Committee and the Nominating and Compensation Committee.
Heather
S. Goldman. Ms. Goldman has extensive experience in executive leadership, business development and marketing of
investment vehicles similar to those managed by the Investment Adviser. Ms. Goldman is a capital markets financial services
and tech executive, who over a twenty-plus year career has worked in a senior capacity across a diverse array of firms in the private
equity, investment management and commercial banking industries. She previously served as head of global marketing for the Investment
Adviser, and as such has extensive knowledge of the Adviser, its operations and personnel. She also has experience working in other
roles for the parent company of the Investment Adviser. Prior to working with the Investment Adviser, and for nearly five years,
she acted as CEO and Chairman, co-founding and managing Capital Thinking, a financial services risk-management technology company
in New York. Most recently, Ms. Goldman was Co-Founder and CEO of another fintech company, Capstak, Inc. She is a fintech
angel investor. Ms. Goldman is a member of the Audit Committee and the Nominating and Compensation Committee.
Louis
P. Salvatore. Mr. Salvatore has extensive business experience in financial services and financial reporting, including
serving on the board of directors/trustees and as audit committee chairman for several other publicly traded and private companies.
Mr. Salvatore previously spent over thirty years in public accounting. He holds a Masters Professional Director Certification
from the American College of Corporate Directors, a public company director education organization. Mr. Salvatore serves as
Chairman of the Audit Committee, and is a member of the Nominating and Compensation Committee.
William
H. Wright II. Mr. Wright has extensive experience in executive leadership, investment banking and corporate finance.
He previously served as a Managing Director of Morgan Stanley until his retirement in 2010, having joined the firm in 1982. During
his career in investment banking at Morgan Stanley, Mr. Wright headed the corporate finance execution group where he was responsible
for leading and coordinating teams in the execution of complex equity offerings for multinational corporations. Following his career
in investment banking, Mr. Wright served on the board of directors/trustees for various other investment management companies
and non-profit entities. Mr. Wright is a member of the Audit Committee and the Nominating and Compensation Committee.
David
Levi. Mr. Levi is Chief Executive Officer of the Adviser and a Managing Partner of Brookfield Asset Management.
He has over 26 years of industry experience in asset management. Mr. Levi’s background includes extensive strategy-related,
client-facing and business development experience globally within both the institutional and high net worth markets. Prior to joining
the Investment Adviser in 2014, Mr. Levi was Managing Director and Head of Global Business Development at Nuveen Investments,
after holding similar positions at AllianceBernstein Investments and Legg Mason and senior strategy roles within J.P. Morgan Asset
Management. Mr. Levi is a Fellow of the 2019 class of Aspen Finance Leaders Fellowship, is a member of the Aspen Global Leadership
Network, and holds the Chartered Financial Analyst® designation. He earned a Master of Business Administration degree from
Columbia University and a Bachelor of Arts degree from Hamilton College. His position of responsibility at the Investment Adviser,
in addition to his knowledge of the firm and experience in financial services, has been determined to be valuable to the Boards
in their oversight of the Fund.
Board committees
The Fund has established the following
three standing committees and the membership of each committee to assist in its oversight functions, including its oversight of
the risks the Fund faces: the Audit Committee, the QLCC, and the Nominating and Compensation Committee. There is no assurance,
however, that the Board’s committee structure will prevent or mitigate risks in actual practice. The Fund’s committee
structure is specifically not intended or designed to prevent or mitigate the Fund’s investment risks. The Fund is designed
for investors that are prepared to accept investment risk, including the possibility that as yet unforeseen risks may emerge in
the future.
Audit Committee
The Audit Committee is comprised of Messrs. Salvatore,
Kuczmarski and McFarland and Ms. Goldman. It does not include any interested Directors. The Audit Committee meets regularly
with respect to the various series of the Fund. The principal functions of the Audit Committee are to review the Fund’s audited
financial statements, to select the Fund’s independent auditors, to review with the Fund’s auditors the scope and anticipated
costs of their audit and to receive and consider a report from the auditors concerning their conduct of the audit, including any
comments or recommendations they might want to make in connection therewith. During the Fund’s fiscal year ended December 31,
2019, the Audit Committee held four Committee meetings.
The Audit Committee also serves as the
QLCC for the Fund for the purpose of compliance with Rules 205.2(k) and 205.3(c) of the Code of Federal Regulations,
regarding alternative reporting procedures for attorneys retained or employed by an issuer who appear and practice before the SEC
on behalf of the issuer (the “issuer attorneys”). An issuer’s attorney who becomes aware of evidence of a material
violation by the Fund, or by any officer, Director, employee, or agent of the Fund, may report evidence of such material violation
to the QLCC as an alternative to the reporting requirements of Rule 205.3(b) (which requires reporting to the chief legal
officer and potentially “up the ladder” to other entities). The QLCC meets as needed, and did not meet during the fiscal
year ended December 31, 2019.
Nominating and Compensation Committee
The Nominating and Compensation Committee
is comprised of Messrs. Salvatore, Kuczmarski and McFarland and Ms. Goldman. The function of the Fund’s Nominating
and Compensation Committee is to recommend candidates for election to its Board as Independent Directors. The Fund’s Nominating
and Compensation Committee evaluates each candidate’s qualifications for Board membership and their independence from the
Adviser and other principal service providers. The Nominating and Compensation Committee will consider nominees recommended by
shareholders who, separately or as a group, own at least one percent of the Fund’s shares. During the fiscal year ended December 31,
2019, the Nominating and Compensation Committee met two times.
Board meetings
The Fund’s Board held four regular meetings and one special
meeting during the 12 month period ended December 31, 2019. During the fiscal year ended December 31, 2019, each Director
attended at least 75% of the aggregate of the meetings of the Fund’s Board of Directors. The Fund’s Fund Governance
Policies and Procedures provide that the Chairman of the Board, who is elected by the Independent Directors, will preside at each
executive session of the Board, or if one has not been designated, the chairperson of the Nominating and Compensation Committee
shall serve as such.
Beneficial ownership of shares held in the Fund and the family
of investment companies for each director
Set forth in the table below is the dollar range of equity securities
in the Fund beneficially owned by each Director and the aggregate dollar range of equity securities in the Fund Complex beneficially
owned by each Director.
Name of director
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Aggregate dollar
range of equity
securities held in
family of investment
companies*(1)(2)
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Interested Director:
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David Levi
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A
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Independent Director:
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Heather Goldman
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E
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Louis P. Salvatore
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E
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Edward A. Kuczmarski
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E
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Stuart A. McFarland
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E
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William
H. Wright II(3)
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A
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*Key
to Dollar Ranges
A. None
B. $1 - $10,000
C. $10,001 - $50,000
D. $50,001 - $100,000
E. Over $100,000
All shares were valued as of December 31, 2019.
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(1)
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This information has been furnished by each Director as of December 31, 2019. “Beneficial Ownership” is determined
in accordance with Rule 16a-1(a)(2) of the 1934 Act.
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(2)
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The aggregate dollar range of equity securities owned by each Director of all funds overseen by each Director in the Investment
Adviser’s family of investment companies as of December 31, 2019. As of the date of this SAI, the Fund Complex is comprised
of the Fund, Brookfield Investment Funds (5 series of underlying portfolios) and Center Coast Brookfield MLP & Energy
Infrastructure Fund.
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(3)
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Mr. Wright became an Independent Director of the
Fund effective August 1, 2020.
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As of December 31, 2019, none of the
Independent Directors nor members of their immediate families, own securities beneficially or of record in the Investment Adviser
or any affiliate thereof. Accordingly, neither the Independent Directors nor members of their immediate family, have direct or
indirect interest, the value of which exceeds $120,000, in the Investment Adviser, or any of their affiliates. In addition, during
the two most recently completed calendar years, neither the Independent Directors nor members of their immediate families have
conducted any transactions (or series of transactions) in which the amount involved exceeds $120,000 and to which the Investment
Adviser or any affiliate thereof was a party.
Remuneration of directors and officers
No remuneration was paid by the Fund to
persons who were directors, officers or employees of the Adviser or any affiliate thereof for their services as Directors or officers
of the Fund. Each Director of the Fund, other than those who are officers or employees of the Adviser or any affiliate thereof,
was entitled to receive from the Fund a Fund Complex fee. Effective June 1, 2018, the aggregate annual retainer paid to each
Independent Director of the Board for the Fund Complex is $180,000. The Independent Chairman of the Fund Complex and the Chairman
of the Audit Committee each receive an additional payment of $30,000 per year. The following table sets forth information concerning
the compensation received by Directors for the fiscal year ended December 31, 2019 for the Fund, which we refer to as fiscal
2019.
Compensation table
Name of person and position
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Aggregate
compensation
from the Fund(1)
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Total compensation
from the Fund and
Fund Complex(1)
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Interested Director:
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David Levi
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$
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N/A
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$
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N/A
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Independent Director:
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Heather Goldman
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$
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36,177
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$
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180,000
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Louis P. Salvatore
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$
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42,206
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$
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210,000
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Edward A. Kuczmarski
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$
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42,206
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$
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210,000
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Stuart A. McFarland
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$
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36,1777
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$
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180,000
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William H. Wright II(2)
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$
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N/A
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$
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N/A
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(1)
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Represents the total compensation paid to such persons during the fiscal year ended December 31, 2019, by investment companies
(including the Fund) or portfolios thereof from which such person receives compensation that are considered part of the same fund
complex as the Fund because they have common or affiliated investment advisers. The total does not include, among other things,
out-of-pocket Director expenses. The number in parentheses represents the number of such investment companies and portfolios.
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(2)
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Mr. Wright became an Independent Director of the Fund effective August 1, 2020.
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Indemnification of officers and directors; limitations on
liability
Maryland
law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to
the corporation and its shareholders for money damages except for liability resulting from (a) actual receipt of an improper
benefit or profit in money, property or services or (b) active and deliberate dishonesty established by a final judgment as
being material to the cause of action. The Fund’s charter contains such a provision which eliminates directors’
and officers’ liability to the maximum extent permitted by Maryland law, subject to the requirements of the 1940 Act.
The Fund’s charter authorizes the
Fund, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to obligate the Fund to
indemnify any present or former director or officer or any individual who, while serving as a director or officer of the Fund and,
at the Fund’s request, serves or has served another corporation, real estate investment trust, partnership, joint venture,
trust, limited liability company, employee benefit plan or other enterprise as a director, officer, partner, trustee, manager or
managing member from and against any claim or liability to which that individual may become subject or which that individual may
incur by reason of his or her service in any such capacity and to pay or reimburse his or her reasonable expenses in advance of
final disposition of a proceeding.
The Fund’s Bylaws obligate the Fund,
to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to indemnify any present or former
director or officer or any individual who, while serving as a director or officer of the Fund and, at the Fund’s request,
serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, limited liability company,
employee benefit plan or other enterprise as a director, officer, partner, trustee, manager or managing member and who is made,
or threatened to be made, a party to the proceeding by reason of his or her service in any such capacity and to pay or reimburse
his or her reasonable expenses in advance of final disposition of a proceeding. The Fund’s charter and Bylaws also permit
the Fund to indemnify and advance expenses to any individual who served any predecessor of the Fund in any of the capacities described
above and any employee or agent of the Fund or a predecessor of the Fund, if any.
Maryland law requires a corporation (unless
its charter provides otherwise, which the Fund’s charter does not) to indemnify a director or officer who has been successful,
on the merits or otherwise, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason
of his or her service in that capacity. Maryland law permits a corporation to indemnify its present and former directors and officers,
among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made, or threatened to be made, a party by reason of their service in those or other capacities
unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to
the proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any
criminal proceeding, the director or officer had reasonable cause to believe the act or omission was unlawful. However, under Maryland
law, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a
judgment of liability on the basis that a personal benefit was improperly received, unless in either case a court orders indemnification,
and then only for expenses. In addition, Maryland law permits a corporation to pay or reimburse reasonable expenses to a director
or officer in advance of final disposition of a proceeding upon the corporation’s receipt of (a) a written affirmation
by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification
by the corporation and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed
by the corporation if it is ultimately determined that the standard of conduct was not met.
In accordance with the 1940 Act, the Fund
will not indemnify any person for any liability to which such person would be subject by reason of such person’s willful
misconduct, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Investment advisory and administrative arrangements
Brookfield Public Securities Group LLC
(the “Investment Adviser” or “PSG”), a Delaware limited liability company and a registered investment adviser
under the Investment Advisers Act of 1940, as amended, serves as the investment adviser and administrator to the Fund. Founded
in 1989, the Adviser is a wholly-owned subsidiary of Brookfield Asset Management Inc. (TSX/NYSE: BAM; EURONEXT: BAMA) (“Brookfield”),
a publicly held global asset manager focused on property, power and other infrastructure assets with approximately $575 billion
of assets under management as of September 30, 2020. In addition to the Fund, the Adviser’s clients include financial
institutions, public and private pension plans, insurance companies, endowments and foundations, sovereign wealth funds, high net-worth
investors and several other registered investment companies. The Adviser specializes in global listed real assets strategies and
its investment philosophy incorporates a value-based approach towards investment. The business address of the Adviser and its officers
and directors is Brookfield Place, 250 Vesey Street, 15th Floor, New York, New York 10281-1023. Subject to the authority and oversight
of the Board of Directors, the Adviser is responsible for the overall management of the Fund’s business affairs. As of September 30,
2020, the Adviser and its subsidiaries had over $15 billion in assets under management.
The Fund has also entered a Sub-Advisory
Agreement with Schroder Investment Management North America Inc. (“SIMNA”), a Delaware corporation and a registered
investment adviser under the Investment Advisers Act of 1940, as amended. SIMNA is located at 7 Bryant Park, New York, NY 10018,
and is wholly-owned by Schroder US Holdings Inc. at the same address and indirectly owned in its entirety by Schroders plc, a London
Stock Exchange-listed financial services company, located at 31 Gresham Street, London EC2V 7QA, England. As of June 30, 2020,
Schroders plc had approximately $649.643 billion under management. Of that amount, as of June 30, 2020 SIMNA (along with its
affiliated entity Schroder Investment Management North America Ltd.) had approximately $127.081 billion under management.
PSG serves as the investment adviser of
the Fund while SIMNA serves as the sub-adviser with respect to the securitized products allocation of the Fund. As investment adviser,
PSG manages the Fund’s investments outside of securitized products and has oversight responsibilities over the securitized
products allocation managed by SIMNA. Mr. Larry Antonatos, the lead portfolio manager of the Fund, joined by Messrs. Christopher
Janus and Gaal Surugeon, each share primary responsibility for the day-to-day management of the Fund, including the authority to
adjust the strategic allocation of assets between corporate credit, securitized credit and equity securities. In managing the corporate
credit, securitized credit and equity investment sleeves of the Fund, Messrs. Antonatos, Janus and Surugeon leverage the expertise
of their colleagues on PSG’s investment teams, as well as the securitized credit investment team at SIMNA. In particular,
Messrs. Dana Erikson, CFA, and Dan Parker, CFA, both from PSG, are jointly and primarily responsible for the day-to-day management
of the Fund’s corporate credit sleeve.
The Investment Advisory Agreement was
most recently approved by a majority of the Board of Directors, including a majority of the Directors who are not “interested
persons” (as defined in the 1940 Act), at a telephonic meeting of the Board of Directors held on May 21, 2020.1
The Investment Advisory Agreement continues in effect for successive annual periods so long as such continuation is specifically
approved at least annually by the vote of (i) the Board or a (ii) a vote of a majority (as defined in the 1940 Act)
of the outstanding voting securities of the Fund, provided that in either event the continuance also is approved by a majority
of the Directors who are not “interested persons” (as defined pursuant to the 1940 Act) of the Fund or the Investment
Adviser, as applicable, by vote cast in person at a meeting called for the purpose of voting on such approval. The Investment
Advisory Agreement is terminable without penalty, on 60 days’ notice, by the Fund’s Board or by vote of the holders
of a majority of the Fund’s shares, or by the Investment Adviser, upon not less than 60 days’ notice with respect
to the Investment Advisory Agreement for the Fund. The Investment Advisory Agreement will terminate automatically in the event
of its assignment (as defined in the 1940 Act). As compensation for its services and the related expenses the Investment Adviser
bears, the Investment Adviser is compensated for its services and its related expenses at an annual rate of 1.00% of the Fund’s
average daily total Managed Assets payable monthly in arrears.
1 On March 13, 2020, in response to the potential
effects of coronavirus disease 2019 (COVID-19), the Securities and Exchange Commission (the “SEC”) issued an order
pursuant to its authority under Sections 6(c) and 38(a) of the Investment Company Act of 1940, as amended (the “Investment
Company Act” or “Act”) granting exemptions from certain provisions of that Act and the rules thereunder, including
temporary exemptive relief from in-person board meeting requirements to cover the approval of advisory contracts. The SEC has
provided temporary exemptive relief for registered management investment companies and any investment adviser or principal underwriter
of such companies, in circumstances related to the current or potential effects of COVID-19, from the requirements imposed under
sections 15(c) and 32(a) of the Investment Company Act and Rules 12b-1(b)(2) and 15a-4(b)(2)(ii) under the Investment Company
Act that votes of the board of directors of the registered management investment company be cast in person. The relief is subject
to conditions described in the SEC’s order.
Advisory fees earned by the Investment Adviser
For the Fiscal Year Ended:
|
|
|
Earned by the
Investment Adviser
|
|
December 31, 2019
|
|
$
|
[●]
|
|
December 31, 2018
|
|
$
|
[●]
|
|
A discussion regarding the basis of the
Board’s most recent approval of the Investment Advisory Agreement is available in the Fund’s semi-annual report for
the period ended June 30, 2020.
Pursuant to an administration agreement
(the “Administration Agreement”), the Investment Adviser provides administrative services reasonably necessary for
the Fund’s operations, other than those services that the Investment Adviser provides to the Fund pursuant to the Investment
Advisory Agreement. For its services under the Administration Agreement, the Investment Adviser receives from the Fund an annual
fee equal to 0.15% of its average daily Managed Assets, payable monthly by the fifth day of the next month.
Sub-Adviser
The Investment Adviser has entered into
a Sub-Advisory Agreement with Schroder Investment Management North America Inc. (the “Sub-Adviser”). The Sub-Adviser
is responsible for the management of the Securitized Credit investments. The Investment Adviser is responsible for any fees due
to the Sub-Adviser.
Sub-Administrator
Pursuant to a sub-administration agreement
(the “Sub-Administration Agreement”), U.S. Bancorp Fund Services, LLC, (“USBFS” or the “Sub-Administrator”),
1201 South Alma School Road, Suite 3000, Mesa, Arizona 85210, acts as the Sub-Administrator to the Fund. USBFS provides certain
services to the Fund including, among other responsibilities, coordinating the negotiation of contracts and fees with, and the
monitoring of performance and billing of, the Fund’s independent contractors and agents; preparation for signature by an
officer of the Fund of all documents required to be filed for compliance by the Fund with applicable laws and regulations, excluding
those of the securities laws of various states; arranging for the computation of performance data, including NAV per share and
yield; responding to shareholder inquiries; and arranging for the maintenance of books and records of the Fund, and providing,
at its own expense, office facilities, equipment and personnel necessary to carry out its duties. In this capacity, USBFS does
not have any responsibility or authority for the management of the Fund, the determination of investment policy, or for any matter
pertaining to the distribution of Fund shares.
Pursuant to the Sub-Administration Agreement,
as compensation for its services, USBFS receives from the Investment Adviser, as administrator to the Fund, a fee based on the
Fund’s current average daily net assets of: .07% on the first $100 million, .05% on the next $200 million and .03% on the
remaining assets, with a minimum annual fee of $45,000. USBFS also is entitled to certain out-of-pocket expenses. USBFS also acts
as fund accountant.
Portfolio manager information
The information below provides additional
information regarding the individuals identified in the Prospectus as jointly and primarily responsible for day-to-day management
of the Fund (“Portfolio Managers”). All asset information is as of [●].
The table below shows the number of other
accounts managed by Messrs. Antonatos, Janus and Surugeon and the total assets in each of the following categories: registered
investment companies, other pooled investment vehicles and other accounts. For each category, the table also shows the number of
accounts and the total assets in the accounts with respect to which the advisory fee is based on account performance.
Name of portfolio manager
|
|
Type of
accounts
|
|
Total
number of
accounts
managed
|
|
Total
assets
(in millions)
|
|
Number of
accounts
managed
with
advisory fee
based on
performance
|
|
Total assets
with
advisory fee
based on
performance
|
|
Larry Antonatos
|
|
Registered Investment Companies:
|
|
|
[●]
|
|
$
|
[●]
|
|
|
[●]
|
|
$
|
[●]
|
|
|
|
Other Pooled Investment Vehicles:
|
|
|
[●]
|
|
$
|
[●]
|
|
|
[●]
|
|
$
|
[●]
|
|
|
|
Other Accounts:
|
|
|
[●]
|
|
$
|
[●]
|
|
|
[●]
|
|
$
|
[●]
|
|
Chris Janus
|
|
Registered Investment Companies:
|
|
|
[●]
|
|
$
|
[●]
|
|
|
[●]
|
|
$
|
[●]
|
|
|
|
Other Pooled Investment Vehicles:
|
|
|
[●]
|
|
$
|
[●]
|
|
|
[●]
|
|
$
|
[●]
|
|
|
|
Other Accounts:
|
|
|
[●]
|
|
$
|
[●]
|
|
|
[●]
|
|
$
|
[●]
|
|
Gaal Surugeon
|
|
Registered Investment Companies:
|
|
|
[●]
|
|
$
|
[●]
|
|
|
[●]
|
|
$
|
[●]
|
|
|
|
Other Pooled Investment Vehicles:
|
|
|
[●]
|
|
$
|
[●]
|
|
|
[●]
|
|
$
|
[●]
|
|
|
|
Other Accounts:
|
|
|
[●]
|
|
$
|
[●]
|
|
|
[●]
|
|
$
|
[●]
|
|
Dana Erikson
|
|
Registered Investment Companies:
|
|
|
[●]
|
|
$
|
[●]
|
|
|
[●]
|
|
$
|
[●]
|
|
|
|
Other Pooled Investment Vehicles:
|
|
|
[●]
|
|
$
|
[●]
|
|
|
[●]
|
|
$
|
[●]
|
|
|
|
Other Accounts:
|
|
|
[●]
|
|
$
|
[●]
|
|
|
[●]
|
|
$
|
[●]
|
|
Dan Parker
|
|
Registered Investment Companies:
|
|
|
[●]
|
|
$
|
[●]
|
|
|
[●]
|
|
$
|
[●]
|
|
|
|
Other Pooled Investment Vehicles:
|
|
|
[●]
|
|
$
|
[●]
|
|
|
[●]
|
|
$
|
[●]
|
|
|
|
Other Accounts:
|
|
|
[●]
|
|
$
|
[●]
|
|
|
[●]
|
|
$
|
[●]
|
|
Potential conflicts of interest
Actual or apparent conflicts of interest
may arise when the Portfolio Managers also have day-to-day management responsibilities with respect to one or more other accounts.
These potential conflicts include:
Allocation
of limited time and attention. As indicated above, each Portfolio Manager manages multiple accounts. As a result, a
Portfolio Manager will not be able to devote all of his time to management of the Fund. A Portfolio Manager, therefore, may not
be able to formulate as complete a strategy or identify equally attractive investment opportunities for the Fund as might be the
case if he were to devote all of his attention to the management of only the Fund.
Allocation
of limited investment opportunities. As indicated above, each Portfolio Manager manages accounts with investment strategies
and/or policies that are similar to the Fund. If a Portfolio Manager identifies an investment opportunity that may be suitable
for multiple accounts, the Fund may not be able to take full advantage of that opportunity because the opportunity may be allocated
among these accounts or other accounts managed primarily by other Portfolio Managers of the Investment Adviser and its affiliates.
In addition, in the event a Portfolio Manager determines to purchase a security for more than one account in an aggregate amount
that may influence the market price of the security, accounts that purchased or sold the security first may receive a more favorable
price than accounts that made subsequent transactions.
Pursuit
of differing strategies. At times, a Portfolio Manager may determine that an investment opportunity may be appropriate
for only some of the accounts for which the manager exercises investment responsibility, or may decide that certain of these funds
or accounts should take differing positions with respect to a particular security. In these cases, a Portfolio Manager may execute
differing or opposite transactions for one or more accounts which may affect the market price of the security or the execution
of the transaction, or both, to the detriment of one or more other accounts. For example, the sale of a long position or establishment
of a short position by an account may impair the price of the same security sold short by (and therefore benefit) the Investment
Adviser and its affiliates, or other accounts, and the purchase of a security or covering of a short position in a security by
an account may increase the price of the same security held by (and therefore benefit) the Investment Adviser and its affiliates,
or other accounts.
Selection
of broker/dealers. A Portfolio Manager may be able to select or influence the selection of the brokers and dealers that
are used to execute securities transactions for the funds or accounts that he supervises. In addition to providing execution of
trades, some brokers and dealers provide portfolio managers with brokerage and research services which may result in the payment
of higher brokerage fees than might otherwise be available. These services may be more beneficial to certain funds or accounts
of the Investment Adviser and its affiliates than to others. Although the payment of brokerage commissions is subject to the requirement
that the Investment Adviser determines in good faith that the commissions are reasonable in relation to the value of the brokerage
and research services provided to the fund, a Portfolio Manager’s decision as to the selection of brokers and dealers could
yield disproportionate costs and benefits among the funds or other accounts that the Investment Adviser and its affiliates manage.
In addition, with respect to certain types of accounts (such as pooled investment vehicles and other accounts managed for organizations
and individuals) the Investment Adviser may be limited by the client concerning the selection of brokers or may be instructed to
direct trades to particular brokers. In these cases, the Investment Adviser or its affiliates may place separate, non-simultaneous
transactions in the same security for the Fund and another account that may temporarily affect the market price of the security
or the execution of the transaction, or both, to the detriment of the Fund or the other accounts.
Variation
in compensation. A conflict of interest may arise where the financial or other benefits available to a Portfolio Manager
differ among the accounts that he manages. If the structure of the Investment Adviser’s management fee or a Portfolio Manager’s
compensation differs among accounts (such as where certain accounts pay higher management fees or performance based management
fees), the Portfolio Manager may be motivated to favor certain accounts over others. A Portfolio Manager also may be motivated
to favor accounts in which he has investment interests, or in which the Investment Adviser or its affiliates have investment interests.
Similarly, the desire to maintain assets under management or to enhance a Portfolio Manager’s performance record or to derive
other rewards, financial or otherwise, could influence a Portfolio Manager in affording preferential treatment to those accounts
that could most significantly benefit the Portfolio Manager. For example, as reflected above, if a Portfolio Manager manages accounts
which have performance fee arrangements, certain portions of his compensation will depend on the achievement of performance milestones
on those accounts. A Portfolio Manager could be incented to afford preferential treatment to those accounts and thereby be subject
to a potential conflict of interest.
The Investment Adviser and the Fund have
adopted compliance policies and procedures that are reasonably designed to address the various conflicts of interest that may arise
for the Investment Adviser and its staff members. However, there is no guarantee that such policies and procedures will be able
to detect and prevent every situation in which an actual or potential conflict may arise.
Compensation
Each Portfolio Manager is compensated based
on the scale and complexity of his portfolio responsibilities, the total return performance of funds and accounts managed by the
Portfolio Manager on an absolute basis and when compared to appropriate peer groups of similar size and strategy, as well as the
management skills displayed in managing their portfolio teams and the teamwork displayed in working with other members of their
firm. Since each Portfolio Manager is responsible for multiple funds and accounts, investment performance is evaluated on an aggregate
basis almost equally weighted among performance, management and teamwork. Base compensation for each Portfolio Manager varies in
line with their seniority and position. The compensation of a Portfolio Manager with other job responsibilities (such as acting
as an executive officer of their firm or supervising various departments) includes consideration of the scope of such responsibilities
and the Portfolio Manager’s performance in meeting them. The Investment Adviser seeks to compensate each Portfolio Manager
commensurate with their responsibilities and performance, and that is competitive with other firms within the investment management
industry. Salaries, bonuses and stock based compensation also are influenced by the operating performance of their respective firms
and their parent companies. While the salaries of each Portfolio Manager is comparatively fixed, cash bonuses and stock based compensation
may fluctuate significantly from year to year. Bonuses are determined on a discretionary basis by the senior executives of their
respective firm and measured by individual and team-oriented performance guidelines. The amount of the Long Term Incentive Plan
(LTIP) is approved annually and there is a rolling vesting schedule to aid in retention of key people. A key component of this
program is achievement of client objectives in order to properly align interests with our clients. Further, the incentive compensation
of all investment personnel who work on each strategy is directly tied to the relative performance of the strategy and its clients.
The compensation structure of each Portfolio Manager and other
investment professionals has four primary components:
|
•
|
A base salary;
|
|
•
|
An annual cash bonus;
|
|
•
|
If applicable, long-term compensation consisting of restricted stock units or stock options of the Investment Adviser’s
ultimate parent company, Brookfield Asset Management Inc.; and
|
|
•
|
If applicable, long-term compensation consisting of restricted stock units in private funds managed by the investment professional.
|
Each Portfolio Manager also receives certain retirement, insurance
and other benefits that are broadly available to all employees. Compensation of each Portfolio Manager is reviewed on an annual
basis by senior management.
Ownership of securities
Set forth in the table below is the dollar range of equity securities
in the Fund beneficially owned by the Fund’s portfolio managers:
Portfolio Manager
|
|
Dollar Range of
Equity Securities
Held in the Fund*
|
Larry Antonatos
|
|
[●]
|
Chris Janus
|
|
[●]
|
Gaal Surugeon
|
|
[●]
|
Dana Erikson
|
|
[●]
|
Dan Parker
|
|
[●]
|
*
Key to Dollar Ranges
A. None
B. $1 - $10,000
C. $10,001 - $50,000
D. $50,001 - $100,000
E. $100,001 - $500,000
F. $500,001 - $1,000,000
G. over $1,000,000
All shares were valued as of [●].
Beneficial ownership
To the knowledge of management, no person owned beneficially
or of record more than 5% of the Fund’s outstanding shares as of December 31, 2019.
As of December 31, 2019, the Directors and Officers of
the Fund, owned in the aggregate less than 1% of the common shares.
Portfolio holdings information
The Fund’s portfolio holdings are
publicly available: (1) at the time such information is filed with the SEC in a publicly available filing; or (2) the
day next following the day such information is posted on the Fund’s website. The Fund’s publicly available portfolio
holdings, which may be provided to third parties without prior approval, are:
1. Complete
portfolio holdings disclosed in the Fund’s semi-annual or annual reports and filed with the SEC on Form N-CSR.
2. Complete
portfolio holdings disclosed in the Fund’s first and third fiscal quarter reports that are filed with the SEC on Form N-Q.
Non-public portfolio holdings
Disclosure of the Fund’s non-public
portfolio holdings provides the recipient with information more current than the most recent publicly available portfolio holdings.
Pursuant to the Fund’s policies and procedures, the disclosure of non-public portfolio holdings may be considered permissible
and within the Fund’s legitimate business purposes with respect to: (1) certain service providers; (2) rating and
ranking organizations; and (3) certain other recipients. These policies and procedures must be followed when disclosing the
Fund’s portfolio holdings to any party when such disclosure would provide information more current than the Fund’s
most recent publicly available portfolio holdings. In addition, neither the Fund, the Investment Adviser nor any other party is
permitted to receive compensation or other consideration from or on behalf of the recipient in connection with disclosure to the
recipient of the Fund’s non-public portfolio holdings.
Service
providers. A service provider or other third party that receives information about the Fund’s non-public portfolio
holdings where necessary to enable the provider to perform its contractual services for the Fund (e.g., Investment
Adviser, auditors, Custodian, administrator, sub-administrator, transfer agent, counsel to the funds or the independent directors,
pricing services, broker dealer, financial printers or proxy voting services) may receive non-public portfolio holdings without
limitation on the condition that the non-public portfolio holdings will be used solely for the purpose of servicing the Fund and
subject to, either by written agreement or by virtue of their duties to the Fund, a duty of confidentiality and a duty not to use
the information for trading. In addition, information may be disclosed to the Fund’s pricing services, ICE Data Services
and Bloomberg L.P., and the Fund’s financial printers, Merrill Corporation and Donnelley Financial Solutions.
Rating
and ranking organizations. Any Fund officer may provide the Fund’s non-public portfolio holdings to a rating and
ranking organization, without limitation on the condition that the non-public portfolio holdings will be used solely for the purposes
of developing a rating and subject to an agreement requiring confidentiality and prohibiting the use of the information for trading.
The Fund currently has ongoing arrangements with Lipper and Morningstar by which their third parties receive portfolio holdings
information routinely.
Other
recipients. Requests for information concerning portfolio holdings that cannot be answered via the disclosures: annual
and semi-annual reports, and not already disclosed in the public domain as required through filings with the SEC, must first be
submitted for consideration to the Fund’s Chief Compliance Officer. The recipient is required to sign a confidentiality agreement
that provides that the non-public portfolio holdings: (1) will be kept confidential; (2) may not be used to trade; and
(3) may not be disseminated or used for any purpose other than the purpose approved by the Fund’s Chief Compliance Officer.
If the Fund’s Chief Compliance Officer concludes that disclosing the information serves a legitimate business purpose and
is in the best interests of shareholders, such conclusions will be documented in writing. A written response containing the requested
information will then be prepared and approved by the Fund’s Chief Compliance Officer. The Fund’s Chief Compliance
Officer will report such disclosures to the Fund’s Board at the next scheduled board meeting.
Media.
Non-public portfolio holdings may not be disclosed to members of the media.
Waivers
of restrictions. The Fund’s policy may not be waived, or exceptions made, without the consent of the Fund’s
Chief Compliance Officer. All waivers and exceptions will be disclosed to the Fund’s Board no later than its next regularly
scheduled quarterly meeting.
Conflicts
of interest. If the disclosure of non-public portfolio holdings presents a conflict of interest between the interests
of the Fund’s shareholders and the interests of the Fund’s service providers or other third parties or affiliates thereof,
then the conflict of interest will be presented to the Board for review prior to the dissemination of the portfolio holdings information.
Board
review. As part of the annual review of the compliance policies and procedures of the Fund, the Chief Compliance Officer
will discuss the operation and effectiveness of this Policy and any changes to the Policy that have been made or recommended with
the Board.
Distributions and Dividends
The Fund intends to distribute to common
shareholders all or a portion of its net investment income monthly and net realized capital gains, if any, at least annually. Under
normal market conditions, the Fund intends to distribute substantially all of its distributable cash flows, less Fund expenses,
to shareholders monthly. Various factors will affect the level of the Fund’s investment company taxable income, such as its
asset mix. Distributions may be paid to the holders of the Fund’s common shares if, as and when authorized by the Board of
Directors and declared by the Fund out of assets legally available therefor. To permit the Fund to maintain more stable monthly
distributions, it may from time to time distribute less than the entire amount of income earned in a particular period, with the
undistributed amount being available to supplement future distributions. As a result, the distributions paid by the Fund for any
particular monthly period may be more or less than the amount of income actually earned during that period. Because the Fund’s
income will fluctuate and the Fund’s distribution policy may be changed by the Board of Directors at any time, there can
be no assurance that the Fund will pay distributions or dividends.
In the event that the total distributions
on the Fund’s shares exceed the Fund’s current and accumulated earnings and profits allocable to such shares, the excess
distributions will generally be treated as a tax free return of capital (to the extent of the shareholder’s tax basis in
the shares). Shareholders should not assume that the source of a distribution from the Fund is net profit or income. Distributions
sourced from paid-in capital should not be considered the current yield or the total return from an investment in the Fund. The
amount treated as a tax free return of capital will reduce a shareholder’s adjusted tax basis in the common shares, thereby
increasing the shareholder’s potential taxable gain or reducing the potential loss on the sale of the shares.
On September 30, 2015, the SEC granted
the Investment Adviser, on behalf of itself and certain funds an order granting an exemption from Section 19(b) of and
Rule 19b-1 under the 1940 Act to conditionally permit the Fund to make periodic distributions of long-term capital gains with
respect to the Fund’s outstanding common stock as frequently as twelve times each year, so long as it complies with the conditions
of the order and maintains in effect a distribution policy with respect to its common shares calling for periodic distributions
of an amount equal to a fixed amount per share, a fixed percentage of market price per share or a fixed percentage of the Fund’s
net asset value per share (a “Managed Dividend Policy”). In connection with any implementation of a Managed Dividend
Policy pursuant to the order, the Fund would be required to:
|
•
|
implement certain compliance review and reporting procedures with respect to the Managed Dividend
Policy;
|
|
•
|
include in each notice to shareholders that accompanies distributions certain information in addition
to the information currently required by Section 19(a) of and Rule 19a-1 under the 1940 Act (“19(a) Notice”);
|
|
•
|
include certain disclosure regarding the Managed Dividend Policy on the inside front cover of each
annual and semi-annual report to shareholders;
|
|
•
|
provide the Fund’s total return in relation to changes in NAV in the financial highlights
table and in any discussion about the Fund’s total return in each prospectus and annual and semi-annual report to shareholders;
|
|
•
|
include the information contained in each 19(a) Notice in any communication (other than a
communication on Form 1099) about the Managed Dividend Policy or distributions under the Managed Dividend Policy by the Fund,
or agents that the Fund has authorized to make such communication on the Fund’s behalf, to any Fund common shareholders,
prospective common shareholder or third-party information provider;
|
|
•
|
issue, contemporaneously with the issuance of any 19(a) Notice, a press release containing
the information in the 19(a) Notice and will file with the SEC the information contained in such 19(a) Notice and other
required disclosures, as an exhibit to its next report to shareholders;
|
|
•
|
post prominently a statement on its website containing the information in each 19(a) Notice
and other required disclosures, and will maintain such information on the website for at least 24 months; and
|
|
•
|
take certain steps to ensure the delivery of the 19(a) Notice to beneficial owners whose Fund
shares are held through a financial intermediary.
|
In addition, if the Fund’s common
shares were to trade at a significant premium to NAV following the implementation of a Managed Dividend Policy, and certain other
circumstances were present, the Fund’s Board of Directors would be required to determine whether to approve or disapprove
the continuation, or continuation after amendment, of the Managed Dividend Policy. Finally, if the Fund implemented a Managed Dividend
Policy pursuant to the order, it would not be permitted to make a public offering of common shares other than:
|
•
|
a rights offering below NAV to holders of the Fund’s common shares;
|
|
•
|
an offering in connection with a dividend reinvestment plan, merger, consolidation, acquisition,
spin-off or reorganization of the Fund; or
|
|
•
|
an offering other than those described above, unless, with respect to such other offering:
|
|
•
|
the Fund’s average annual distribution rate for the six months ending on the last day of
the month ended immediately prior to the most recent distribution record date, expressed as a percentage of NAV per share as of
such date, is no more than one percentage point greater than the Fund’s average annual total return for the five-year period
(or the period since the Fund’s first public offering, if less than five years) ending on such date; and
|
|
•
|
the transmittal letter accompanying any registration statement filed with the SEC in connection
with such offering discloses that the Fund has received an order under Section 19(b) of the 1940 Act to permit it to
make periodic distributions of long-term capital gains with respect to its common stock as frequently as twelve times each year,
and as frequently as distributions are specified in accordance with the terms of any outstanding preferred shares that such fund
may issue.
|
The relief described above will expire
on the effective date of any amendment to Rule 19b-1 under the 1940 Act that provides relief permitting certain closed-end
investment companies to make periodic distributions of long-term capital gains with respect to their outstanding common stock as
frequently as twelve times each year.
Under a Managed Dividend Policy, if, for
any distribution, undistributed net investment income and net realized capital gains were less than the amount of the distribution,
the difference would be distributed from the Fund’s other assets. In addition, in order to make such distributions, the Fund
might have to sell a portion of its investment portfolio at a time when independent investment judgment might not dictate such
action.
Portfolio Transactions
Pursuant to the Investment Advisory Agreement,
the Investment Adviser determines which securities are to be purchased and sold by the Fund and which broker dealers are eligible
to execute the Fund’s portfolio transactions. The Fund does not intend to use any affiliated broker dealers.
In placing portfolio transactions, the
Investment Adviser will seek best execution. The full range and quality of services available will be considered in making these
determinations, such as: the price of the security; the commission rate; the execution capability, including execution speed and
reliability; trading expertise and knowledge of the other side of the trade; reputation and integrity; market depth and available
liquidity; recent order flow; timing and size of an order; and other factors. In those instances where it is reasonably determined
that more than one broker dealer can offer the services needed to obtain the most favorable price and execution available, consideration
may be given to those broker dealers which furnish or supply research and statistical information to the Investment Adviser that
it may lawfully and appropriately use in its investment advisory capacities, as well as provide other services in addition to execution
services. The Investment Adviser considers such information, which is in addition to and not in lieu of the services required to
be performed by the Investment Adviser under the Investment Advisory Agreement, to be useful in varying degrees, but of indeterminable
value.
While it is the Fund’s general policy
to first seek to obtain the most favorable price and execution available in selecting a broker dealer to execute portfolio transactions
for the Fund, in accordance with Section 28(e) under the 1934 Act, when it is determined that more than one broker can
deliver best execution, weight is also given to the ability of a broker dealer to furnish brokerage and research services to the
Fund or to the Investment Adviser, even if the specific services are not directly useful to the Fund and may be useful to the Investment
Adviser in advising other clients. In negotiating commissions with a broker or evaluating the spread to be paid to a dealer, the
Fund may therefore pay a higher commission or spread than would be the case if no weight were given to the furnishing of these
supplemental services, provided that the amount of such commission or spread has been determined in good faith by the Investment
Adviser to be reasonable in relation to the value of the brokerage and/or research services provided by such broker dealer.
Investment decisions for the Fund are made
independently from those of other client accounts or mutual funds managed or advised by the Investment Adviser. Nevertheless, it
is possible that at times identical securities will be acceptable for both the Fund and one or more of such client accounts or
mutual funds. In such event, the position of the Fund and such client account(s) or mutual funds in the same issuer may vary
and the length of time that each may choose to hold its investment in the same issuer may likewise vary. However, to the extent
any of these client accounts or mutual funds seek to acquire the same security as the Fund at the same time, the Fund may not be
able to acquire as large a portion of such security as it desires, or it may have to pay a higher price or obtain a lower yield
for such security. Similarly, the Fund may not be able to obtain as high a price for, or as large an execution of, an order to
sell any particular security at the same time. If one or more of such client accounts or mutual funds simultaneously purchases
or sells the same security that the Fund is purchasing or selling, each day’s transactions in such security will be allocated
between the Fund and all such client accounts or mutual funds in a manner deemed equitable by the Investment Adviser, taking into
account the respective sizes of the accounts and the amount of cash available for investment, the investment objective of the account,
and the ease with which a client’s appropriate amount can be bought, as well as the liquidity and volatility of the account
and the urgency involved in making an investment decision for the client. It is recognized that in some cases this system could
have a detrimental effect on the price or value of the security insofar as the Fund is concerned. In other cases, however, it is
believed that the ability of the Fund to participate in volume transactions may produce better executions for the Fund.
The Fund paid the following aggregate amounts
in brokerage commissions on the Fund’s securities purchased. All of the commissions were paid to entities not affiliated
with the Fund or the Investment Adviser.
Brokerage Commissions
For the Fiscal Year Ended:
|
|
Aggregate brokerage
commissions paid
|
December 31, 2019
|
|
$
|
[●]
|
December 31, 2018
|
|
$
|
[●]
|
During its last fiscal year, the Fund did not participate in
any directed brokerage arrangements. During its last fiscal year, the Fund did not purchase or hold securities of its regular broker-dealers,
as defined in Rule 10b-1 under the 1940 Act, or their parents.
Portfolio turnover
Portfolio turnover rate is calculated by
dividing the lesser of an investment company’s annual sales or purchases of portfolio securities by the monthly average value
of securities in its portfolio during the year, excluding portfolio securities the maturities of which at the time of acquisition
were one year or less. A high rate of portfolio turnover involves correspondingly greater brokerage commission expense than a lower
rate, which expense must be borne by the Fund and indirectly by its shareholders. The portfolio turnover rate may vary from year
to year and will not be a factor when the Investment Adviser determines that portfolio changes are appropriate. A higher rate of
portfolio turnover may result in taxable gains being passed to shareholders sooner than would otherwise be the case. For the fiscal
years ending December 31, 2018 and 2019 the portfolio turnover rates were [●]% and [●]%, respectively.
Taxation
The following discussion is a brief summary
of certain U.S. federal income tax considerations affecting the Fund and its shareholders. Except as expressly provided otherwise,
this discussion assumes you are a U.S. person (as defined for U.S. federal income tax purposes) and that you hold your common shares
as capital assets. This discussion is based upon current provisions of the Code, the Treasury regulations promulgated thereunder
and judicial and administrative authorities, all of which are subject to change or differing interpretations by the courts or the
Internal Revenue Service (the “IRS”), possibly with retroactive effect. No assurance can be given that the IRS would
not assert, or that a court would not sustain, a position different from any of the tax aspects set forth below. No attempt is
made to discuss state, local or foreign tax consequences to investors in the Fund, nor to present a detailed explanation of all
federal tax concerns affecting the Fund and its shareholders (including shareholders owning large positions in the Fund).
The discussions set forth herein and
in the Prospectus do not constitute tax advice and potential investors are urged to consult their own tax advisers to determine
the specific tax consequences to them of investing in the Fund.
Taxation of the Fund
The Fund intends to elect to be treated, and to qualify annually, as a regulated investment company under Subchapter M of the
Code. Accordingly, the Fund must, among other things, meet the following requirements regarding the source of its income and the
diversification of its assets:
(i) The
Fund must derive in each taxable year at least 90% of its gross income from the following sources, which are referred to herein
as “Qualifying Income”: (a) dividends, interest (including tax-exempt interest), payments with respect to certain
securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including
but not limited to gain from options, futures and forward contracts) derived with respect to its business of investing in such
stock, securities or foreign currencies; and (b) interests in publicly traded partnerships that are treated as partnerships
for U.S. federal income tax purposes and that derive less than 90% of their gross income from the items described in clause (a) above
(each, a “Qualified Publicly Traded Partnership”).
(ii) The
Fund must diversify its holdings so that, at the end of each quarter of each taxable year, (a) at least 50% of the market
value of the Fund’s total assets is represented by cash and cash items (including receivables), U.S. government securities,
the securities of other regulated investment companies and other securities, with such other securities limited, in respect of
any one issuer, to an amount not greater than 5% of the value of the Fund’s total assets and not more than 10% of the outstanding
voting securities of such issuer and (b) not more than 25% of the market value of the Fund’s total assets is invested
in the securities (other than U.S. government securities and the securities of other regulated investment companies) of (I) any
one issuer, (II) any two or more issuers that the Fund controls and that are determined to be engaged in the same business
or similar or related trades or businesses or (III) any one or more Qualified Publicly Traded Partnerships.
Income from the Fund’s investments
in grantor trusts that are not Qualified Publicly Traded Partnerships (if any) will be Qualifying Income to the extent it is attributable
to items of income of such trust that would be Qualifying Income if earned directly by the Fund. The Fund’s investments in
partnerships, including in Qualified Publicly Traded Partnerships, may result in the Fund’s being subject to state, local
or foreign income, franchise or withholding tax liabilities.
As a regulated investment company, the
Fund generally will not be subject to U.S. federal income tax on income and gains that the Fund distributes to its shareholders,
provided that it distributes each taxable year at least the sum of (i) 90% of the Fund’s investment company taxable
income (which includes, among other items, dividends, interest and the excess of any net short-term capital gain over net long-term
capital loss and other taxable income, other than any net capital gain (as defined below), reduced by deductible expenses) determined
without regard to the deduction for dividends paid and (ii) 90% of the Fund’s net tax-exempt interest income (the excess
of its gross tax-exempt interest over certain disallowed deductions). The Fund intends to distribute substantially all of such
income at least annually. The Fund will be subject to income tax at regular corporate rates on any taxable income or gains that
it does not distribute to its shareholders. There can be no assurance that the Fund’s distributions will be sufficient to
eliminate all taxes in all periods.
The Code imposes a 4% nondeductible federal
excise tax on the Fund to the extent the Fund does not distribute by the end of any calendar year an amount at least equal to the
sum of (i) 98% of its ordinary income (not taking into account any capital gain or loss) for the calendar year, (ii) 98.2%
of its capital gain in excess of its capital loss (adjusted for certain ordinary losses) for a one-year period generally ending
on October 31 of the calendar year (unless an election is made to use the Fund’s fiscal year), and (iii) certain
undistributed amounts from previous years on which the Fund paid no U.S. federal income tax. While the Fund intends to distribute
any income and capital gain in the manner necessary to minimize imposition of the 4% excise tax, there can be no assurance that
sufficient amounts of the Fund’s taxable income and capital gain will be distributed to entirely avoid the imposition of
the excise tax. In that event, the Fund will be liable for the excise tax only on the amount by which it does not meet the foregoing
distribution requirement.
A distribution will be treated as paid
during the calendar year if it is declared by the Fund in October, November or December of the year, payable to shareholders
of record on a date during such a month and paid by the Fund during January of the following year. Any such distributions
paid during January of the following year will be deemed to be received by the Fund’s shareholders on December of
the year the distributions are declared, rather than when the distributions are actually received.
If for any taxable year the Fund does not
qualify as a regulated investment company, all of its taxable income (including its net capital gain) will be subject to tax at
regular corporate rates without any deduction for distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund’s current or accumulated earnings and profits. Such dividends,
however, would be eligible (provided certain holding period and other requirements are met) (i) to be treated as qualified
dividend income in the case of individual shareholders and (ii) for the dividends received deduction in the case of corporate
shareholders. The Fund could be required to recognize unrealized gains, pay taxes and make distributions (which could be subject
to interest charges) before qualifying for taxation as a regulated investment company. If the Fund fails to qualify as a regulated
investment company in any year, it must pay out its earnings and profits accumulated in that year in order to qualify again as
a regulated investment company. If the Fund failed to qualify as a regulated investment company for a period greater than two taxable
years, the Fund may be required to recognize and pay tax on any net built-in gains with respect to certain of its assets (i.e.,
the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect
to such assets if the Fund had been liquidated) or, alternatively, to elect to be subject to taxation on such built-in gain recognized
for a period of ten years, in order to qualify as a regulated investment company in a subsequent year.
Certain of the Fund’s investment
practices are subject to special and complex U.S. federal income tax provisions that may, among other things, (i) disallow,
suspend or otherwise limit the allowance of certain losses or deductions (including the dividends received deduction, if any),
(ii) convert lower taxed long-term capital gains and qualified dividend income, if any, into higher taxed short-term capital
gains or ordinary income, (iii) convert ordinary loss or a deduction into capital loss (the deductibility of which is more
limited), (iv) cause the Fund to recognize income or gain without a corresponding receipt of cash, (v) adversely affect
the time as to when a purchase or sale of stock or securities is deemed to occur, (vi) adversely alter the characterization
of certain complex financial transactions, and (vii) produce income that will not qualify as good income for purposes of the
90% annual gross income requirement described above. The Fund will monitor its transactions and may make certain tax elections
and may be required to borrow money or dispose of securities to mitigate the effect of these rules and prevent disqualification
of the Fund as a regulated investment company.
Gain or loss on the sale of securities
by the Fund will generally be long-term capital gain or loss if the securities have been held by the Fund for more than one year.
Gain or loss on the sale of securities held for one year or less will be short-term capital gain or loss.
The premium received by the Fund for writing
a call option is not included in income at the time of receipt. If the option expires, the premium is short-term capital gain to
the Fund. If the Fund enters into a closing transaction, the difference between the amount paid to close out its position and the
premium received is short-term capital gain or loss. If a call option written by the Fund is exercised, thereby requiring the Fund
to sell the underlying security, the premium will increase the amount realized upon the sale of the security and any resulting
gain or loss will be long-term or short-term, depending upon the holding period of the security. With respect to a put or call
option that is purchased by the Fund, if the option is sold, any resulting gain or loss will be a capital gain or loss, and will
be short-term or long-term, depending upon the holding period for the option. If the option expires, the resulting loss is a capital
loss and is short-term or long-term, depending upon the holding period for the option. If the option is exercised, the cost of
the option, in the case of a call option, is added to the basis of the purchased security and, in the case of a put option, reduces
the amount realized on the underlying security in determining gain or loss. Because the Fund does not have control over the exercise
of the call options it writes, such exercises or other required sales of the underlying securities may cause the Fund to realize
capital gains or losses at inopportune times.
The Fund’s transactions in foreign
currencies, forward contracts, options, futures contracts (including options and futures contracts on foreign currencies) and short
sales, to the extent permitted, will be subject to special provisions of the Code (including provisions relating to “hedging
transactions,” “straddles” and “constructive sales”) that may, among other things, affect the character
of gains and losses realized by the Fund (i.e., may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund losses. These rules could therefore affect the character, amount and timing
of distributions to common shareholders. Certain of these provisions may also (a) require the Fund to mark-to-market certain
types of the positions in its portfolio (i.e., treat them as if they were closed out at the end of each year), (b) cause
the Fund to recognize income without receiving cash with which to pay dividends or make distributions in amounts necessary to satisfy
the distribution requirements for avoiding income and excise taxes, (c) treat dividends that would otherwise constitute qualified
dividend income as non-qualified dividend income and/or (d) treat dividends that would otherwise be eligible for the corporate
dividends received deduction as ineligible for such treatment.
The Fund’s investment in so-called
“section 1256 contracts,” such as regulated futures contracts, most foreign currency forward contracts traded in the
interbank market and options on most stock indices, are subject to special tax rules. All section 1256 contracts held by the Fund
at the end of its taxable year are required to be marked to their market value, and any unrealized gain or loss on those positions
will be included in the Fund’s income as if each position had been sold for its fair market value at the end of the taxable
year. The resulting gain or loss will be combined with any gain or loss realized by the Fund from positions in section 1256 contracts
closed during the taxable year. Provided such positions were held as capital assets and were not part of a “hedging transaction”
or a “straddle,” 60% of the resulting net gain or loss will be treated as long-term capital gain or loss, and 40% of
such net gain or loss will be treated as short-term capital gain or loss, regardless of the period of time the positions were actually
held by the Fund.
If the Fund purchases shares in certain
foreign investment entities called passive foreign investment companies (“PFICs”), the Fund may be subject to federal
income tax on a portion of any “excess distribution” or gain from the disposition of such shares even if such income
is distributed as a taxable dividend by the Fund to the shareholders. Additional charges in the nature of interest may be imposed
on the Fund in respect of deferred taxes arising from such distributions or gains. Elections may be available to the Fund to mitigate
the effect of this tax and the additional charges, but such elections generally accelerate the recognition of income without the
receipt of cash. Dividends paid by PFICs are not treated as qualified dividend income, as discussed below under “Taxation
of Shareholders.”
If the Fund invests in the stock of a PFIC,
or any other investment that produces income that is not matched by a corresponding cash distribution to the Fund, the Fund could
be required to recognize income that it has not yet received. Any such income would be treated as income earned by the Fund and
therefore would be subject to the distribution requirements of the Code. This might prevent the Fund from distributing 90% of its
net investment income as is required in order to avoid Fund-level U.S. federal income taxation on its distributed income, or might
prevent the Fund from distributing enough ordinary income and capital gain net income to avoid completely the imposition of the
excise tax. To avoid this result, the Fund may be required to borrow money or dispose of securities to be able to make required
distributions to the shareholders.
The Fund may invest in debt obligations
purchased at a discount, with the result that the Fund may be required to accrue income for U.S. federal income tax purposes before
amounts due under the obligations are paid (with such accrued income increasing the amount the Fund must distribute in order to
qualify as a regulated investment company or avoid the 4% excise tax). The Fund may also invest in securities rated in the medium
to lower rating categories of nationally recognized rating organizations, and in unrated securities (“high yield securities”).
All or a portion of the interest payments on such high yield securities may be treated as dividends for certain U.S. federal income
tax purposes.
Under section 988 of the Code, gains or
losses attributable to fluctuations in exchange rates between the time the Fund accrues income or receivables or expenses or other
liabilities denominated in a foreign currency and the time the Fund actually collects such income or receivables or pays such liabilities
or expenses are generally treated as ordinary income or loss. Similarly, gains or losses on foreign currency forward contracts
and the disposition of debt securities denominated in a foreign currency, to the extent attributable to fluctuations in exchange
rates between the acquisition and disposition dates, are also treated as ordinary income or loss.
Dividends or other income (including, in
some cases, capital gains) received by the Fund from investments in foreign securities may be subject to withholding and other
taxes imposed by foreign countries. Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes in
some cases. If more than 50% of the Fund’s total assets at the close of its taxable year consists of stock or securities
of foreign corporations, the Fund may elect for U.S. federal income tax purposes to treat foreign income taxes paid by it as paid
by its shareholders. The Fund may qualify for and make this election in some, but not necessarily all, of its taxable years. If
the Fund were to make such an election, shareholders of the Fund would be required to take into account an amount equal to their
pro rata portions of such foreign taxes in computing their taxable income and then treat an amount equal to those foreign
taxes as a U.S. federal income tax deduction (subject to limitations which may be significant) or as a foreign tax credit (subject
to limitations which may be significant) against their U.S. federal income liability. Shortly after any year for which it makes
such an election, the Fund will report to its shareholders the amount per share of such foreign income tax that must be included
in each shareholder’s gross income and the amount that may be available for the deduction or credit.
Taxation of shareholders
The Fund will either distribute or retain for reinvestment
all or part of its net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss).
If any such gain is retained, the Fund will be subject to U.S. federal income tax at regular corporate rates on such amount. In
that event, the Fund expects to designate the retained amount as undistributed capital gain in a notice to its shareholders, each
of whom (i) will be required to include in income for tax purposes as long-term capital gain its share of such undistributed
amounts, (ii) will be entitled to credit its proportionate share of the tax paid by the Fund against its federal income tax
liability and to claim refunds to the extent that the credit exceeds such liability and (iii) will increase its basis in
its common shares of the Fund by the excess of the amount described in clause (i) over the amount described in clause (ii).
Distributions paid by the Fund from its
investment company taxable income, which includes net short-term capital gain, generally are taxable as ordinary income to the
extent of the Fund’s earnings and profits, whether paid in cash or reinvested in Fund shares. Such distributions (if reported
by the Fund) may, however, qualify (provided holding period and other requirements are met by both the Fund and the shareholder)
(i) for the dividends received deduction available to corporations, but only to the extent that the Fund’s income consists
of dividend income from U.S. corporations and (ii) in the case of individual shareholders, as qualified dividend income eligible
to be taxed at long-term capital gain rates to the extent that the Fund receives qualified dividend income. Qualified dividend
income is, in general, dividend income from taxable domestic corporations and certain qualified foreign corporations. There can
be no assurance as to what portion of the Fund’s distributions will qualify for favorable treatment as qualified dividend
income.
Distributions of net capital gain reported
as capital gain distributions, if any, are taxable to shareholders at rates applicable to long-term capital gain, whether paid
in cash or reinvested in Fund shares, and regardless of how long the shareholder has held the Fund’s common shares. Capital
gain distributions are not eligible for the dividends received deduction.
If, for any calendar year, the total distributions
exceed both current earnings and profits and accumulated earnings and profits, the excess will generally be treated as a tax-free
return of capital up to the amount of a shareholder’s tax basis in the common shares. The amount treated as a tax-free return
of capital will reduce a shareholder’s tax basis in the common shares, thereby increasing such shareholder’s potential
gain or reducing his or her potential loss on the sale of the common shares. Any amounts distributed to a shareholder in excess
of his or her basis in the common shares will be taxable to the shareholder as capital gain (assuming your common shares are held
as a capital asset). The Fund may make distributions that are taxable even during periods in which the Fund’s share price
has declined.
Shareholders may be entitled to offset
their capital gain distributions (but not distributions eligible for qualified dividend income treatment) with capital losses.
There are a number of statutory provisions affecting when capital losses may be offset against capital gain, and limiting the use
of losses from certain investments and activities. Accordingly, shareholders with capital loss are urged to consult their tax advisers.
Upon a sale, exchange or other disposition
of common shares, a shareholder will generally realize a taxable gain or loss equal to the difference between the amount of cash
and the fair market value of other property received and the shareholder’s adjusted tax basis in the common shares. Such
gain or loss will be treated as long-term capital gain or loss if the common shares have been held for more than one year. Any
loss realized on a sale or exchange of common shares of the Fund will be disallowed to the extent the common shares disposed of
are replaced by substantially identical common shares within a 61-day period beginning 30 days before and ending 30 days after
the date that the common shares are disposed of. In such a case, the basis of the common shares acquired will be adjusted to reflect
the disallowed loss.
Dividends and net capital gains are generally
subject to a 3.8% federal tax on net investment income for shareholders whose gross income exceeds $200,000 for single filers and
$250,000 for joint filers.
Any loss realized by a shareholder on the
sale of Fund common shares held by the shareholder for six months or less will be treated for tax purposes as a long-term capital
loss to the extent of any capital gain distributions received by the shareholder (or amounts credited to the shareholder as an
undistributed capital gain) with respect to such common shares. Ordinary income distributions and capital gain distributions also
may be subject to state and local taxes. Shareholders are urged to consult their own tax advisers regarding specific questions
about U.S. federal (including the application of the alternative minimum tax), state, local or foreign tax consequences to them
of investing in the Fund.
A shareholder that is a nonresident alien
individual or a foreign corporation (a “foreign investor”) generally will be subject to U.S. withholding tax at the
rate of 30% (or possibly a lower rate provided by an applicable tax treaty) on ordinary income dividends (except as discussed below).
Different tax consequences may result if the foreign investor is engaged in a trade or business in the United States or, in the
case of an individual, is present in the United States for 183 days or more during a taxable year and certain other conditions
are met. Foreign investors should consult their tax advisers regarding the tax consequences of investing in the Fund’s common
shares.
A 30% withholding tax on the Fund’s
distributions, including capital gains distributions, and on gross proceeds from the sale or other disposition of shares of the
Fund generally applies if paid to a foreign entity unless: (i) if the foreign entity is a “foreign financial institution,”
it undertakes certain due diligence, reporting, withholding and certification obligations, (ii) if the foreign entity is not
a “foreign financial institution,” it identifies certain of its U.S. investors or (iii) the foreign entity is
otherwise excepted under FATCA. If applicable, and subject to any intergovernmental agreement, withholding under FATCA is required:
(i) generally with respect to distributions from the Fund; and (ii) with respect to certain capital gains distributions
and gross proceeds from a sale or disposition of Fund shares that occur on or after January 1, 2019. If withholding is required
under FATCA on a payment related to your shares, investors that otherwise would not be subject to withholding (or that otherwise
would be entitled to a reduced rate of withholding) on such payment generally will be required to seek a refund or credit from
the IRS to obtain the benefits of such exemption or reduction. The Fund will not pay any additional amounts in respect to amounts
withheld under FATCA. You should consult your tax advisor regarding the effect of FATCA based on your individual circumstances.
Assuming applicable disclosure and certification
requirements are met, U.S. federal withholding tax will generally not apply to any gain or income realized by a foreign investor
in respect of any distributions of net capital gain or upon the sale or other disposition of common shares of the Fund.
Properly reported dividends are generally
exempt from U.S. federal withholding tax where they (i) are paid in respect of the Fund’s “qualified net interest
income” (generally, the Fund’s U.S. source interest income, other than certain contingent interest and interest from
obligations of a corporation or partnership in which the Fund is at least a 10% shareholder, reduced by expenses that are allocable
to such income) or (ii) are paid in respect of the Fund’s “qualified short-term capital gains” (generally,
the excess of the Fund’s net short-term capital gain over the Fund’s long-term capital loss for such taxable year).
Depending on its circumstances, however, the Fund may report all, some or none of its potentially eligible dividends as such qualified
net interest income or as qualified short-term capital gains, and/or treat such dividends, in whole or in part, as ineligible for
this exemption from withholding. In order to qualify for this exemption from withholding, a foreign investor will need to comply
with applicable certification requirements relating to its non-U.S. status (including, in general, furnishing an IRS Form W-8BEN, IRS
Form W-8BEN-E or substitute Form). In the case of common shares held through an intermediary, the intermediary may withhold
even if the Fund reports the payment as qualified net interest income or qualified short-term capital gain. Foreign investors should
contact their intermediaries with respect to the application of these rules to their accounts. There can be no assurance as
to what portion of the Fund’s distributions will qualify for favorable treatment as qualified net interest income or qualified
short-term capital gains.
Backup withholding
The Fund may be required to backup withhold
U.S. federal income tax on all taxable distributions and redemption proceeds payable to certain non-exempt shareholders who fail
to provide the Fund with their correct taxpayer identification number or to make required certifications, or who have been notified
by the IRS that they are subject to backup withholding. Backup withholding, currently at a rate of 24%, is not an additional tax.
Any amounts withheld may be refunded or credited against such shareholder’s U.S. federal income tax liability, if any, provided
that the required information is timely furnished to the IRS.
The foregoing is a general and abbreviated
summary of the applicable provisions of the Code and Treasury regulations presently in effect. For the complete provisions, reference
should be made to the pertinent Code sections and the Treasury regulations promulgated thereunder. The Code and the Treasury regulations
are subject to change by legislative, judicial or administrative action, either prospectively or retroactively. Tax consequences
are not the Fund’s primary consideration in implementing its investment strategy. Persons considering an investment in common
shares of the Fund should consult their own tax advisers regarding the purchase, ownership and disposition of Fund common shares.
General Information
Book-entry-only issuance
The Depository Trust Company (“DTC”)
will act as securities depository for the common shares offered pursuant to the Prospectus. The information in this section concerning
DTC and DTC’s book-entry system is based upon information obtained from DTC. The securities offered hereby initially will
be issued only as fully registered securities registered in the name of Cede & Co. (as nominee for DTC). One or more fully
registered global security certificates initially will be issued, representing in the aggregate the total number of securities,
and deposited with DTC.
DTC is a limited purpose trust company
organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial
Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the 1934 Act. DTC holds securities
that its participants deposit with DTC. DTC also facilities the settlement among participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic computerized book-entry changes in participants’ accounts,
thereby eliminating the need for physical movement of securities certificates. Direct DTC participants include securities brokers
and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to the DTC system is also available
to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship
with a direct participant, either directly or indirectly through other entities.
Purchases of securities within the DTC
system must be made by or through direct participants, which will receive a credit for the securities on DTC’s records. The
ownership interest of each actual purchaser of a security, a beneficial owner, is in turn to be recorded on the direct or indirect
participants’ records. Beneficial owners will not receive written confirmation from DTC of their purchases, but beneficial
owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their
holdings, from the direct or indirect participants through which the beneficial owners purchased securities. Transfers of ownership
interests in securities are to be accomplished by entries made on the books of participants acting on behalf of beneficial owners.
DTC has no knowledge of the actual beneficial
owners of the securities being offered pursuant to the Prospectus; DTC’s records reflect only the identity of the direct
participants to whose accounts such securities are credited, which may or may not be the beneficial owners. The participants will
remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications
by DTC to direct participants, by direct participants to indirect participants, and by direct participants and indirect participants
to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be
in effect from time to time.
Payments on the securities will be made
to DTC. DTC’s practice is to credit direct participants’ accounts on the relevant payment date in accordance with their
respective holdings shown on DTC’s records unless DTC has reason to believe that it will not receive payments on such payment
date. Payments by participants to beneficial owners will be governed by standing instructions and customary practices and will
be the responsibility of such participant and not of DTC or the Fund, subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of distributions to DTC is the responsibility of the Fund, disbursement of such payments
to direct participants is the responsibility of DTC, and disbursement of such payments to the beneficial owners is the responsibility
of direct and indirect participants. Furthermore, each beneficial owner must rely on the procedures of DTC to exercise any rights
under the securities.
DTC may discontinue providing its services
as securities depository with respect to the securities at any time by giving reasonable notice to the Fund. Under such circumstances,
in the event that a successor securities depository is not obtained, certificates representing the securities will be printed and
delivered.
Proxy Voting Procedures
The Fund has delegated the voting of portfolio
securities to the Investment Adviser. The Fund has adopted the proxy voting procedures of the Investment Adviser and has directed
the Investment Adviser to vote all proxies relating to the Fund’s voting securities in accordance with such procedures.
The proxy voting procedures are attached as Appendix B. They are also on file with the SEC and can be reviewed and copied
at the SEC’s Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may
be obtained by calling the SEC at 202-551-8090. The proxy voting procedures are also available on the EDGAR Database on the SEC’s
Internet site (http://www.sec.gov) and copies of the proxy voting procedures may be obtained, after paying a duplicating fee,
by electronic request at the follow E-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section,
100 F Street, N.E., Washington, D.C. 20549-0102.
Code of Ethics
The Fund and the Investment Adviser have
each adopted a code of ethics (the “Code of Ethics”) under Rule 17j-1 of the 1940 Act. The Code of Ethics permits
personnel, subject to the Code of Ethics and its restrictive provisions, to invest in securities, including securities that may
be purchased or held by the Fund. The Code of Ethics is filed with the SEC and can be reviewed and copied at the SEC’s Public
Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling the
SEC at 202-551-8090. The code of conduct is also available on the EDGAR Database on the SEC’s Internet site (http://www.sec.gov),
and copies of the Code of Ethics may be obtained, after paying a duplicating fee, by electronic request at the following E-mail
address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549-0102.
Code of Conduct for Chief Executive and Senior Financial
Officers
The Fund has adopted a code of conduct
that sets forth policies to guide the chief executive and senior financial officers in the performance of their duties. The code
of conduct will be on file with the SEC with the Fund’s first annual report filed on Form N CSR, and can be reviewed
and copied at the SEC’s Public Reference Room in Washington, D.C., and information on the operation of the Public Reference
Room may be obtained by calling the SEC at 202-551-8090. The code of conduct will also be available on the EDGAR Database on the
SEC’s Internet site (http://www.sec.gov) with the Fund’s first annual report filed on Form N CSR, and copies of
the code of conduct may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov,
or by writing the SEC’s Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549-0102.
Custodian, Transfer Agent, and Dividend Disbursing Agent
U.S. Bank National Association, located
at 1555 North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212, serves as the custodian of the Fund’s assets
pursuant to a custody agreement. Under the custody agreement, the Custodian holds the Fund’s assets in compliance with the
1940 Act. For its services, the Custodian is compensated with an asset based fee plus transaction fees and is reimbursed for out-of-pocket
expenses.
U.S. Bancorp Fund Services, LLC, located
at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as the Fund’s sub-administrator and is compensated for its
services by the Investment Adviser, as administrator to the Fund. U.S. Bancorp Fund Services, LLC, also serves as the Fund’s
accountant.
American Stock Transfer & Trust
Company, located at 6201 15th Avenue, Brooklyn, New York 11219, serves as the Fund’s transfer agent and dividend disbursing
agent with respect to the common shares of the Fund.
Independent Registered Public Accounting Firm
The
independent registered public accounting firm for the Fund performs an annual audit of the Fund’s financial statements. The
Fund’s Board has appointed [●] to be the Fund’s
independent registered public accounting firm. [●] is located
at [●].
Legal Matters
Certain
legal matters in connection with the common shares will be passed upon for the Fund by Paul Hastings LLP and, with respect to certain
matters of Maryland law, by [●]. Paul Hastings LLP may rely
on the opinion of [●] as to certain matters of Maryland law.
Incorporation
by Reference
This SAI is part
of a registration statement filed with the SEC. Pursuant to the final rule and form amendments adopted by the SEC on
April 8, 2020 to implement certain provisions of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the
Fund is permitted to “incorporate by reference” the information filed with the SEC, which means that the Fund
can disclose important information to you by referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information that the Fund files with the SEC will automatically update
and supersede this information.
The documents
listed below, and any reports and other documents subsequently filed with the SEC pursuant to Rule 30(b)(2) under the
1940 Act and Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering will be
incorporated by reference into this Prospectus and deemed to be part of this Prospectus from the date of the filing of such
reports and documents:
You
may obtain copies of any information incorporated by reference into this prospectus, at no charge, by calling 1-855-244-4859,
by writing to the Fund or visiting the Fund’s website https://publicsecurities.brookfield.com/en. In addition,
the SEC maintains a website at www.sec.gov, free of charge, that contains these reports, the Fund’s proxy and information
statements, and other information relating to the Fund.
Appendix A
Description of corporate debt ratings
Moody’s Investors Service, Inc.
Aaa:
|
|
Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk.
|
Aa:
|
|
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
|
A:
|
|
Obligations rated A are considered as upper-medium grade and are subject to low credit risk.
|
Baa:
|
|
Obligations rated Baa are subject to moderate credit risk. They are considered medium grade and as such may possess certain speculative characteristics.
|
Ba:
|
|
Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk.
|
B:
|
|
Obligations rated B are considered speculative and are subject to high credit risk.
|
Caa:
|
|
Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.
|
Ca:
|
|
Obligations rated Ca are highly speculative and are likely in, or very near default, with some prospect of recovery of principal and interest.
|
C:
|
|
Obligations rated C are the lowest rated class of bonds and are typically in default, with little prospect for recovery of principal or interest.
|
Unrated: Where no rating has been assigned or where a rating
has been suspended or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
|
1.
|
An application for rating was not received or accepted.
|
|
2.
|
The issue or issuer belongs to a group of securities that are not rated as a matter of policy.
|
|
3.
|
There is a lack of essential data pertaining to the issue or issuer.
|
|
4.
|
The issue was privately placed, in which case the rating is not published in Moody’s Investors Service, Inc.’s
publications.
|
Suspension or withdrawal may occur if new
and material circumstances arise, the effects of which preclude satisfactory analysis; if there is no longer available reasonable
up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons.
Note:
Moody’s may apply numerical modifiers,
1, 2 and 3 in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates
that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating category.
Standard & Poor’s Ratings Service
AAA:
|
An obligation rated ‘AAA’ has the highest rating assigned by S&P. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.
|
AA:
|
An obligation rated ‘AA’ differs from the highest rated obligations only in a small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.
|
A:
|
An obligation rated ‘A’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong.
|
BBB:
|
An obligation 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.
|
BB, B, CCC, CC, C:
|
Obligations rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded as having significant speculative characteristics. ‘BB’ indicates the least degree of speculation and ‘C’ the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
|
C1:
|
The rating C1 is reserved for income bonds on which no interest is being paid.
|
D:
|
Bonds rated D are in payment default, and payment of interest and/or repayment of principal is in arrears.
|
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.
|
NR:
|
Indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy.
|
Description of S&P and Moody’s Commercial Paper
Ratings:
The designation A-1 by S&P indicates
that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming
safety characteristics are denoted with a plus sign designation. Capacity for timely payment on issues with an A-2 designation
is strong. However, the relative degree of safety is not as high as for issues designated A-1.
The rating Prime-1 (P-1) is the highest
commercial paper rating assigned by Moody’s. Issuers of P-1 paper must have a superior capacity for repayment of short-term
promissory obligations, and ordinarily will be evidenced by leading market positions in well-established industries, high rates
of return of funds employed, conservative capitalization structures 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.
Appendix B
Brookfield Investment Management Inc.
Portfolio proxy voting policies and procedures
May 2012
The Portfolio Proxy Voting Policies and
Procedures (the “Policies and Procedures”) set forth the proxy voting policies, procedures and guidelines to be followed
by Brookfield Investment Management Inc. and its subsidiaries and affiliates (collectively, “BIM”) in voting portfolio
proxies relating to securities that are held in the portfolios of the investment companies or other clients (“Clients”)
for which BIM has been delegated such proxy voting authority.
A. Proxy voting committee
BIM’s internal proxy voting committee
(the “Committee”) is responsible for overseeing the proxy voting process and ensuring that BIM meets its regulatory
and corporate governance obligations in voting of portfolio proxies.
The Committee shall oversee the proxy voting
agent’s compliance with these Policies and Procedures, including any deviations by the proxy voting agent from the proxy
voting guidelines (“Guidelines”).
B. Administration and voting of portfolio proxies
1. Fiduciary
duty and objective
As an investment adviser that has been
granted the authority to vote on portfolio proxies, BIM owes a fiduciary duty to its Clients to monitor corporate events and to
vote portfolio proxies consistent with the best interests of its Clients. In this regard, BIM seeks to ensure that all votes are
free from unwarranted and inappropriate influences. Accordingly, BIM generally votes portfolio proxies in a uniform manner for
its Clients and in accordance with these Policies and Procedures and the Guidelines.
In meeting its fiduciary duty, BIM generally
view proxy voting as a way to enhance the value of the company’s stock held by the Clients. Similarly, when voting on matters
for which the Guidelines dictate a vote be decided on a case-by-case basis, BIM’s primary consideration is the economic interests
its Clients.
2. Proxy
voting agent
BIM may retain an independent third party
proxy voting agent to assist BIM in its proxy voting responsibilities in accordance with these Policies and Procedures and in particular,
with the Guidelines. As discussed above, the Committee is responsible for monitoring the proxy voting agent.
In general, BIM may consider the proxy
voting agent’s research and analysis as part of BIM’s own review of a proxy proposal in which the Guidelines recommend
that the vote be considered on a case-by-case basis. BIM bears ultimate responsibility for how portfolio proxies are voted. Unless
instructed otherwise by BIM, the proxy voting agent, when retained, will vote each portfolio proxy in accordance with the Guidelines.
The proxy voting agent also will assist BIM in maintaining records of BIM’s portfolio proxy votes, including the appropriate
records necessary for registered investment companies to meet their regulatory obligations regarding the annual filing of proxy
voting records on Form N-PX with the Securities and Exchange Commission (“SEC”).
3. Material
conflicts of interest
BIM votes portfolio proxies without regard
to any other business relationship between BIM and the company to which the portfolio proxy relates. To this end, BIM must identify
material conflicts of interest that may arise between a Client and BIM, such as the following relationships:
|
•
|
BIM provides significant investment advisory or other services to a portfolio company or its affiliates
(the “Company”) whose management is soliciting proxies or BIM is seeking to provide such services;
|
|
•
|
BIM serves as an investment adviser to the pension or other investment account of the Company or
BIM is seeking to serve in that capacity; or
|
|
•
|
BIM and the Company have a lending or other financial-related relationship.
|
In each of these situations, voting against
the Company management’s recommendation may cause BIM a loss of revenue or other benefit.
BIM generally seeks to avoid such material
conflicts of interest by maintaining separate investment decision-making and proxy voting decision-making processes. To further
minimize possible conflicts of interest, BIM and the Committee employ the following procedures, as long as BIM determines that
the course of action is consistent with the best interests of the Clients:
|
•
|
If the proposal that gives rise to a material conflict is specifically addressed in the Guidelines,
BIM will vote the portfolio proxy in accordance with the Guidelines, provided that the Guidelines do not provide discretion to
BIM on how to vote on the matter (i.e., case-by-case); or
|
|
•
|
If the previous procedure does not provide an appropriate voting recommendation, BIM may retain
an independent fiduciary for advice on how to vote the proposal or the Committee may direct BIM to abstain from voting because
voting on the particular proposal is impracticable and/or is outweighed by the cost of voting.
|
4. Certain
foreign securities
Portfolio proxies relating to foreign securities
held by Clients are subject to these Policies and Procedures. In certain foreign jurisdictions, however, the voting of portfolio
proxies can result in additional restrictions that have an economic impact to the security, such as “share-blocking.”
If BIM votes on the portfolio proxy, share-blocking may prevent BIM from selling the shares of the foreign security for a period
of time. In determining whether to vote portfolio proxies subject to such restrictions, BIM, in consultation with the Committee,
considers whether the vote, either in itself or together with the votes of other shareholders, is expected to affect the value
of the security that outweighs the cost of voting. If BIM votes on a portfolio proxy and during the “share- blocking period,”
BIM would like to sell the affected foreign security, BIM, in consultation with the Committee, will attempt to recall the shares
(as allowable within the market time-frame and practices).
C. Fund board reporting and recordkeeping
BIM will prepare periodic reports for submission
to the Boards of Directors of its affiliated funds (the “Funds”) describing:
|
•
|
any issues arising under these Policies and Procedures since the last report to the Funds’
Boards of Directors/Trustees and the resolution of such issues, including but not limited to, information about conflicts of interest
not addressed in the Policies and Procedures; and
|
|
•
|
any proxy votes taken by BIM on behalf of the Funds since the last report to such Funds’
Boards of Directors/Trustees that deviated from these Policies and Procedures, with reasons for any such deviations.
|
In addition, no less frequently than annually,
BIM will provide the Boards of Directors/Trustees of the Funds with a written report of any recommended changes based upon BIM’s
experience under these Policies and Procedures, evolving industry practices and developments in the applicable laws or regulations.
BIM will maintain all records that are
required under, and in accordance with, all applicable regulations, including the Investment Company Act of 1940, as amended, and
the Investment Advisers Act of 1940, which include, but not limited to:
|
•
|
these Policies and Procedures, as amended from time to time;
|
|
•
|
records of votes cast with respect to portfolio proxies, reflecting the information required to
be included in Form N-PX, as applicable;
|
|
•
|
records of written client requests for proxy voting information and any written responses of BIM
to such requests; and
|
|
•
|
any written materials prepared by BIM that were material to making a decision in how to vote, or
that memorialized the basis for the decision.
|
D. Amendments to these procedures
The Committee shall periodically review
and update these Policies and Procedures as necessary. Any amendments to these Procedures and Policies (including the Guidelines)
shall be provided to the Board of Directors of BIM and to the Boards of Directors of the Funds for review and approval.
E. Proxy voting guidelines
Guidelines are attached as EXHIBIT A
EXHIBIT A
2013 U.S. Proxy Voting Guidelines Concise Summary
(Digest of Selected Key Guidelines)
December 10, 2012
Institutional Shareholder Services Inc.
ISS’ 2013 U.S. Proxy Voting Concise
Guidelines
[To be provided]
Part C
Item 25.
1. Financial Statements
|
|
Included in Part A:
|
|
|
|
|
Audited financial
highlights for the operating performance of the Registrant.
|
|
|
|
|
Included in Part B:
|
|
|
|
|
The following
statements of the Registrant are incorporated by reference in Part B of the Registration Statement:
|
|
|
|
|
Schedule of Investments at December 31, 2019
|
|
|
|
|
Statement of Assets and Liabilities as of December 31, 2019
|
|
|
|
|
Statement of Operations for the Year Ended December 31, 2019
|
|
|
|
|
Statement of Changes in Net Assets for the Year Ended December 31, 2019
|
|
|
|
|
Notes to Financial Statements for the Year Ended December 31, 2019
|
|
|
|
|
Report of Independent Registered Public Accounting Firm for the Year Ended December 31, 2019
|
|
|
|
|
Schedule of Investments at June 30, 2020
|
|
|
|
|
Statement of Assets and Liabilities as of June 30, 2020
|
|
|
|
|
Statement of Operations for the Year Ended June 30, 2020
|
|
|
|
|
Statement of Changes in Net Assets for the Period Ended June 30, 2020
|
|
|
|
|
Notes to Financial Statements for the Period Ended June 30, 2020
|
2. Exhibits
|
(2)
|
To be filed by amendment.
|
|
(3)
|
Filed as an exhibit to the Registrant’s registration
statement on Form N-14 8C (File Nos. 333-211408 and 811-23157) on May 16, 2016.
|
|
(4)
|
Filed as an exhibit to the Registrant’s registration
statement on Form N-14 8C (File Nos. 333-211408 and 811-23157) on July 11, 2016.
|
|
(5)
|
Filed as an exhibit to the Registrant’s registration
statement on Form N-2 (File Nos. 333-211408 and 811-23157) on August 10, 2016.
|
|
Item
26.
|
Marketing Arrangements
|
Not applicable.
|
Item
27.
|
Other Expenses of Issuance and Distribution
|
Not applicable.
|
Item
28.
|
Persons Controlled by or Under Common Control with
Registrant
|
None.
|
Item
29.
|
Number of Holders of Securities.
|
None.
Maryland law permits a Maryland corporation
to include in its charter a provision limiting the liability of its directors and officers to the corporation and its shareholders
for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property
or services or (b) active and deliberate dishonesty established by a final judgment and material to the cause of action.
The Registrant’s charter contains such a provision which eliminates directors’ and officers’ liability to the
maximum extent permitted by Maryland law, subject to the requirements of the 1940 Act.
The Registrant’s charter authorizes
the Registrant, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to obligate
the Registrant to indemnify any present or former director or officer or any individual who, while serving as a director or officer
of the Registrant and, at the Registrant’s request, serves or has served another corporation, real estate investment trust,
partnership, joint venture, limited liability company, trust, employee benefit plan or other enterprise as a director, officer,
partner, manager, managing member or trustee from and against any claim or liability to which that individual may become subject
or which that individual may incur by reason of his or her service in any such capacity and to pay or reimburse his or her reasonable
expenses in advance of final disposition of a proceeding.
The Registrant’s Bylaws obligate the
Registrant, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to indemnify
any present or former director or officer or any individual who, while serving as a director or officer of the Registrant and,
at the Registrant’s request, serves or has served another corporation, real estate investment trust, partnership, joint venture,
limited liability company, trust, employee benefit plan or other enterprise as a director, officer, partner, manager, managing
member or trustee and who is made, or threatened to be made, a party to the proceeding by reason of his or her service in any such
capacity and to pay or reimburse his or her reasonable expenses in advance of final disposition of a proceeding. The Registrant’s
charter and Bylaws also permit the Registrant to indemnify and advance expenses to any individual who served any predecessor of
the Registrant in any of the capacities described above and any employee or agent of the Registrant or a predecessor of the Registrant,
if any.
Maryland law requires a corporation (unless
its charter provides otherwise, which is not the case for the Registrant’s charter) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made, or threatened to
be made, a party by reason of his or her service in that capacity. Maryland law permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made, or threatened to be made, a party by reason of their
service in those or other capacities unless it is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (1) was committed in bad faith or (2) was the result of active
and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or
services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe the act or
omission was unlawful. However, under Maryland law, a Maryland corporation may not indemnify for an adverse judgment in a
suit by or in the right of the corporation or for a judgment of liability on the basis that a personal benefit was improperly received,
unless in either case a court orders indemnification, and then only for expenses. In addition, Maryland law permits a corporation
to pay or reimburse reasonable expenses to a director or officer in advance of final disposition of a proceeding upon the corporation’s
receipt of (a) a written affirmation by the director or officer of his or her good faith belief that he or she has met the
standard of conduct necessary for indemnification by the corporation and (b) a written undertaking by him or her or on his
or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the standard of conduct
was not met.
In accordance with the 1940 Act, we
will not indemnify any person for any liability to which such person would be subject by reason of such person’s willful
misconduct, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Insofar as indemnification for liability
arising under the Securities Act may be permitted to directors, 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 Securities 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 director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, 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
31.
|
Business and Other Connections of Investment Adviser
|
Brookfield Public Securities Group LLC (“PSG”),
a Delaware limited liability company and a registered investment adviser under the Investment Advisers Act of 1940, as amended,
serves as investment adviser to the Registrant. PSG’s offices are located at Brookfield Place, 250 Vesey Street, New York,
New York 10281-1023. Information as to the officers and directors of PSG is included in its current Form ADV (File
No. 801-34605) filed with the Securities and Exchange Commission.
|
Item
32.
|
Location of Accounts and Records
|
All accounts, books and other documents
required to be maintained by Section 31(a) of the 1940 Act relating to the Registrant are maintained at the following
offices:
|
1.
|
Brookfield Public Securities Group LLC
|
Brookfield Place
250 Vesey Street
New York, New York 10281-1023
|
2.
|
U.S. Bancorp Fund Services, LLC
|
615 East Michigan Street
Milwaukee, Wisconsin 53202
|
3.
|
U.S. Bancorp Fund Services, LLC
|
1201 South Alma School Road, Suite 3000
Mesa, Arizona 85210
|
4.
|
U.S. Bank National Association
|
1555 North River Center Drive, Suite 302
Milwaukee, Wisconsin 53212
|
5.
|
American Stock Transfer & Trust Company
|
6201 15th Avenue
Brooklyn, New York 11219
|
Item
33.
|
Management Services
|
Not applicable.
Not applicable.
Signatures
Pursuant to the requirements of the Securities
Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Registration Statement
on Form N-2 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, and State of
New York, on the 18th day of December, 2020.
|
BROOKFIELD REAL ASSETS INCOME FUND INC.
|
|
|
|
By:
|
/s/ BRIAN F. HURLEY
|
|
|
Brian F. Hurley
|
|
|
President
|
Pursuant to the requirements of the Securities
Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates
indicated.
Signature
|
|
Capacity
|
|
Date
|
|
|
|
|
|
/s/ BRIAN F. HURLEY
|
|
President (Principal Executive Officer)
|
|
December 18, 2020
|
Brian F. Hurley
|
|
|
|
|
|
|
|
|
|
*
|
|
Treasurer (Principal Financial Officer)
|
|
December 18, 2020
|
Angela W. Ghantous
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
December 18, 2020
|
Louis P. Salvatore
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
December 18, 2020
|
Heather Goldman
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
December 18, 2020
|
Stuart A. McFarland
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
December 18, 2020
|
Edward A. Kuczmarski
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
December 18, 2020
|
David Levi
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
December 18, 2020
|
William H. Wright II
|
|
|
|
|
|
|
|
|
|
/s/ BRIAN F. HURLEY
|
|
Attorney-in-Fact
|
|
December 18, 2020
|
Brian F. Hurley
|
|
|
|
|
*
Pursuant to Powers of Attorney
EXHIBIT INDEX
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